File #33-14604
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 o
Pre-Effective Amendment No. o
Post-Effective Amendment No. 12 x
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 x
Amendment No. 14
(Check appropriate box or boxes.)
BERWYN INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1189 LANCASTER AVENUE, BERWYN, PENNSYLVANIA
19312
(Address of
Principal Executive Offices)
(Zip Code)
Registrant's Telephone Number, including Area Code
(610) 408-
9850
KEVIN M. RYAN, 1199 LANCASTER
AVENUE, BERWYN, PA 19312
(Name and Address of Agent for Service)
Approximate date of PROPOSED Public Offering
It is proposed that this filing will become effective
(check appropriate box):
x immediately upon filing pursuant to paragraph
(b)
o on (date) pursuant to paragraph (b)
o 60 days after filing pursuant to paragraph
(a)(1)
o on (date) pursuant to paragraph (a)(1)
o 75 days after filing pursuant to paragraph
(a)(2)
o on (date) pursuant to paragraph (a)(2) of rule
485.
If appropriate, check the following box:
o this post effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Declaration Pursuant to Rule 24f-2. The
Registrant has registered an indefinite
number
or amount of securities under the Securities
Act of 1933 pursuant to Rule 24(f)(2) under
the Investment Company Act of 1940. The
Rule 24f-2 Notice for the Registrant's most
recent fiscal year was be filed March 12,
1997.
CROSS REFERENCE SHEET
Statement of
Prospectus Additional Registration
Section Page # Information Page# Statement Page #
PART A
Item 1.
Item 2. 2 5
Item 3. 3a & 3b 6 & 6b
Item 4. 4 & 16 7 - 12 & 19
Item 5. 9 - 10 & 16 12 - 13 & 19
Item 5A 4 7
Item 6. 14 & 16 17 & 19
Item 7. 11 & 13 14 & 16
Item 8. 15 18
Item 9. N/A N/A
PART B
Item 10. Cover Page 21
Item 11. 1 22
Item 12. N/A N/A
Item 13. 2 23
Item 14. 6 27
Item 15. 8 29
Item 16. 5 & 12 26 & 33
Item 17. 8 29
Item 18. 12 33
Item 19. 10 & 11 31 & 32
Item 20. 13 34
Item 21. 10 31
Item 22. 11 32
Item 23. 13 34
PART C
Item 24. 37
Item 25. 38
Item 26. 38
Item 27. 38
Item 28. 38
Item 29. 39
Item 30. 39
Item 31. 40
Item 32. 40
_______________________________
*Information is provided in the Registrant's 1996
Annual Report to Shareholders filed with the Securities
and Exchange Commission on March 11, 1997.
BERWYN INCOME FUND, INC.
Shareholder Services
c/o Rodney Square Management Corp.
P.O. Box 8987
Wilmington, DE 19899
PROSPECTUS
March 27, 1997
Investment Objective
Berwyn Income Fund, Inc. (the "Fund") is a no-
load, diversified, open-end management investment
company. The Fund's investment objective is to provide
investors with current income while seeking to preserve
capital by taking what the Fund considers to be
reasonable risks. In pursuing its investment
objective, the Fund may also offer the potential for
capital appreciation.
The Fund intends to achieve its objective through
investment in fixed income corporate debt securities,
preferred stocks, securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities,
and common stocks paying cash dividends. The Fund's
investment adviser determines the percentage of each
category of securities to hold based upon the
prevailing economic and market conditions. All or a
majority of the assets of the Fund may be invested in
high yield, high risk corporate debt securities,
commonly referred to as "junk bonds". Investments of
this type are subject to a greater risk of loss of
principal and interest. Purchasers should carefully
assess the risks associated with an investment in this
Fund.
There can be no assurance that the investment
strategy of the Fund will be successful and its
objective may not be realized.
Investment Adviser
The Killen Group, Inc. (the "Adviser") is the
investment adviser to the Fund. Robert E. Killen is
CEO and sole shareholder of The Killen Group, Inc.
This Prospectus sets forth concisely the
information that an investor should know before
investing in the Fund. Investors are advised to retain
this Prospectus for future reference. The Fund has
filed a Statement of Additional Information ("SAI")
containing additional information about the Fund with
the Securities and Exchange Commission. The SAI is
dated March 27,1997 and is incorporated by reference
into this Prospectus. The SAI may be obtained, without
charge, by writing to the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TABLE OF CONTENTS
Fee and Expense
Table..................................................
.......................................................
... 2
Financial
Highlights.............................................
.......................................................
............ 3
Calculation of Performance
Data...................................................
......................................... 4
Investment Objective, Policies and Risk
Factors................................................
.................... 4
Management of the
Fund...................................................
..................................................... 9
Computation of Net Asset
Value..................................................
.......................................... 10
Share
Purchases..............................................
.......................................................
................. 10
Distributor............................................
.......................................................
............................ 12
Exchange of
Shares.................................................
.......................................................
......... 13
Dividends, Capital Gains Distributions and
Taxes..................................................
............... 13
Retirement
Plans..................................................
.......................................................
............ 14
Redemption of
Shares.................................................
.......................................................
..... 14
General
Information............................................
.......................................................
............. 16
Additional
Information............................................
.......................................................
......... 17
- -1
FEE and EXPENSE TABLE
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.50 %
Other Expenses 0.18 %
Total Fund Operating Expenses 0.68 %
_______________________________________________________
_______________________
The purpose of this Fee Table is to assist the
investor in understanding the various costs and
expenses that an investor in the Fund will bear
directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Management of
the Fund" in the Prospectus and "Investment Advisory
Arrangements" in the Statement of Additional
Information.
Example
1 Year 3 Years 5 Years 10 Years
You would pay the following 7 22 38 85
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period:
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRE-
SENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESSER THAN THOSE SHOWN.
- -2-
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following financial highlights information for a
share outstanding throughout each period, insofar as it
relates to each of the five years in the period ended
December 31, 1996, have been audited by Price
Waterhouse LLP, independent accountants, whose report
on the financial statements containing this information
was unqualified. This information should be read in
conjunction with the Fund's financial statements and
notes thereto, which are incorporated by reference in
the Fund's Statement of Additional Information and this
Prospectus, and which appear, along with the report of
Price Waterhouse LLP, in the Fund's 1996 Annual Report
to Shareholders (the "Annual Report"). Additional
Information about the Fund's investment performance is
contained in the Annual Report which can be obtained
from the Fund upon request without charge.
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
Net Asset Value, Beginning of Period $11.95 $10.75 $11.63 $11.12 $10.20
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income 0.76 0.73 0.73 0.69 0.70
Net Realized and Unrealized Gains
(Losses) on Securities 0.87 1.48 (0.85) 1.15 1.47
-------- -------- -------- -------- --------
Total from Investment Operations 1.63 2.21 (0.12) 1.84 2.17
-------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income (0.80) (0.70) (0.73) (0.65) (0.70)
Distributions from Net Realized Gains (0.47) (0.31) (0.03) (0.68) (0.55)
Return of Capital Distributions --- --- --- --- ---
-------- -------- -------- -------- --------
Total Distributions (1.27) (1.01) (0.76) (1.33) (1.25)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $12.31 $11.95 $10.75 $11.63 $11.12
Total Return 13.99% 21.00% (1.10%) 16.90% 21.70%
Ratios/Supplemental Data
Net Assets, End of Period (000) $137,166 $119,552 $55,825 $30,359 $12,486
Ratio of Expenses to Average Net Assets 0.68% 0.73% 0.93% 1.07% 1.34%
Ratio of Net Investment Income to Average 6.35% 6.78% 7.20% 6.15% 6.14%
Net Assets
Portfolio Turnover Rate 38% 39% 30% 83% 46%
Average Commissions Rate Paid $0.0860** --- --- --- ---
- -3a-
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
(Continued)
Year Year Year Year Year
Ended Ended Ended Ended Ended
12/31/91 12/31/90 12/31/89 19/31/88 12/31/87
Net Asset Value, Beginning of Period $9.14 $10.03 $9.75 $9.50 $9.88
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income 0.85 0.83 0.79 1.365(2) .04(1)(2)
Net Realized and Unrealized Gains
(Losses) on Securities 1.19 (0.85) 0.34 (0.300) (0.38)
-------- -------- -------- -------- --------
Total from Investment Operations 2.04 (0.02) 1.13 1.065 (0.34)
-------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income (0.85) (0.83) (0.79) (0.765) (0.04)
Distributions from Net Realized Gains ((0.05) (0.04) (0.06) (0.050) ---
Return of Capital Distributions (0.08) --- --- --- ---
-------- -------- -------- -------- --------
Total Distributions (0.98) (0.87) (0.85) (0.815) (0.04)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $10.20 $9.14 $10.03 $9.75 $9.50
Total Return 23.00% (0.13%) 11.90% 11.30%(2) (3.44%)(2)
Ratios/Supplemental Data
Net Assets, End of Period (000) $5,359 $3,955 $3,870 $2,644 $892
Ratio of Expenses to Average Net Assets 1.34% 1.46% 1.50% 1.75%(2) 7.50%*(2)
Ratio of Net Investment Income to 8.40% 8.59% 8.00% 8.29% 0.87%*
Average Net Assets
Portfolio Turnover Rate 14% 14% 3% 17% ---
Average Commissions Rate Paid --- --- --- --- ---
*Annualized
(1) Net investment income per share was calculated
based on average daily number of Fund shares
outstanding
during the period 9/03/87 (commencement of
operations) through 12/31/87.
(2) Investment Advisory fees of $.06 per share and $.02
per share were waived by The Killen Group, Inc. for the
year ended 12/31/88 and for the period 9/03/87 to
12/31/87, respectively. If the
waived fees had been included
in expenses, the total return of the Fund for those
two periods would have been lower and the Ratio of
Expenses to Average Net Assets would have been
2.08% for the year ended 12/31/88 and 7.50%
(annualized)
for the period 9/03/87 to 12/31/87.
** Computed by dividing the total amount of commission
paid by the total number of shares purchased and sold
during the year.
Commenced operations on 9/03/87.
- -3b
CALCULATION OF PERFORMANCE DATA
From time to time the Fund may advertise its
annual total return and its yield for a particular
month. The total return of the Fund reflects the
change in share price and reinvestment of dividends and
capital gains. The yield of the Fund for a particular
month is the net investment income per share for the
month stated as a percentage of the maximum share price
on the last day of the month. The Fund's total return,
and its yield are based on historical performance and
are not intended to indicate future performance. The
Fund calculates total return for a period by
determining the redeemable value of a $1,000 investment
made at the beginning of the period, with dividends and
capital gains reinvested on the reinvestment date, on
the last day of the period and dividing that value by
$1,000. The yield for a month is determined by
dividing the net investment income per share for the
month by the share price on the last day of the month.
There is further information regarding the Fund's
performance in its Annual Report. An investor may
obtain a copy of the annual report without charge by
writing to the shareholder services agent of the Fund
or by calling (800) 992-6757.
INVESTMENT OBJECTIVE, POLICIES, AND RISK FACTORS
The Fund is a no-load, diversified, open-end
management investment company. The Fund's investment
objective is to provide investors with current income
while seeking to preserve capital by taking what the
Fund considers to be reasonable risks. In pursuing its
investment objective, the Fund may also offer the
potential for capital appreciation. To achieve its
objective, the Fund will invest in fixed income
corporate debt securities, preferred stocks, securities
issued or guaranteed by the U. S. Government, its
agencies or instrumentalities, and common stocks paying
cash dividends. The fixed income corporate debt
securities in which the Fund will invest will be bonds,
debentures and corporate notes. Since there are risks
in all investments, there can be no assurance that the
Fund will be successful or achieve its objective.
Under normal market conditions, the Fund will
invest at least 80% of the value of its net assets in
income producing securities. The Fund may invest any
percentage of its net assets that the Adviser deems
appropriate in investment grade corporate debt
securities, securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, high
yield, high risk corporate debt securities and
preferred stocks. The Adviser will determine the
percentage of net assets to invest in each category of
securities and the percentage of each category to hold
based upon the prevailing economic and market
conditions. This means that the Fund has the option to
invest up to 100% of its net assets in high yield, high
risk corporate debt securities, commonly known as "junk
bonds". Investments in these securities may make an
investment in the Fund riskier than an investment in a
fund that invests all or a larger percentage of its net
assets in securities of higher quality. Investment in
common stocks will be limited to a maximum of 25% of
the value of the Fund's net assets. This means that
the Fund will not invest in additional common stocks
anytime common stocks comprise 25% or more (through
appreciation in value of the common stocks or
depreication in value of other securities) of the value
of its net assets. At such time, however, the Fund may
continue to invest in fixed income securities and
preferred stocks that have common stock conversion
privileges.
- -4-
The Adviser will select fixed income corporate
debt securities primarily on the basis of current yield
and secondarily on the basis of anticipated long term
return. When selecting fixed income corporate debt
securities, the Adviser will be aware of the rating the
security has received from a nationally recognized
statistical rating organization such as Standard &
Poor's Ratings ("S & P") and Moody's Investors Service,
Inc. ("Moody's"). These organizations rate the
creditworthiness of the issuers of debt securities and
assign a rating to the debt securities that are issued.
S & P has a system that rates securities from AAA,
highest, to D, lowest. Moody's ratings go from Aaa,
highest to C, lowest. (See Appendices A and B in the
Statement of Additional Information for definitions of
S & P and Moody's Bond Ratings.)
Investment grade securities are debt securities
rated BBB or higher by S & P and Baa or higher by
Moody's. Debt securities rated lower than BBB or Baa
are termed high yield, high risk securities or junk
bonds. The Fund invests in junk bonds that have a
rating of CC or better by S & P and Caa or better by
Moody's. The Fund will not invest in debt securities
that are in default in the payment of interest or
principal. The Fund may also invest in debt securities
that are not rated. Investment in unrated debt
securities will be limited to 10% of the value of the
Fund's net assets at the time of investment and the
securities must have a creditworthiness, in the opinion
of the Adviser, better than or equal to a rating of CC
by S & P or Caa by Moody's. If a debt security's
rating falls or the security becomes unrated after the
Fund purchases the security, the Fund will not be
required to sell the security.
At December 31, 1996, the Fund's portfolio was
invested in investment grade and high yield, high risk
corporate debt securities, preferred and common stocks
and repurchase agreements.
Listed below are the percentages of the portfolio
invested at December 31, 1996, in various bond ratings
published by Moody's and S & P, as well as the
percentages invested in unrated debt securities,
preferred and common stocks and repurchase agreements:
Moody's Ratings
A: 2%; BAA: 3%; BA: 9%; B: 32%; CAA: 2%;
Unrated: 11%.
S & P Ratings
A: 2%; BBB: 3%; BB: 9%; B: 25%; CCC: 5%;
Unrated: 15%.
Preferred and Common Stocks and Repurchase Agreements
Preferred stocks: 14%; Common Stocks: 22%;
Repurchase Agreements: 5%.
Risk Considerations for High Yield, High Risk
Securities
Debt securities rated A or higher by S & P and
Moody's are considered high grade securities and have
the three highest ratings for creditworthiness. Debt
Securities rated BBB by
- -5-
S & P or Baa by Moody's are defined as medium grade
securities. These securities are considered
creditworthy and of investment quality but there is a
possibility that the ability of the issuer of the
securities to pay interest or repay the principal in
the future may be impaired by adverse economic
conditions or changing circumstances. Debt securities
rated lower than BBB or Baa are less creditworthy than
investment grade securities with the same maturity and,
as a consequence, may pay higher income.
Debt securities rated BB, B, CCC or CC by S & P
or Ba, B or Caa by Moody's are regarded on balance as
predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the
terms of the debt securities.
Issuers of high yield, high risk debt securities
are generally smaller, less creditworthy companies or
highly leveraged companies which are generally less
able than more financially stable companies to make
scheduled payments of interest and principal. The
risks posed by debt securities issued under such
circumstances are substantial. For example, during an
economic downturn or a sustained period of rising
interest rates, highly leveraged companies or smaller,
less creditworthy companies may experience financial
stress. During these periods, such companies may not
have sufficient cash flow to meet their interest
payment obligations. A company's ability to service
its debt obligations may also be adversely affected by
specific corporate developments, the company's
inability to meet specific projected business
forecasts, or the unavailability of additional
financing. The risk of loss due to default by the
issuer may be significantly greater for the holders of
high yield, high risk debt securities because such
securities are unsecured and are often subordinated to
other creditors of the issuer. The default by an
issuer of securities held by the Fund will adversely
affect the Fund by lowering its net asset value and by
decreasing the amount of income available to the Fund
from which dividends may be paid. In addition to the
risk of default, holders of high yield, high risk debt
securities also face the risk of greater market
volatility than the holders of investment grade debt
securities. Changes in the general level of interest
rates normally affect the market value and yield of
corporate debt securities. As a general rule if the
level of interest rates were to decline, these
securities would increase in value and the yield would
decline. Conversely, if the level rose, debt
securities would decline in value and the yield would
increase. Fluctuations in the general level of
interest rates would therefore affect the value of the
Fund's investments and the value of an investment in
the Fund. However, the market value of high yield,
high risk debt securities may also be affected not only
by changing interest rates, but also by investors'
perception of credit quality and the outlook for
economic growth. When economic conditions appear to be
deteriorating, lower rated debt securities may decline
due to investors' heightened concern over credit
quality, regardless of prevailing interest rates.
Especially at such times, trading for high yield, high
risk securities may become thin and market liquidity
may be significantly reduced. Even under normal
conditions, the market for high yield, high risk debt
securities may be less liquid than the market for
investment grade debt securities. In periods of
reduced market liquidity, the prices of high yield,
high risk debt securities may become more volatile and
these securities may experience sudden and substantial
price declines. A decline in value of the securities
held by the Fund would adversely affect its net asset
value and the value of a shareholder's investment in
the Fund.
- -6-
The Adviser will attempt to minimize the risks of
investing in medium grade and high yield, high risk
debt securities by doing a credit analysis of the
issuer, diversifying the Fund's portfolio and
monitoring the Fund's investments and the investment
environment.
As previously stated, in selecting fixed income
debt securities, the Adviser is aware of the issuer's
credit rating in S & P and Moody's. But this credit
rating is not the only criterion for selection. The
Adviser examines the financial structure of each issuer
and with regard to high yield, high risk debt
securities makes a determination as to the issuer's
ability to meet its debt obligations. Achievement of
the Fund's investment objective is more dependent on
the Adviser's credit analysis in selecting high yield,
high debt risk securities than is the case in selecting
higher quality securities.
There can be no guarantee that the issuer of debt
securities in which the Fund has invested will not
default or that the securities will not decline in
value.
In addition to debt securities that are rated,
the Fund also invests in unrated debt securities.
These securities may or may not be more speculative
than investment grade securities. It is the issuer's
decision to seek to have a security rated. The risks
of investing in unrated debt securities depend upon the
creditworthiness of the issuer, changes in interest
rates and economic and market factors. Investors in
unrated debt securities face the same risks that
investors in investment grade and high yield, high risk
debt securities face. There is the possibility of
default by the issuer or a change in interest rates
that could adversely affect the value of the security.
The Adviser will determine the creditworthiness of an
unrated debt security and the issuer's ability to meet
the debt obligation. To be purchased by the Fund an
unrated debt security must have a creditworthiness, in
the Adviser's opinion, equal to or better than a CC
rating by S & P or a Caa rating by Moody's.
The investment objective of the Fund is to
provide investors' with current income while seeking to
preserve capital. The Fund seeks to achieve this
objective by investing in the corporate debt securities
of only those issuers that, in the opinion of the
Adviser, have sufficient net worth and operating cash
flow to repay principal and make timely interest
payments. The Fund will not invest in corporate debt
securities issued to finance a leveraged buyout. The
Fund will also diversify its portfolio and do a credit
analysis of the issuers in which it invests. The Fund
will invest in only those corporate debt securities
that are listed on national exchanges or on the over-
the-counter market and will not invest more than 10% of
the Fund's net assets in illiquid securities.
U.S. Government Securities
The securities of the U. S. Government in which
the Fund invests are U.S. Treasury bonds and notes and
securities issued or guaranteed by Federal agencies or
U. S. Government sponsored instrumentalities.
U. S. Treasury bonds and notes are backed by the
"full faith and credit" of the United States.
Securities issued or guaranteed by Federal agencies or
U. S. Government sponsored
- -7-
instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of
securities not backed by the full faith and credit of
the United States, the Fund must look principally to
the agency or instrumentality issuing or guaranteeing
the security for ultimate repayment, and may not be
able to assert a claim against the United States itself
in the event the agency or instrumentality does not
meet its commitment.
Some of the Federal agencies that issue or
guarantee securities include, among others, the Export-
Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration,
Maritime Administration, Small Business Administration
and the Tennessee Valley Authority.
An instrumentality of the U. S. Government is a
government agency organized under Federal charter with
government supervision. Instrumentalities issuing or
guaranteeing securities include, among others, the
Federal Home Loan Banks, the Federal Land Banks,
Central Bank for Cooperatives, Federal Intermediate
Credit Banks and the Federal National Mortgage
Association.
Preferred and Common Stocks
The Fund also invests in preferred stocks and may
invest in common stocks, subject to the 25% limit
described above, when the Adviser deems it appropriate.
Preferred stocks are selected from two categories: (1)
stocks offering an above average yield, in the opinion
of the Adviser, in comparison to preferred stocks of
the same quality; and (2) stocks offering a potential
for capital appreciation due to the business prospects
of the issuer.
Common stocks are selected from three categories:
(1) stocks selling substantially below their book
value; (2) stocks selling at low valuations to their
present earnings level; and (3) stocks judged by the
Adviser to have above average growth prospects and to
be selling at small premiums to their book value or at
modest valuations to their present earnings level.
Only common stocks that have been paying cash
dividends are purchased by the Fund. Preferred stocks
that have a cumulative feature do not have to be paying
current dividends in order to be purchased. If a
dividend on a stock is canceled, the Fund would not be
required to sell the stock.
The method of stock selection used by the Fund
may result in the Fund selecting stocks that are not
being recommended by other investment advisers or
brokerage firms and the Fund may invest in the
securities of lesser known companies. The Adviser
believes, however, that any risks involved in the
stocks selected for the Fund will be minimized by
diversification of the Fund's portfolio and daily
monitoring of the stock selection. In addition, the
Fund only invests in stocks listed on national
exchanges and on the over-the-counter market and the
Fund only purchases stocks in companies that have been
in business at least five years and have at least
$10,000,000 in assets.
The Fund will not invest more than 10% of its net
assets in illiquid securities whether fixed income or
equity securities.
- -8-
The investment objective of the Fund is a
fundamental policy that cannot be changed without the
approval of a majority of the outstanding voting
securities of the Fund. Investment policies other than
the fundamental policy stated above may be changed with
the approval of a majority of the Fund's Board of
Directors.
Although the Fund will normally invest as
outlined above, the Fund may at times, for temporary
defensive purposes, invest all or a portion of its
assets in savings accounts and certificates of deposit
of domestic banks with assets in excess of $1,000,000,
commercial paper rated A-1 by S & P Corporation,
repurchase agreements, treasury bills or the Fund may
hold cash.
The Fund will not invest more than 5% of its net
assets in repurchase agreements. Also, the Fund will
not invest more than 5% of its net assets in Real
Estate Investment Trusts.
The Fund does not intend to engage in short-term
trading. In 1996 the Fund had a portfolio turnover
rate of 38% and anticipates it will have a portfolio
turnover rate of less than 100% in 1997.
MANAGEMENT OF THE FUND
The Fund is a corporation formed under the laws
of the Commonwealth of Pennsylvania on December 26,
1986. The business of the Fund is managed under the
direction of the Board of Directors. The Board is
elected annually by the shareholders and sets broad
policies for the Fund. The daily operation of the Fund
is administered by employees of the Adviser under the
supervision of the Board.
The Killen Group, Inc. (the "Adviser") is the
investment adviser to the Fund. The Adviser is a
Pennsylvania corporation that was formed in September
1982. Its address is 1189 Lancaster Avenue, Berwyn,
Pennsylvania 19312. Robert E. Killen is Chairman, CEO
and sole shareholder of the Adviser. Mr. Killen is
also President and Chairman of the Board of the Fund.
Edward A. Killen is Vice-President and Secretary of the
Adviser. He is also a Director of the Fund and its
portfolio manager, responsible for the day-to-day
management of the Fund's portfolio. He has been
managing the Fund's portfolio since July 1, 1994.
Edward A. Killen II has over seventeen years'
experience in the investment advisory field. In 1978,
he started to work for Compu Val Management Associates,
an investment advisory firm, as a portfolio manager.
In February, 1983, the Adviser became a partner in
Compu Val Management Associates and Edward A. Killen II
assumed his current position as Vice President and
Secretary of the Adviser. The partnership of CompuVal
Management Associates was dissolved on December 31,
1983 and the Adviser continued its advisory business as
a separate entity. As of December 31, 1996, the
Adviser was managing 383 individual investment
portfolios worth approximately $484 million.
- -9-
The Adviser also manages The Berwyn Fund, Inc.
("The Berwyn Fund"). The Berwyn Fund is an open-end
management investment company that seeks long-term
capital appreciation by investing in common stock and
fixed income securities. The Adviser has been the
investment adviser to The Berwyn Fund, since it became
public in May 1984. On December 31, 1996, The Berwyn
Fund had net assets of over $94 million.
Under the contract between the Fund and the
Adviser, the Adviser provides the Fund with investment
management services. These services include advice and
recommendations with respect to investments, investment
policies, the purchase and sale of securities and the
management of the Fund's resources. In addition,
employees of the Adviser manage the daily operations of
the Fund under the supervision of the Board.
As compensation for its services, the Adviser
receives monthly compensation at the annual rate of
0.50% of the average daily net assets of the Fund.
During 1996, the Fund paid the Adviser $638,212 in
advisory fees. Total expenses for the Fund in 1996
were 0.68% of average daily net assets. Payments to
the Adviser were 0.50% of average daily net assets.
Subject to the policies established by the Fund's
Board of Directors, the Adviser is responsible for the
Fund's portfolio decisions. When buying and selling
securities, the Adviser gives consideration to brokers
who have assisted in the distribution of the Fund's
shares. The Fund may also pay brokerage commissions to
brokers who are affiliated with the Adviser or the
Fund.
COMPUTATION OF NET ASSET VALUE
The net asset value per share of the Fund is
determined by dividing the total value of the Fund's
investments and other assets, less any liabilities, by
the total number of outstanding shares of the Fund.
Net asset value per share is determined daily, Monday
through Friday, as of the close of regular trading on
the New York Stock Exchange (the "Exchange") (4 p.m.,
Eastern Time) and is effective as of the time of
computation. (The Exchange is closed on, and therefore
net asset value is not calculated on, New Year's Day,
President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and
Christmas Day, and on the preceding Friday or
subsequent Monday when any of these holidays falls on a
Saturday or Sunday, respectively.) For the purpose of
making this determination, securities listed on
national securities exchanges are valued at their last
sales price on the exchange where primarily traded. In
the event there are no sales, the security is valued at
the last current bid price. An unlisted security, for
which over-the-counter market quotations are readily
available, is valued on the basis of the last current
bid price. When over-the-counter market quotations are
not readily available, an unlisted security is valued
at its fair value as determined in good faith by, or
under the supervision of, the Board of Directors. All
other assets are valued at fair value as determined in
good faith by the Board of Directors.
- -10-
SHARE PURCHASES
The Fund's shares are offered for sale on a
continuous basis. There is no sales charge. The
offering price of shares of the Fund is the net asset
value per share next determined after receipt by the
Transfer Agent of the order for the purchase of shares.
The value of a shares can be expected to fluctuate
daily.
Orders for shares of the Fund received prior to
the close of the Exchange (normal closing time is 4:00
p.m., Eastern Time) on any day the Exchange is open
will be the net asset value effective at the close of
the Exchange on such a day. Orders received after the
close of the Exchange will be valued at the net asset
value computed on the next business day (i.e., the next
day the Exchange is open).
The minimum initial investment is $10,000 per
investor. This investment may be divided by a single
investor among different investment accounts in the
Fund that total $10,000 in the aggregate or between
accounts in the Fund and The Berwyn Fund. Subsequent
investments must be least $250 per account. For
Individual Retirement Accounts ("IRA"), the minimum
initial investment is $1,000. The minimum initial
investment for a spousal IRA is $250. Subsequent
investments in IRA accounts must be at least $250.
There are no minimum investment requirements for an
investment in any retirement plan (other than an IRA)
or custodial account for the benefit of a minor.
Initial investments must consist of a New Account
Application and payment of the initial investment.
Investments are deemed effective when they are received
at the office of the Fund's Transfer Agent, Rodney
Square Management Corp., P. O. Box 8987, Wilmington DE
19899.
The Fund has an Automatic Investment Plan under
which an investor may have money transferred from the
investor's checking account to the investor's account
in the Fund. If you wish to use this plan, please
contact the Fund for further information and an
application.
An investor may also exchange securities for
shares of the Fund. The securities offered, by the
investor, however, have to be acceptable to the Fund
and the Fund reserves the right to reject any security
that does not meet its criteria.
To be acceptable to the Fund, the securities
offered by the investor for both initial and subsequent
investments must have a fair market value, determined
as set forth below, of at least $20,000. (An investor
would be permitted to invest a combination of cash and
securities totaling $20,000.) The securities must meet
the investment standards and criteria listed in the
Fund's Prospectus and Statement of Additional
Information and, the securities will not be accepted if
the Fund would violate any of its investment
restrictions by having the securities in its portfolio.
(See "Investment Objective Policies and Risk Factors"
in the Prospectus, "Invesetment Policies and Risk
Factors" in the Statement of Additional Information
("SAI") and "Investment Restrictions" in the SAI.)
- -11-
The Adviser will determine the acceptability and
the fair market value of the securities. An investor
wishing to exchange securities for Fund shares should
write to the Adviser stating his intention to make an
exchange and giving the names and amounts of securities
being offered. Within three business days of receipt
of the letter, the Adviser will mail a notice to the
investor accepting or rejecting the securities being
offered.
If the securities are acceptable to the Fund, the
Adviser will also inform the investor in the
notification of the preliminary value the Adviser has
determined for each security being offered and the date
upon which the valuation was made. This amount may be
different from the value obtained on the valuation date
described below.
The investor will have fourteen calendar days
from receipt of the Adviser's notification to deliver
to the Fund certificates for securities offered
endorsed to The Berwyn Income Fund, Inc. (In the case
of an initial investment, a New Account Application
completed by the investor must accompany the
certificates.)
Upon receipt of the securities, the Fund will
determine the value of the securities on the valuation
date which will be the date on which the net asset
value shares of the Fund are next determined after
receipt of such securities.. The amount of the
investment will be the value of the securities as
determined by the Fund. The value of each security
offered by the investor will be determined on the
valuation date as of the close of trading of the
Exchange and the method of valuation will be the same
as the one used to value the Fund's portfolio
securities. If a security being exchanged pays
interest, the amount of interest due will be determined
on the valuation date and the Fund will issue shares
equal to the amount of accrued interest. (See
"Computation of Net Asset Value".) Dividends due on
any security will be paid to the person who is listed
as owner on the record date. For such an exchange, the
net asset value of the shares of the Fund and the date
upon which the investment is effective are determined
in the same manner as for cash transactions.
There may be Federal income tax consequences for
an investor exchanging securities for Fund shares, and
an investor should consult a qualified tax expert
before entering into any exchange.
In addition, to purchasing and redeeming shares
through the Fund, investors may make telephone
purchases and redemptions through broker-dealers who
may charge a fee.
DISTRIBUTOR
Berwyn Financial Services Corp. ("Berwyn
Financial"), located at 1199 Lancaster Avenue, Berwyn,
Pennsylvania 19312, serves as the non-exclusive
distributor of the Fund's shares pursuant to a selling
agreement between Berwyn Financial and the Fund. Under
the terms of the agreement, Berwyn Financial is a
selling agent for the Fund in certain jurisdictions in
order to facilitate the registration of shares of the
Fund under state securities laws and assist in the sale
of
- -12-
shares. Berwyn Financial does not charge a fee for the
services provided under the selling agreement with the
Fund. The Fund shall continue to bear the expenses of
all filing or notification fees incurred in connection
with the registration of shares under state securities
laws. Berwyn Financial is affiliated with the Fund and
the Adviser. Robert E. Killen who is an Officer and
Director of the Fund and the Adviser, is also a
Director of Berwyn Financial. Edward A. Killen is an
Officer and Director of the Adviser and Berwyn
Financial and he is a Director of the Fund. Kevin M.
Ryan is an Officer of the Fund and an Officer and
Director of Berwyn Financial.
EXCHANGE OF SHARES
Shares of the Fund may be exchanged for shares of
The Berwyn Fund, a no-load mutual fund that is managed
by the Adviser. Shares may also be exchanged for
shares in the Rodney Square Fund or the Rodney Square
Tax-Exempt Fund (each of such Funds, a "Rodney Square
Fund"). The Rodney Square Funds are money market funds
managed by Rodney Square Management Corporation and
distributed by Rodney Square Distributors, Inc.
Exchanges will be made on the basis of the net asset
value per share of the Funds involved next determined
after an exchange has been requested. The minimum
initial investment of The Berwyn Fund is $10,000
($1,000 for IRAs and no minimum initial investment for
pension plans or custodial accounts for minors.) The
minimum initial investment for each of the Rodney
Square Funds is $1,000. A shareholder may make an
exchange by telephone or written request. Telephone
requests for an exchange may be made by calling the
Fund's Transfer Agent at (800)992-6757 on any business
day between 9:00 a.m. and 4:00 p.m.
Subject to the foregoing minimum investment
amounts, any shareholder will be permitted to exchange
shares among the above mutual funds ("Eligible Funds").
When making a telephone exchange, the shareholder must
know the account number of the account from which
shares are exchanged and the social security or tax
identification number under which the account is
registered. Shares will be exchanged only into an
account that has same shareholder(s) of record and same
social security or tax identification number.
A shareholder in the Fund will be permitted to
exchange the shares in his or her account for shares in
one of the other Eligible Funds only four times in any
twelve-month period. A shareholder in a Rodney Square
Fund may exchange shares of the Rodney Square Fund for
shares of the Fund as often as the shareholder desires.
Before making an exchange, a shareholder should
obtain and review a current prospectus of the Eligible
Fund into which shares of the Fund will be exchanged.
Prospectuses for The Berwyn Fund or the Rodney Square
Funds may be obtained from the Fund by writing to the
Shareholder Services Agent of the Fund or calling (800)
992-6757.
The exchange privilege is available only to
investors residing in states where the Eligible Funds
have filed the notice for sale.
- -13-
The Fund, The Berwyn Fund and each of the Rodney
Square Funds reserve the right to amend or change the
exchange privilege upon 60 days' notice to
shareholders.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
It will be the policy of the Fund to distribute
substantially all of its net investment income and any
net realized capital gains. Dividends from net
investment income will be paid quarterly.
Distribution of net realized short term capital gains,
if any, may be made quarterly or annually based upon
the determination of the Board of Directors.
Distribution of net realized long term capital gains,
if any, will be made annually.
Reinvestment of dividends and/or capital gains
distributions will be made at the net asset value per
share next determined after the record date. At the
election of the shareholder, dividends or capital gains
distributions, or both, will be reinvested in the
shares of the Fund or distributed in cash. This
election by the shareholder is made at the time of the
initial purchase of shares indicating on the account
application whether distribution or reinvestment is
desired.
The election of the shareholder to receive or
reinvest dividends and/or capital gain distributions
may be changed at any time after the initial account
application is received. To change the initial
election, the shareholder must send the Fund a letter
by certified
mail, return-receipt requested, signed exactly as the
shareholder's signature appears on the transfer agent's
register, stating the change desired.
The Fund qualified as a regulated investment
company under Subchapter M of the Internal Revenue Code
of 1986, as amended, in the past year and intends to
continue to so qualify by complying with the provisions
of this Subchapter in the future.
Subchapter M provides that an investment company
which qualifies will be relieved from Federal income
tax on the income the company distributes. Generally,
shareholders of the investment company pay Federal
income tax on dividends and capital gains
distributions. Shareholders are responsible for the
tax whether the dividend or capital gains distribution
is received in cash or in additional shares of the
Fund. Shareholders who are not subject to income tax
will not be required to pay tax on the amount
distributed. The Fund will notify shareholders what
portion of the distribution is from net investment
income or capital gains.
A dividend shortly after a purchase of Fund
shares is taxable to the shareholder even though it
appears to be a return of capital.
Redemptions and exchanges of Fund shares are
treated as sales of Fund shares. Consequently,
redemptions and exchanges are generally subject to
capital gains tax.
In addition to Federal income tax, Fund
distributions and capital gains or loses from the sale,
redemption or exchange of Fund shares may also be
subject to state and local taxes.
- -14-
The Fund is required to withhold 31% of taxable
dividends, capital gains distributions, and redemption
proceedes paid to shareholders that do not provide
their correct taxpayer identification number, certify
that it is correct, and certify that they are not
subject to backup withholding.
RETIREMENT PLANS
The Fund sponsors IRAs. Individuals interested
in having an IRA with the Fund may obtain an IRA
information booklet and application forms by writing to
the Shareholder Services Agent of the Fund or calling
(800) 992-6757.
The Fund also sponsors a Prototype Defined
Contribution Plan under which self-employed
individuals, partnerships and their employees and
corporations may establish profit-sharing and money
purchase retirement plans. Additional details
concerning these retirement plans are available from
the Fund.
REDEMPTION OF SHARES
The Fund will redeem any portion of or all shares
in an account upon receipt of a written request from
the shareholder by the Transfer Agent. The Fund will
also redeem shares worth up to $5,000 in value in an
account upon a telephone request from a "qualified"
shareholder. (To qualify for telephone redemption, a
shareholder must check the box on the new account
application.) The redemption price will be the net
asset value per share next determined after receipt of
a notice of redemption. Shareholders liquidating their
holdings will receive upon redemption all dividends
reinvested through the date of redemption.
A shareholder who wishes to submit a written
redemption request should mail it to Berwyn Income
Fund, c/o Rodney Square Management Corp., P.O. Box
8987, Wilmington, DE 19899. The letter should list the
shareholder's account number and the amount of money or
number of shares being redeemed. The letter should be
signed by the person(s) in whose name(s) the shares are
registered.
A shareholder who qualifies for telephone
redemption may redeem up to $5,000 from an account by
telephoning the Transfer Agent at (800) 992-6757 on any
business day between the hours of 9:00 a.m. and 4:00
p.m.
A shareholder requesting a redemption by
telephone must give the account number for the account
and the social security number or tax identification
number under which the account is registered. Checks
will be issued only in the name(s) listed on the
account and will be mailed only to the address listed.
Neither the Fund nor the Transfer Agent is
responsible for any shareholder loss incurred in acting
upon written or telephone instructions for redemption
or exchange of shares which are
reasonably believed to be genuine. With respect to
such telephone transactions, the Fund will
- -15-
ensure that reasonable procedures are used to confirm
that instructions communicated by telephone are genuine
(including verification of a form of personal
identification). Instructions received by telephone
are generally tape recorded, and a written confirmation
will be provided for all purchase, exchange and
redemption transactions initiated by telephone.
Payment will be mailed generally within seven
days of receipt of a notice of redemption.
The Fund also has a Systematic Withdrawal Plan
("SWP") under which an investor may have money
automatically withdrawn from his or her account on a
regular basis. Investors who wish to establish a SWP
should complete the section on systematic withdrawals
on the account application.
The Fund reserves the right to redeem the Fund
shares of, and send the redemption proceeds to, any
shareholder whose total shares in [an][all] account[s]
fall below $1,000 in net asset value by reason of
redemption. Upon receiving written notice from the
Fund, a shareholder must increase the shareholder's
account net asset value to $1,000 or above within 60
days to prevent liquidation.
When permitted by the Securities and Exchange
Commission (the "SEC"), the Fund may suspend the right
of redemption and may postpone payment for more than
seven days during any period when the Exchange is
closed, other than customary weekend and holiday
closing; when trading on the Exchange is restricted, as
determined by the SEC, during any period when an
emergency, as defined by rules of the SEC, exists
making disposal of portfolio securities or valuation of
net assets by the Fund not reasonably practicable; or
when the SEC may permit for the protection of
shareholders of the Fund.
GENERAL INFORMATION
Capital Structure
The Fund has authorized capital of 20,000,000
shares of common stock of $1 par value per share. Each
share has equal dividend, distribution and liquidation
rights. There are no conversion or preemptive rights
applicable to any shares of the Fund. All shares
issued are fully paid and nonassessable.
Fund shares do not have cumulative voting rights,
which means that the holders of more than 50% of the
shares voting for election of Directors may elect 100%
of the Directors if they choose to do so and, in such
event, the holders of the remaining shares so voting
will not be able to elect any Directors.
Transfer Agent and Dividend Paying Agent
Rodney Square Management Corp., P. O. Box 8987,
Wilmington, Delaware 19899 is the Transfer Agent and
Dividend Paying Agent.
- -16-
Shareholder Inquiries
Shareholder inquiries may be made by writing to
the Transfer Agent or calling the Transfer Agent at
(800) 992-6757 between the hours of 9:00 a.m. and 4:00
p.m.
Share Certificates
Share certificates will be issued only upon
written request.
Reports
The Fund will issue annual and semi-annual
reports to shareholders and may issue quarterly
reports. In these reports management of the Fund will
discuss the Fund's performance and compare the Fund's
performance with the performance of certain bond
indices and an index of income funds. The annual
report will contain audited financial statements and
the semi-annual report will have unaudited financial
statements.
ADDITIONAL INFORMATION
This Prospectus omits certain information
contained in the registration statement filed with the
SEC. The registration statement consists of three
parts: the Prospectus, a SAI and a third section
containing exhibits and other information. A copy of
the SAI is available from the Fund upon request free of
charge. The third part of the registration statement
may be obtained from the SEC upon paying the charges
prescribed.
No person has been authorized to give any
information or to make any representations other than
those contained in this Prospectus and the SAI, and
information or representations not herein contained, if
given or made, must not be relied upon as having been
authorized by the Fund. This Prospectus does not
constitute an offer or solicitation in any jurisdiction
in which such offering may not lawfully be made.
- -17-
PART B
BERWYN INCOME FUND, INC.
Shareholder Services
c/o Rodney Square Management Corp.
P.O. Box 8987
Wilmington, DE 19899
STATEMENT OF ADDITIONAL INFORMATION
March 27, 1997
This Statement of Additional Information
("SAI")is not a Prospectus. It is a document that
relates to the Prospectus of the Berwyn Income Fund,
Inc. (the "Fund") dated March 27, 1997 and contains
additional information regarding the Fund. This SAI
should be read in conjunction with the Prospectus. A
Prospectus may be obtained by writing to the Fund at
the above address.
TABLE OF CONTENTS
Investment Policies and Risk
Factors................................................
.................................... 2
Investment
Restrictions...........................................
.......................................................
........ 3
Investment Advisory
Arrangements...........................................
........................................... 5
Expense
Limitation.............................................
.......................................................
............ 6
Directors and
Officers...............................................
.......................................................
...... 6
Ownership of the
Fund...................................................
.......................................................
. 8
Portfolio Transactions and Brokerage
Commissions............................................
................. 8
Computation of Net Asset
Value..................................................
......................................... 9
Share
Purchases..............................................
.......................................................
................ 10
Distributor............................................
.......................................................
........................... 10
Redemption of
Shares.................................................
.......................................................
.... 10
Calculation of Performance
Data...................................................
........................................ 11
General
Information............................................
.......................................................
............ 12
Financial
Statements.............................................
.......................................................
.......... 13
- -1
INVESTMENT POLICIES AND RISK FACTORS
(See also "Investment Objective, Policies and Risk
Factors" in the Fund's Prospectus.)
The Fund is a no-load, diversified, open-end
management investment company. Its investment
objective is to provide investors with current income
while seeking to preserve capital by taking what the
Fund considers to be reasonable risks. In pursuing its
investment objective, the Fund may also offer the
potential for capital appreciation. To achieve its
objective, the Fund invests in investment grade
corporate debt securities, securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, high yield, high risk corporate debt
securities (also known as "junk bonds") and preferred
and common stocks. The Adviser determines the
percentage of each category of securities to purchase
and hold based upon the prevailing economic and market
conditions. This means, that the Fund may invest up to
100% of its net assets in high yield, high risk
corporate debt securities.
Investment grade corporate debt securities are
considered to be securities rated BBB or higher in the
S & P Bond Rating Guide or Baa or better by Moody's
Investors Service and high yield securities are
considered to be securities rated lower than BBB or Baa
by these services. Appendices A and B list the
definitions of the Standard Poor's and Moody's bond
ratings.
The Fund may also invest in fixed income
securities that are not rated. The Fund will not
invest more than 10% of the value of its total net
assets in unrated securities. Also the Fund will only
invest in unrated securities that have a
creditworthiness, in the opinion of the Adviser, that
is equal to or better than the creditworthiness of
fixed income securities with S & P ratings of CC or
better or a Moody's rating of Caa.
In addition to corporate debt securities the Fund
may invest in the securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities
and in preferred and common stocks. The securities of
the U.S. Government that the Fund Invests in are U.S.
Treasury bonds and notes. The Fund may also purchase
debt securities issued by Government agencies, such as,
Export-Import Bank, or by an instrumentality of the
Government, such as the Federal National Mortgage
Association. Treasury bonds and notes are backed by
the full faith and credit of the U.S. Government.
Securities issued by agencies and instrumentalities may
or may not be backed by the full faith and credit of
the United States. In the case of securities not
backed by full faith and credit of the United States,
an investor must look principally to the agency or
instrumentality for repayment.
The Fund invests in preferred stocks that, in the
opinion of the Adviser, are offering an above average
yield in comparison to preferred stocks of the same
quality or in preferred stocks offering a potential for
capital appreciation.
The Fund invests in common stocks that it
considers to be selling at undervalued prices. The
investment approach of the Fund may be deemed
"contrarian" in its selection of common
- -2-
stocks due to the fact that this approach may lead the
Fund to select stocks not recommended by other
investment advisers or brokerage firms.
The Fund, however, will only purchase common
stocks that pay cash dividend and will not purchase
common stocks when common stocks comprise 25% of the
Fund's net assets.
Aside from the investments listed above, the Fund
may at times, for temporary defensive purposes, invest
all or a portion of its assets in savings accounts and
certificates of deposit of domestic banks with assets
in excess of $1,000,000, commercial paper rates A-1,
repurchased agreements, Treasury bills, and the Fund
may hold cash.
The Fund may invest in real estate investment
trusts ("REITs") and repurchase agreements. The Fund,
however, limits investment in REITs to 5% of its net
assets and investment in repurchase agreements to 5% of
its net assets.
REITs are companies that invest their capital in
real estate, long and short term mortgages and
construction loans. These companies normally do not
pay Federal Income Tax but distribute their income to
their shareholders who become liable for the tax. The
Fund invests in REITs that generate income and have a
potential for capital appreciation. There are risks in
investing in REITs. The property owned by a REIT could
decrease in value and the mortgages and loans held by a
REIT could become worthless. The Adviser, however,
monitors the investment environment and the Fund's
investments as a means of lessening risks. As of
December 31, 1996, 2.35% of the Fund's net assets were
invested in REITs.
Repurchase agreements are defined as agreements
wherein a seller of securities agrees with the Fund at
the time of sale to repurchase the security from the
Fund at a mutually agreed upon time and price. The
Fund intends to enter into repurchase agreements only
with established banking institutions that deal in
Treasury bills and notes. The Fund intends to invest
mostly in overnight repurchase agreements. In the
event of bankruptcy of the seller of a repurchase
agreement or the failure of the seller to repurchase
the underlying security as agreed upon, the Fund could
experience losses that include a possible decline in
the value of the underlying security during the period
the Fund seeks to enforce its rights thereto and a
possible loss of all or part of the income. The Fund
would also incur additional expenses enforcing its
rights. As of December 31, 1996, 4.85% of the Fund's
net assets were invested in repurchase agreements.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below may
not be changed without approval by vote of a majority
of the Fund's outstanding voting securities. As used
in this SAI and in the Prospectus, "a majority of the
Fund's outstanding voting securities" means the lesser
of (a) more than 50% of the Fund's outstanding shares,
or (b) at least 67% of the shares present or
represented at a meeting of shareholders provided that
the holders of more than 50% of the Fund's outstanding
shares are present in person or represented by proxy.
- -3-
When investing its assets, the Fund will not:
(1) invest more than 5% of the value of its total
assets in the securities of any one issuer or
purchase more than 10% of the outstanding voting
securities, debt or preferred stock of any one
issuer. This restriction does not apply to
obligations issued or guaranteed by the U. S.
Government, its agencies or instrumentalities;
(2) invest more than 25% of the value of its
total assets in the securities of issuers in any
one industry;
(3) lend money, provided that for purposes of
this restriction, the acquisition of publicly
distributed corporate bonds, and investment in
U.S. government obligations, short-term
commercial paper, certificates of deposit and
repurchase agreements shall not be deemed to be
the making of a loan;
(4) buy or sell real estate and real estate
mortgage loans, commodities, commodity futures
contracts, puts and calls and straddles;
(5) underwrite securities of other issuers,
except as the Fund may be deemed to be an
underwriter under the Securities Act of 1933, as
amended, in connection with the purchase and sale
of portfolio securities in accordance with its
objectives and policies;
(6) make short sales or purchase securities on
margin;
(7) borrow money, except that the Fund may borrow
up to 5% of the value of its total assets at the
time of such borrowing from banks for temporary
or emergency purposes. (The proceeds of such
loans will not be used for investment or to
purchase securities, but will be used to pay
expenses.);
(8) invest for the purposes of exercising control
or management;
(9) invest in restricted securities (securities
that must be registered under the Securities Act
of 1933, as amended, before they may be offered
and sold to the public);
(10) participate in a joint investment account;
and
(11) issue senior securities.
The Fund has also adopted certain investment
restrictions that are not fundamental. These
restrictions are that the Fund will not invest in real
estate limited partnerships, in oil, gas or other
mineral leases and any investments in warrants will not
exceed 5% of the Fund's net assets. Restrictions that
are not fundamental may be changed by a vote of the
majority of the Board of Directors. But if any of
these non-fundamental restrictions are changed, the
Fund will give shareholders at least 60 days' written
notice.
- -4-
INVESTMENT ADVISORY ARRANGEMENTS
(See also "Management of the Fund" in Fund's
Prospectus)
The Killen Group, Inc., is the investment adviser
(the "Adviser") to the Fund. Robert E. Killen is
Chairman, CEO and sole shareholder of the Adviser. He
is also President and Chairman of the Board of the
Fund. Edward A. Killen is Vice President, Secretary
and a Director of the Adviser and a Director of the
Fund.
The Adivser provides the Fund with investment
management services. Under the contract between the
Fund and the Adviser (the "Contract"), the Adviser
provides the Fund with advice and recommendations with
respect to investments, investment policies, the
purchase and sale of securities and the management of
the Fund's resources. In addition, employees of the
Adviser administer the operation of the Fund. These
employees prepare and maintain the accounts, books and
records of the Fund, calculate the daily net asset
value per share, prepare and file all the documents
required of the Fund under Federal and state laws and
prepare all shareholder reports.
The Contract provides that it will continue in
effect from year to year if continuation is
specifically approved annually by a vote of a majority
of the outstanding voting securities of the Fund.
Continuance of the Contract must also be approved
annually by the Board of Directors, including a
majority of Directors who are not parties to the
Contract or interested persons of any such party cast
in person at a meeting called for the purpose of voting
on such approval. The Fund may terminate the Contract
on sixty days' written notice to the Adviser, without
payment of any penalty, provided such termination is
authorized by the Board of Directors or by a majority
of the outstanding voting securities. The Adviser may
terminate the contract by notifying the Fund in writing
at least sixty days before the date of the annual
shareholder meeting that continuation of the contract
is not desired. The contract will be automatically and
immediately terminated in the event of its assignment
by the Adviser.
As compensation for its investment management
services to the Fund, the Adviser will receive monthly
compensation at the annual rate of 1/2 of 1% of the
average daily net assets. The fee is computed daily by
multiplying the net assets for a day by the appropriate
percentage and dividing the result by 365. At the end
of the month, the daily fees are added and the amount
paid to the Adviser.
The Fund paid the Adviser $638,212 in fees in
1996, $477,283 in 1995, and $218,720 in 1994.
- -5-
EXPENSE LIMITATION
The Contract between the Fund and the Adviser
provides that the Adviser's fee will be reduced in any
fiscal year by any amount necessary to prevent Fund
expenses and liabilities (excluding taxes, interest,
brokerage commissions and extraordinary expenses,
determined by the Fund or the Adviser, but inclusive of
the Adviser's fee) from exceeding 2% of the average
daily net assets of the Fund. In any month that the
Fund expenses and liabilities exceed 2%, the Adviser's
fee will be reduced so that expenses and liabilities
will be 2%. Although the Fund expects to maintain
expenses within 2% of its average daily net assets, the
Adviser will not be responsible for additional expenses
exceeding its advisory fee. Once the net assets of the
Fund exceed $100 million, the expense limitation will
be reduced to 1.5%.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund
and their ages and principal occupations for the past
five years are set forth below:
Name, Age, Position Principal Occupation for
the Past Five Years
and Address
*Robert E. Killen (55) Director of Westmoreland
Coal Co. (a mining company) since President & Director
July 1996. Director and Shareholder, Berwyn
Financial Services 1199 Lancaster Avenue Corp.,
a financial services company (registered as
a broker-dealer Berwyn, Pennsylvania
with the Securities and Exchange Commission ("SEC") since
12/93 and a member of
the National Association of Securities
Dealers, Inc. (the
"NASD") since 7/94), since October 1991.
President and Director
of The Berwyn Fund, Inc. (a registered
investment company
managed by the Adviser) since February
1983. Chairman, CEO and
Sole Shareholder of the Adivser (an
investment advisory
firm) since April 1996. President, Treasurer,
Director and Sole
Shareholder of the Adviser from September
1982 to March 1996.
*Anthony N. Carrelli (47) Director of The Berwyn
Fund, Inc. since January 1995. Vice
Director President of the Adviser
since August 1986.
1189 Lancaster Avenue
Berwyn, Pennsylvania
*Edward A. Killen, II (47) Director, Secretary and
Shareholder of Berwyn Financial Services
Director since October 1991.
Director of the Fund since January, 1995.
1189 Lancaster Avenue Director of The Berwyn
Fund, Inc. from February 1983 to January
Berwyn, Pennsylvania 1995. Vice president,
Secretary and Director of the Adviser since
February 1983.
- -6-
Denis P. Conlon (48) Director of The Berwyn
Fund, Inc., since June 1992 President and
Director CEO of CRC Industries (a
worldwide manufacturer) since
Berwyn, Pennsylvania September 1996. Vice
President, Corporate Development,
Berwind Corporation
(diversified manufacturing and financialcompany)
from 1990 to September 1996.
William H. Vonier (68) Director of The Berwyn
Fund, Inc. since June 1992. Independent
Director Consultant in Sales and
Marketing since 1989.
348 Valley View Lane
Chester Springs, Pennsylvania
*Kevin M. Ryan (49) President, Treasurer,
Director and Shareholder of Berwyn
Secretary-Treasurer Financial Services Corp.
since October 1991. Director of the
1199 Lancaster Avenue Fund from December 1986
to January 1995. Secretary, Treasurer
Berwyn, Pennsylvania and Director of The
Berwyn Fund, Inc., since February 1983.
Legal Counsel to the
Adviser since September 1985.
* Robert E. Killen, Anthony N. Carrelli, Edward A.
Killen II and Kevin M. Ryan are "interested persons" of
the Fund as defined in the Investment Company Act of
1940, as amended (the "act") and Robert E. Killen,
Anthony N. Carrelli, and Edward A. Killen II are the
"Interested Directors" of the Fund. Robert E. Killen
is an Officer, Director and Sole Shareholder of the
Adviser. He is also a Director of Berwyn Financial
Services Corp., a registered broker-dealer, and owns
1/3 of its outstanding shares. Anthony N. Carrelli is
a Vice President of the Adviser. Edward A. Killen II
is an Officer and Director of the Adviser. He is also
an Officer, Director and the Owner of 1/3 of the
outstanding shares of Berwyn Financial Services Corp.
Kevin M. Ryan is legal counsel to the Adviser and he is
an Officer, Director and Owner of 1/3 of the
outstanding shares of Berwyn Financial Services Corp.
In addition, Robert E. Killen and Edward A. Killen II
are brothers and Kevin M. Ryan is brother-in-law to
both. Berwyn Financial Services Corp. serves as the
distributor for the Fund's shares in certain
jurisdictions.
Messrs. Conlon and Vonier are the Directors of the Fund
who are not "interested persons" of the Fund as defined
in the 1940 Act (the "Independent Directors") and are
paid a fee of $400 for each Board or Committee meeting
attended and are reimbursed for any travel expenses by
the Fund. If a Board and Committee meeting are held on
the same date, the Independent Directors receive only
one fee. Messrs. Conlon and Vonier also serve as
Independent Directors of The Berwyn Fund, Inc. (another
registered investment company managed by the Adviser).
The Fund has not adopted a pension or retirement plan
or any other plan that would afford benefits to its
Directors. The Fund paid each Independent Director a
fee of $1600 in 1996.
Officers of the Fund are not paid compensation by the
Fund for their work as officers and no fees are paid to
the Interested Directors for the performance of their
duties. (See "Management of the Fund" in the
Prospectus for a discussion of management
responsibilities of the Board and Officers.)
- -7-
OWNERSHIP OF THE FUND
As of February 28, 1997 there were 11,134,197
shares of the Fund outstanding. Charles Schwab & Co.
(Schwab"), 101 Montgomery Street, San Francisco, CA was
the record owner of 43% of the outstanding shares.
Although Schwab is the record owner of more than 25% of
the outstanding shares of the Fund, Schwab cannot be
considered to control the Fund. Schwab holds the
shares in nominee name for its customers and does not
have the power to vote the shares or to sell them.
National Financial Services Corp., One World Trade
Center, 200 Liberty Street, New York, NY was the record
owner of 9% of the Fund's outstanding shares. National
Financial Services Corp. holds the shares for its
customers and does not have the power to vote the
shares or to sell them. The records of the Fund do not
indicate that any individual owns more than 5% of the
Fund's outstanding shares. As of February 28, 1997,
the Directors and Officers of the Fund, as a group,
owned beneficially and of record less than1.0% of the
Fund's outstanding shares.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Subject to policy established by the Fund's Board
of Directors, the Adviser is responsible for the Fund's
portfolio decisions and the buying and selling of the
Fund's portfolio transactions. In executing such
securities, the Adviser will seek to obtain the best
net results for the Fund, taking into account such
factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty
of execution and operational facilities and
capabilities of the firm involved. While the Adviser
generally seeks reasonably competitive commission
rates, the Adviser is authorized to pay a broker a
brokerage commission in excess of that which another
broker might have charged for effecting the same
transaction, in recognition of the value of brokerage
and research services provided by the broker.
The Adviser may select brokers who, in addition
to meeting the primary requirements of execution and
price, have furnished statistical or other factual
information and services which, in the opinion of the
Board, are reasonable and necessary to the Fund's
normal operations. The services provided by these
brokerage firms may also be used in dealing with the
portfolio transactions of the Adviser's other clients,
and not all such services may be used by the Adviser in
connection with the Fund. Those services may include
economic studies, industry studies, security analysis
or reports, sales literature and statistical services
furnished either directly to the Fund or to the
Adviser. Consideration will be given to brokers who
have assisted in the distribution of shares of the
Fund. No effort is made in any given circumstance to
determine the value of these materials or services or
the amount they might have reduced expenses of the
Adviser.
The Board has adopted procedures under 17e-1 of
the 1940 Act that permit portfolio transactions to be
executed through affiliated brokers. In 1994, 1995,
and 1996 the Fund used an affiliated broker, Berwyn
Financial Services Corp. ("BFS").
- -8-
BFS is affiliated with the Fund by reason of the
fact that Officers and Directors of the Fund and the
Adviser are Officers, Directors and Shareholders of
BFS. In addition, BFS serves as the distributor for
the Fund's shares in various jurisdictions pursuant to
a written agreement.
In 1996, the Fund paid a total of $126,520 in
commissions to BFS. This figure represents 88% of the
total commissions paid by the Fund. The percentage of
the Fund's aggregate dollar amount of transactions
involving the payment of commissions effected through
BFS was 90%. In 1995, the Fund paid a total of
$199,302 in commissions to BFS. This figure represents
87% of the total commissions paid by the Fund. The
percentage of the Fund's aggregate dollar amount of
transactions involving the payment of commissions
effected through BFS was 92%.
In 1994, the Fund used two affiliated brokers.
During the first eight months of 1994, the affiliated
broker used by the Fund was Securities America, Inc.
("America"). America was affiliated with the Fund and
the Adviser by reason of the fact that David C. Dameron
and Kevin M. Ryan, persons affiliated with the Fund and
the Adviser, were registered representatives with SAI
and had portfolio transactions executed for the Fund
through America. During the last four months of 1994,
BFS was the affiliated broker used by the Fund.
In 1994, the Fund paid a total of $41,954 in
Commissions to America and $51,261 to BFS. The
percentage of the Fund's total brokerage commissions
paid to America and BFS was 31% and 38%, respectively.
Total commissions paid to such affiliated brokers was
$93,215. This figure represents 69% of the total
commissions paid by the Fund during the fiscal year
ended December 31, 1994. The percentage of the Fund's
aggregate dollar amount of transactions involving the
payment of commissions effected through America was 37%
and through BFS was 36%.
The Fund paid brokerage commissions of $144,128
in 1996, $229,668 in 1995, and $133,581 in 1994. The
Fund was closed to new investors in 1996 and as a
result, the proceeds from the sale of Fund shares was
less in 1995 than in 1996 and there was less trading.
The Board of Directors decided to open the Fund to new
investors on January 21, 1997.
The Adviser has other advisory clients which
include individuals, trusts, pension and profit sharing
funds, and an investment company, some of which have
similar investment objectives to the Fund.
As such, there will be times when the Adviser may
recommend purchases and/or sales of the same portfolio
securities for the Fund and its other clients. In such
circumstances, it will be the policy of the Adviser to
allocate purchases and sales as well as expenses
incurred in the transactions among the Fund and its
other clients in a manner which the Adviser deems
- -9-
equitable, taking into consideration such factors as
size of account, concentration of holdings, investment
objectives, tax status, cash availability, purchase
cost, holding period and other pertinent factors
relative to each account. Simultaneous transactions
could adversely affect the ability of the Fund to
obtain or dispose of the full amount of a security
which it seeks to purchase or sell or the price at
which such security can be purchased or sold.
COMPUTATION OF NET ASSET VALUE
(See also "Computation of Net Asset Value" in the
Fund's Prospectus)
The net asset value per share of the Fund is
determined by dividing the total value of the Fund's
investments and other assets, less any liabilities, by
the total number of outstanding shares of the Fund.
Net asset value per share is determined as of the close
of regular trading on the New York Stock Exchange (the
"Exchange") (ordinarily 4:00 p.m. Eastern Time) on each
day that the Exchange is open and is effective as of
the time of computation.
SHARE PURCHASES
The Fund's shares are offered for sale on a
continuous basis. There is no sales load. The
offering price of shares of the Fund is the net asset
value per share next determined after receipt by the
Transfer Agent of the order for purchase of shares.
The minimum initial investment is $10,000 per
investor. This investment may be divided by a single
investor among different investment accounts in the
Fund that total $10,000 in the aggregate or between
accounts in the Fund and The Berwyn Fund, Inc.
Subsequent investments must be at least $250 per
account. The minimum initial investment for Individual
Retirement Accounts ("IRAs") is $1,000. The minimum is
$250 for a spousal IRA. Subsequent investments in IRAs
must be at least $250. There are no minimum
requirements for pension and profit sharing plans or
custodial accounts for minors.
The Fund reserves the right to reduce or waive
the minimum purchase requirements in certain cases
where subsequent and continuing purchases are
contemplated.
DISTRIBUTOR
BFS Corp., a broker-dealer registered with the
Securities and Exchange Commission, is the current
distributor of the Fund's shares, pursuant to a selling
agreement which became effective July 25, 1994 (the
"Selling Agreement"). Under the Selling Agreement, BFS
is the non-exclusive agent in certain jurisdictions for
the Fund's continuous offering of shares. Shares of
the Fund are offered to the public at net asset value,
without the imposition of a sales load. The
jurisdictions in which BFS is the distributor are
Arizona, Arkansas, Florida, Maryland, North Dakota,
Nebraska, Texas, Vermont and West Virginia.
- -10-
The Selling Agreement provides that it will
continue in effect form year to year only so long as
such continuance is approved at least annually by the
Fund's Board of Directors and by the vote of a majority
of the Directors who are not parties to the agreement
or interested persons of any such party by vote cast in
person at a meeting called for the purpose of voting on
such approval. The Selling Agreement will terminate
automatically in the event of its assignment.
REDEMPTION OF SHARES
(See also "Redemption of Shares" in the Fund's
Prospectus)
The Fund has elected to be governed by Rule 18f-1
under the 1940 Act, under which the Fund is obligated
to redeem the shares of any shareholder solely in cash
up to the lesser of 1% of the net asset value of the
Fund or $250,000 during any 90-day period. Should any
shareholder's redemptions exceed this limitation, the
Fund can, at its sole option, redeem the excess in cash
or in portfolio securities selected solely by the Fund
(and valued as in computing net asset value). In these
circumstances, an investor that receives and sells such
portfolio securities would probably incur a brokerage
charge and there can be no assurance that the price
realized by an investor upon the sale of such portfolio
securities will not be less than the value used in
computing net asset value for the purpose of such
redemptions.
CALCULATION OF PERFORMANCE DATA
Yield
The Fund's yield for the month ended December 31,
1996 was 6.95%.
The yield was determined based upon the net
investment income per share for the period December 1
to December 31, 1996. Expenses accrued for the period
were subtracted from the interest and dividends accrued
and the remainder was divided by daily average number
of shares multiplied by maximum offering price per
share. The number then obtained was annualized.
Total Return
The average annual total return of the Fund for
one year, five years and the life of the Fund ended
December 31, 1996 are listed below:
One Year: 14.0%
Five Years: 14.2%
Life of the Fund: 12.0%
The period of time for one year's performance is
from January 1, 1996 to December 31, 1996. The dates
for the five year period are January 1, 1992 to
December 31, 1996 and the life of the Fund covers the
period from September 3, 1987 to December 31, 1996. To
obtain the performance listed above, the Fund computed
its average total return for each period of time.
- -11-
The Fund made this calculation by first determining the
total return for a period and then using an exponential
function based upon the number of years involved to
obtain an average.
The total return for a period is calculated by
determining the redeemable value of $1,000 initial
investment made at the beginning of the period, with
dividends and capital gains reinvested on the
reinvestment date, on the last day of the period and
dividing that value by $1,000. The average annual
total return for the period is calculated by taking the
total return for the period and determining the annual
average by using an exponential function based upon the
number of years and any fraction thereof in the period.
In addition to an average annual total return,
the Fund calculates its total return on a calendar year
basis. Listed below are the Fund's total returns for
the calendar years 1988, 1989, 1990, 1991, 1992, 1993,
1994, 1995 and 1996:
January 1, 1988 - December 31, 1988 l1.3%
January 1, 1989 - December 31, 1989 11.9%
January 1, 1990 - December 31, 1990 -0.13%
January 1, 1991 - December 31, 1991 23.0%
January 1, 1992 - December 31, 1992 21.7%
January 1, 1993 - December 31, 1993 16.9%
January 1, 1994 - December 31, 1994 -1.1%
January 1, 1995 - December 31, 1995 21.0%
January 1, 1996 - December 31, 1996 14.0%
The Fund calculates the total return for a
calendar year by determining the redeemable value of
$1,000 investment made at the beginning of the year
with dividends and capital gains reinvested on the
reinvestment date, on last day of the year and dividing
that value by $1,000.
Annual average total return and the total returns
for calendar year are based on historical performance
and are not intended as an indication of future
performance.
GENERAL INFORMATION
Capital Structure
The Fund has authorized capital of 20,000,000
shares of common stock of $1 par value per share. Each
share has equal dividend, distribution and liquidation
rights. There are no conversion or preemptive rights
applicable to any shares of the Fund. All shares
issued are fully paid and nonassessable. Fund shares
do not have cumulative voting rights. (See "General
Information" in the Prospectus for a discussion of
noncumulative voting rights.)
- -12-
Custodian
Wilmington Trust Company, Rodney Square North,
1100 North Market Street, Wilmington, DE 19890-0001 is
the custodian of the Fund. The custodian holds all
securities and cash owned by the Fund and collects all
dividends and interest due on the securities.
Independent Accountants
Price Waterhouse LLP, 30 South 17th Street,
Philadelphia, Pennsylvania has been selected as the
independent accountants for the Fund by the Board of
Directors. Price Waterhouse LLP will perform an annual
audit of the financial statements of the Fund.
Tax Status
The Fund intends to comply with Subchapter M of
the Internal Revenue Code. (See "Dividends, Capital
Gains, Distributions and Taxes" in the Prospectus for a
discussion of the tax status of the Fund and the
consequences to its shareholders.)
Litigation
The Fund is not involved in any litigation or other
legal proceedings.
FINANCIAL STATEMENTS
The Fund's audited financial statements and notes
thereto for the year ended December 31, 1996 and the
unqualified Report of Independent Accountants of the
Fund's accountants, Price Waterhouse LLP, on such
financial statements (the "Report") which are
incorporated by reference in this statement of
additional information are included in the Fund's 1996
annual report to shareholders. An investor may obtain
a copy of the annual report by writing to the
Shareholder Services Agent of the Fund or calling (800)
992-6757. The Rerpot follows on the next page.
- -13-
APPENDIX A
DEFINITIONS OF STANDARD & POOR'S BOND RATINGS
Standard Poor's gives ratings to bonds that
range from AAA to D. The Fund may invest in bonds with
ratings of CC above. Definitions of these ratings are
set forth below.
AAA Debt rated AAA has the highest
rating assigned by Standard Poor's.
Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated AA has a very strong
capacity to pay interest and repay principal
and differs from the higher rated
issues only in small degree.
A Debt rated A has a strong capacity
to pay interest and principal although it
is somewhat more susceptible to
the adverse effects of changes in
circumstances and economic
conditions than debt in higher rated
categories.
BBB Debt rated BBB is regarded as
having an adequate capacity to pay
interest
and repay principal. Whereas it
normally exhibits adequate protection
parameters, adverse economic
conditions or changing circumstances are
more likely to lead to a weakened
capacity to pay interest and repay
principal for debt in this
category than in higher rated categories.
BB,B,CCC,CC
Debt rated BB, B, CCC and CC is
regarded, on balance, as predominantly
speculative with respect to
capacity to pay interest and repay principal
in
accordance with the terms of the
obligation. BB indicates the lowest degree
of speculation and C the highest
degree of speculation. While such debt
will likely have some quality and
protective characteristics, these are
outweighed by large uncertainties
or major risk exposures to adverse
conditions.
D Debt rated D is in default, and
payment of interest and/or repyament of
principal is in arrears.
- -14-
APPENDIX B
MOODY'S BOND RATINGS
Moody's give ratings to bonds that range
from Aaa to D. Definitions of these ratings are set
forth below. The Fund may invest in bonds with any
ratings of Caa or better.
Aaa - These bonds are judged to be of the best
quality. They carry the smallest degree of
investment risk. Interest payments are
protected by a large or by an exceptionally
stable margin and principal is secure.
Aa - These bonds are judged to be of high
quality by all standards. They are rated
lower than the best bonds because margins
of protection may not be as large as in Aaa
securities or fluctuation of protective
elements may be of greater amplitude or
there may be other elements present which
make the long-term risks appear somewhat
larger than in Aaa securities.
A - These are bonds which possess many
favorable investment attributes and are to
be considered as upper medium grade
obligations. Factors giving security to
principal and interest are considered
adequate but elements may be present which
suggest a susceptibility to impairment
sometime in the future.
Baa - These bonds are considered as medium grade
obligations, i.e., they are neither highly
protected nor poorly secured. Such bonds
lack outstanding investment characteristics
and in fact have speculative
characteristics as well.
Ba - These are bonds judged to have speculative
elements; their future cannot be considered
as well assured. Uncertainty of position
characterizes bonds in this class.
B - These bonds generally lack characteristics
of the desirable investment. Assurance of
interest and principal payments or of
maintenance of other terms of the contract
over any long period of time may be small.
Caa - These are bonds of poor standing. Such
issues may be in default or there may be
present elements of danger with respect to
principal or interest.
Ca - These bonds represent obligations which are
speculative in a high degree. Such issues
are often in default or have other market
shortcomings.
C - These are the lowest rated class of bonds
and issues so rated can be regarded as
having extremely poor prospects of ever
attaining any real investment standing.
- -15-
PART C
Item 24
(a) Financial Statements:
The Financial Statements and Financial Highlights
and the note thereon in the 1996 Annual Report to
Shareholders are incorporated by reference into Part A
and Part B of this Registration Statement. The
Financial Statements incorporated by reference include
the Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets,
Financial Highlights, Statement of Investments, and
Notes to Financial Statements. The Financial
Highlights of the Fund are also included in Part A and
the Report of Independent Accounts is included in Part
B.
(b) Exhibits:
1. A copy of the Articles of Incorporation was
filed in the registration statement filed
May 21, 1987 and is incorporated herein by
reference.
2. A copy of the amended bylaws was filed 3/01/94
and is incorporated herein by this reference.
3. Not applicable.
4. A copy of the security being issued was filed
in the registration statement filed May 21,
1987 and is incorporated herein by this
reference.
5. A copy of the amended Investment Avisory
Contract was filed 3/01/94 and is incorporated
herein by this reference.
6. A copy of the Selling Agreement between the
Fund and Berwyn Financial Services Corp. was
filed 4/24/95 and is incorporated herein by
this reference.
7. Not applicable.
8. A copy of the new Custodian Agreement was
filed 3/01/94 and is incorporated herein by
this reference.
9. Not applicable.
10. A copy of the opinion and consent of counsel
was filed with the Fund's Rule 24f-2 notice on
3/12/97 and is incorporated herein by this
reference.
11. The consent of Price Waterhouse LLP is
included herein.
12. Not applicable.
13. Not applicable.
14. Copies of the IRA information booklet and SEP
Information booklet were filed in the post-
effective amendment filed April 8, 1991 and
are incorporated by reference. The
C-1
Prototype Defined Contribution Plan used by the
Fund was filed as part of The Berwyn Fund, Inc.
post-effective amendment filed April 8, 1991 and
the documents are incorporated by this reference.
15. Not applicable.
16. Schedules for computation of each performance
figure are included as Exhibit #16.
17. Financial Data Schedule.
18. Not applicable.
Item 25
The Registrant is not under common control with
any person and the Registrant does not control directly
or indirectly any person.
Item 26
Listed below is the class of stock and number of
holders, the Registrant had on
February 28, 1997:
(1) (2)
Title of Class Number of Record
Holders
Common Stock 1,764
Item 27
Article XVI of the Registrant's bylaws sets forth
the rules on indemnification of officers and directors.
There will be no indemnification of a director or
officer from an judgment, verdict or settlement
resulting from liability to the corporation or its
shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office (the
foregoing referred to as "Disabling Conduct"). The
following methods will be used to determine if a
director or officer is guilty of Disabling Conduct: (a)
a final decision on the merits by a court or other body
before whom a proceeding was brought, or (b) a
reasonable determination based upon a review of the
facts, by independent legal counsel in a written
opinion, that the director or officer was not liable on
the basis of Disabling Conduct. If there were no
Disabling Conduct, a director or officer would be
entitled to indemnification for expenses and for any
judgment, verdict or settlement.
Item 28
Robert E. Killen, President and a Director of the
Registrant, is Chairman and CEO of The Killen Group,
Inc., the adviser (the "Adviser") to the Registrant.
Mr. Killen is President and a Director of The Berwyn
Fund, Inc., a registered investment company having the
same investment adviser as the Fund. He is a Director
and Shareholder of Berwyn Financial Services Corp.
("BFS"), a registered broker-dealer.
C-2
Edward A. Killen II is Vice President and a
Director of the Adviser and a Director of Berwyn Income
Fund, Inc. He is also a Director, Officer and
Shareholder of BFS, a registered broker-dealer.
For information as to any other business,
profession, vocation or employment of a substantial
nature in which each director or officer of The Killen
Group, Inc. (the "Adviser") is or engaged for his own
account or in the capacity of director, officer,
employee, partner or trustee, reference is made to the
Adviser's Form ADV (File #801-18770) currently on file
with the Commissions as required by the Invesmtnet
Advisers Act of 1940, as amended.
Item 29
(a) Berwyn Financial Services Corp. also
serves as the distributor for The Berwyn Fund, Inc., in
certain jurisdictions.
(b)
Positions & Office
Name & Principal w/Berwyn Financial Positions & Office
Business Address Services
Corp. with the Fund
Robert E. Killen Director President and Director
1199 Lancaster Ave.
Berwyn, PA
Edward A. Killen Secretary and
Director Director
1189 Lancaster Ave.
Berwyn, PA
Kevin M. Ryan President,
Treasurer Secretary and
Treasurer
1199 Lancaster Ave. and Director
Berwyn, PA
Item 30
Accounts, books and other documents that are
required to be maintained under Section 31(a) of the
Investment Company Act of 1940, as amended and the
regulations thereunder will be maintained as follows:
1) Journals detailing the purchase and sale of
securities, the receipt and delivery of
securities, receipt and disbursement of cash and
all other debits and credits will be in the
physical possession of Kevin M. Ryan at 1189
Lancaster Avenue, Berwyn, Pennsylvania 19312.
2) Ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts as
well as ledgers containing the information
required for each portfolio security, for each
C-3
broker-dealer, bank or other person through whom
transactions in portfolio securities are effected
and for each shareholder of record in the
investment company will be maintained in the
physical possession of Kevin M. Ryan, 1189
Lancaster Avenue, Berwyn, Pennsylvania 19312.
3) The Articles of Incorporation, the bylaws, the
minutes of shareholders and directors' meetings
will be maintained under the control of Kevin M.
Ryan, 1189 Lancaster Avenue, Berwyn, Pennsylvania
19312.
4) A record of all brokerage orders and a record
of all portfolio purchases and sales will be
maintained under the control of Kevin M. Ryan,
1189 Lancaster Avenue, Berwyn, Pennsylvania
19312.
5) Monthly trial balances for all ledger
accounts, a quarterly record of broker
commissions, a record identifying persons
authorizing the purchase or sale of portfolio
securities and files of all advisory material
received from the investment advisor will be
under the control of Kevin M. Ryan, 1189
Lancaster Avenue, Berwyn, Pennsylvania 19312.
6) Records required to be maintained by the
investment adviser will be under the control of
Robert E. Killen, 1189 Lancaster Avenue, Berwyn,
Pennsylvania 19312.
Item 31
Not applicable
Item 32
(a) Not applicable.
(b) Not applicable.
(c) The Registrant has placed information
required by Item 5A of the Form N-1A in the latest
annual report to shareholders and undertakes to furnish
each person to whom a prospectus is delivered with a
copy of the Registrant's latest annual report to
shareholders upon request and without charge.
C-
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940 the
Registrant certifies that it meets all of the
requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the
undersigned, thereto duly authorized in the City of
Berwyn and State of Pennsylvania on the 25th day of
March 1997.
Berwyn Income Fund, Inc.
Registrant
BY: /S/Robert E. Killen
Robert E. Killen, President
Pursuant to the requirements of the Securities
Act of 1933, this Registration Statement has been
signed below by the following persons in the capacities
and on the date indicated.
Signature Title Date
/S/ Robert E. Killen
President and Director 3/25/97
Robert E. Killen
/S/ Kevin M. Ryan
Secretary and Treasurer 3/25/97
Kevin M. Ryan
/S/ Anthony N. Carrelli
Director 3/25/97
Anthony N. Carrelli
/S/ Denis P. Conlon
Director 3/25/97
Denis P. Conlon
/S/ William H. Vonier
Director 3/25/97
William H. Vonier
/S/ Edward A. Killen II
Director 3/25/97
Edward A. Killen II
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940 the
Registrant certifies that it meets all of the
requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the
undersigned, thereto duly authorized in the City of
Berwyn and State of Pennsylvania on the 25th day of
March 1997.
Berwyn Income Fund, Inc.
Registrant
By:____________________________
Robert E. Killen, President
Pursuant to the requirements of the Securities
Act of 1933, this Registration Statement has been
signed below by the following persons in the capacities
and on the date indicated.
Signature Title Date
President and Director 3/25/97
Robert E. Killen
Secretary and Treasurer3/25/97
Kevin M. Ryan
Director 3/25/97
Anthony N. Carrelli
Director 3/25/97
Denis P. Conlon
Director 3/25/97
William H. Vonier
Director 3/25/97
Edward A. Killen II
42
EXHIBIT #24(b)11
Consent of Independent Accountants
We hereby consent to the incorporation by
reference in the Prospectus and
Statement of Additional Information constituting
parts of this Post-Effective
Amendment No. 12 to the registration statement
on Form N-1A (the
"Registration Statement") of our report dated
February 19, 1997, relating to
the financial statements and financial
highlights of Berwyn Income Fund,
Inc. appearing in the December 31, 1996
Annual Report to Shareholders,
which is also incorporated by reference
into the Registration Statement.
We also consent to the reference to us
under the heading "Independent
Accountants" in the Statement of
Additional Information and to the
reference to us under the heading
"Financial Highlights" in the Prospectus.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
March 25, 1997
EXHIBIT #24(b)16
Schedules for Computation of Performance Figures
a) Annual Average Total Return:
The Fund calculated its annual average total return for one year, five
years and the life of the Fund by using the formula P(1+T)n = ERV in
Item 22 of Form N-1A. In using this formula, P is equal to an initial
investment of $1,000, T is equal to average annual total return for the
period, n equals the number of years and ERV is the ending
redeemable value.
For the one year period ending December 31, 1996
P equals $1,000
T equals .1140
n equals 1 year
ERV equals $1,400
For the five years ending December 31, 1996
P equals $1,000
T equals .142
n equals 5 years
ERV equals $1,941
For the life of the Fund
P equals $1,000
T equals .12
n equals 9 1/4 years
ERV equals $2,868
b) Yield quotation for one month ending December 31, 1996 was 6.95%.
The formula used is Yield=2[a-b + 1)6-1]
cd
a = interest and dividends for period and that was $834,090
b = expenses accrued and that equals $76,424
c = average daily number shares outstanding entitled to receive
dividends and that was 10,774,513
d = the maximum offering price per share on last day of the
period and that was $12.31 834,090 - 76,424 +1 = 1.00571244
132,634,255
raised to 6th power = 1.03476786
minus 1 and multiplied by 2 = 0.06953572
c) Annual Total Return
The Fund calculated its annual total return for each year by using the
formula P(1+T)n=ERV. In using this formula, P is equal to an initial
investment of $1,000, T is equal to the total
return for the period, equals the
number of years and ERV is the ending redeemable value.
For the year ended December 31, 1988:
P equals $1,000
T equals .113
n equals 1
ERV equals $1,113
For the year ended December 31, 1989:
P equals $1,000
T equals .119
n equals 1
ERV equals $1,119
For the year ended December 31, 1990:
P equals $1,000
T equals -.0013
n equals $998.70
For the year ended December 31, 1991:
P equals $1,000
T equals .23
n equals 1
ERV equals $1,230
For the year ended December 31, 1992:
P equals $1,000
T equals .217
n equals 1
ERV equals $1,217
For the year ended December 31, 1993:
P equals $1,000
T equals .169
n equals 1
ERV equals $1,169
For the year ended December 31, 1994:
P equals $1,000
T equals -.011
n equals 1
ERV equals $989
For the year ended December 31, 1995:
P equals $1,000
T equals .210
n equals 1
ERV equals $1,210
For the year ending December 31, 1996
P equals $1,000
T equals .1140
n equals 1
ERV equals $1400
3-3
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS INFORMATION IS FROM THE 1997 ANNUAL REPORT
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 128,080,024
<INVESTMENTS-AT-VALUE> 135,830,202
<RECEIVABLES> 1,898,145
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 137,728,347
<PAYABLE-FOR-SECURITIES> 408,433
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 153,862
<TOTAL-LIABILITIES> 562,295
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 117,998,574
<SHARES-COMMON-STOCK> 11,146,135
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 158,963
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 112,202
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,750,178
<NET-ASSETS> 137,166,052
<DIVIDEND-INCOME> 6,591,696
<INTEREST-INCOME> 2,381,465
<OTHER-INCOME> 0
<EXPENSES-NET> 869,395
<NET-INVESTMENT-INCOME> 8,103,766
<REALIZED-GAINS-CURRENT> 5,091,718
<APPREC-INCREASE-CURRENT> 3,467,929
<NET-CHANGE-FROM-OPS> 16,663,413
<EQUALIZATION> 14,220,110
<DISTRIBUTIONS-OF-INCOME> 8,238,031
<DISTRIBUTIONS-OF-GAINS> 5,031,108
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,177,693
<NUMBER-OF-SHARES-REDEEMED> 1,896,289
<SHARES-REINVESTED> 858,677
<NET-CHANGE-IN-ASSETS> 17,614,384
<ACCUMULATED-NII-PRIOR> 293,228
<ACCUMULATED-GAINS-PRIOR> 51,592
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 638,212
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 869,395
<AVERAGE-NET-ASSETS> 120,840,912
<PER-SHARE-NAV-BEGIN> 11.95
<PER-SHARE-NII> .76
<PER-SHARE-GAIN-APPREC> .87
<PER-SHARE-DIVIDEND> (.80)
<PER-SHARE-DISTRIBUTIONS> (.47)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.31
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
