BERWYN INCOME FUND, INC.
Shareholder Services
c/o PFPC Inc.
P.O. Box 8987
Wilmington, DE 19899
PROSPECTUS
April 30, 1998
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 Chief Executive Officer 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 April 30,1998 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..................................................................
...................................... 10
Computation of Net Asset
Value.................................................................
........................... 12
Share
Purchases.............................................................
......................................................... 12
Distributor...........................................................
.................................................................... 14
Exchange of
Shares................................................................
................................................. 14
Dividends, Capital Gains Distributions and
Taxes................................................................. 15
Retirement
Plans.................................................................
.................................................... 16
Redemption of
Shares................................................................
............................................. 16
General
Information...........................................................
..................................................... 18
Additional
Information...........................................................
................................................. 18
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FEE and EXPENSE TABLE
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.50 %
Other Expenses 0.15 %
Total Fund Operating Expenses 0.65 %
______________________________________________________________________
________
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 $21 $36 $80
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.
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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, 1997, 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 1997 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
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
Net Asset Value, Beginning of Period $12.31 $11.95 $10.75 $11.63 $11.12
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income 0.77 0.76 0.73 0.73 0.69
Net Realized and Unrealized Gains
(Losses) on Securities 0.84 0.87 1.48 (0.85) 1.15
-------- -------- -------- -------- --------
Total from Investment Operations 1.61 1.63 2.21 (0.12) 1.84
-------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income (0.77) (0.80) (0.70) (0.73) (0.65)
Distributions from Net Realized Gains (0.64) (0.47) (0.31) (0.03) (0.68)
Return of Capital Distributions --- --- --- --- ---
-------- -------- -------- -------- --------
Total Distributions (1.41) (1.27) (1.01) (0.76) (1.33)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $12.51 $12.31 $11.95 $10.75 $11.63
Total Return 13.36% 13.99% 21.00% (1.10%) 16.90%
Ratios/Supplemental Data
Net Assets, End of Period (000) $180,823 $137,166 $119,552 $55,825 $30,359
Ratio of Expenses to Average Net Assets 0.65% 0.68% 0.73% 0.93% 1.07%
Ratio of Net Investment Income to Average 6.15% 6.35% 6.78% 7.20% 6.15%
Net Assets
Portfolio Turnover Rate 53% 38% 39% 30% 83%
Average Commissions Rate Paid $0.0687* $0.0860* --- --- ---
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FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
(Continued)
Year Year Year Year Year
Ended Ended Ended Ended Ended
12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
Net Asset Value, Beginning of Period $10.20 $9.14 $10.03 $9.75 $9.50
-------- -------- -------- -------- -------
Income From Investment Operations
Net Investment Income 0.70 0.85 0.83 0.79 1.365(1)
Net Realized and Unrealized Gains
(Losses) on Securities 1.47 1.19 (0.85) 0.34 (0.300)
-------- -------- -------- -------- --------
Total from Investment Operations 2.17 2.04 (0.02) 1.13 1.065
-------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income (0.70) (0.85) (0.83) (0.79) (0.765)
Distributions from Net Realized Gains (0.55) (0.05) (0.04) (0.06) (0.050)
Return of Capital Distributions --- (0.08) --- --- ---
-------- -------- -------- -------- --------
Total Distributions (1.25) (0.98) (0.87) (0.85) (0.815)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $11.12 $10.20 $9.14 $10.03 $9.75
Total Return 21.70% 23.00% (0.13%) 11.90% 11.30%(1)
Ratios/Supplemental Data
Net Assets, End of Period (000) $12,486 $5,359 $3,955 $3,870 $2,644
Ratio of Expenses to Average Net Assets 1.34% 1.34% 1.46% 1.50% 1.75%(1)
Ratio of Net Investment Income to 6.14% 8.40% 8.59% 8.00% 8.29%
Average Net Assets
Portfolio Turnover Rate 46% 14% 14% 3% 17%
Average Commissions Rate Paid --- --- --- --- ---
(1) Investment Advisory fees of $.06 per share were waived by The
Killen Group, Inc. for the year ended 12/31/88.
If the waived fees had been included in expenses, the total return
of the Fund 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.
* Computed by dividing the total amount of commission paid by the
total number of shares purchased and sold
during the year.
- -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 30% 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 30% or more (through
appreciation in value of the common stocks or depreciation 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.
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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 Group ("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.) The Adviser has the discretion to invest
in fixed income corporate debt securities with any rating as long as
the issuer is not in default in the payment of interest or principal.
The Adviser also may invest in unrated fixed income securities in
private transactions.
At December 31, 1997, 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, 1997, 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
Aa: 0.3%; A: 7.2%; Baa: 8.6%; Ba: 3.9%; B: 21.8%; Caa:
1.9%; Unrated: 4.3%.
S & P Ratings
AA: 0.3%; A: 8.1%; BBB: 5.2%; BB: 4.9%; B: 15.6%; CCC:
1.4%; Unrated: 13.5%.
U.S. Treasury Bonds: 1.5%
Preferred and Common Stocks, Close-End Investment Companies and
Repurchase Agreements
Preferred stocks: 20.5%; Common Stocks: 26.9%; Close-End
Investment Companies:
2.7%;
Repurchase Agreements: 0.4%.
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 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.
- -5-
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.
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 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
- -6-
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 risk debt 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 Fund may also purchase certain debt securities that have
restrictions regarding their resale. These restricted securities are
securities that have not been registered with the Securities and
Exchange Commission under the Securities Act of 1933, as amended
("1933 Act"). As a result, these securities may not be offered for
sale to the general public. The Fund may purchase these restricted
securities under the provisions of Rule 144A under the 1933 Act. This
rule provides an exemption from the 1933 Act that allows qualified
institutional buyers to buy and sell restricted securities in private
transactions. The Fund may purchase Rule 144A Securities from other
institutional investors or from the issuing company. If the Fund
wishes to sell a Rule 144A Security the Fund will have to sell it to a
qualified institutional buyer in a private transaction.
There are risks associated with investing in Rule 144A
Securities. The securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.
Although the Rule 144A Securities may be resold in negotiated
transactions, the price realized from these sales could be less than
the price originally paid by the Fund or less than what may be
considered the fair value of such securities. Furthermore, if such
securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be
required to bear the expense of registration.
The Fund will seek to minimize these risks by limiting
investment in Rule 144A Securities to 10% of the value of the Fund's
net assets. This means that whenever the value of the Rule 144A
Securities of the Fund is 10% or more of the value of the Fund's net
assets, the Fund will not purchase any more Rule 144A Securities. In
addition, the Fund will only purchase Rule
- -7-
144A Securities of companies that have publicly traded securities
outstanding , have been in business a minimum of 5 years, and have a
market capitalization of at least $100 million.
Finally, the Fund will purchase Rule 144A Securities only in
situations where the Adviser has a reasonable expectation that the
securities will be registered with the Securities and Exchange
Commission within six months.
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.
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 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 30% 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
- -8-
appreciation due to the business prospects of the issuer. The Fund
may also purchase preferred stocks in transactions that qualify under
Rule 144A.
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.
The Fund purchases only common stocks that have been paying cash
dividends. 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.
Real Estate Investment Trusts
The Fund may invest in Real Estate Investment Trusts ("REITs").
REITs are companies that invest in real estate. REITs normally do not
pay federal income tax but distribute their income to their
shareholders who become liable for the tax. Some REITs own properties
and earn income from leases and rents. These types of REITs are
termed "Equity" REITs. Other REITs hold mortgages and earn income
from interest payments. These REITs are termed "Mortgage" REITs.
Finally, there are "Hybrid" REITs that own properties and hold
mortgages.
The Fund may invest in any of the three types of REITs and may
purchase the common stocks, preferred stocks or debt securities issued
by REITs. The Fund invests in REITs that generate income and have a
potential for capital appreciation.
There are risks in investing in REITs that are in addition to
risks of investing in securities in general.
The Properties owned by a REIT could decrease in value, a REIT
could have trouble finding tenants for a property, 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. In addition, the Fund will not purchase
additional securities issued by REITs whenever securities of REITs
comprise 10% or more of the value of the Fund's net assets.
Investment in common stocks issued by a REIT is subject to both the
10% limitation on investment in REITs and the 30% limitation on
investment in common stock. Investment in.
- -9-
other securities issued by REITs such as preferred stocks and debt
securities is subject to the 10% limitation.
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 no load money market funds, 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, repurchase
agreements, treasury bills or the Fund may hold cash.
Investment by the Fund in a no-load money market fund will
result in the Fund paying a management fee on the money invested in
such fund in addition to the operating expenses of the Fund..
The Fund will not invest more than 5% of its net assets in
repurchase agreements. Also, the Fund will not investment more than
10% of its net assets in illiquid securities, whether fixed income or
equity securities.
The Fund does not intend to engage in short-term trading. In
1997, the Fund had a portfolio turnover rate of 53% 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 twenty years' experience in the
investment advisory field. In 1978, he started to work for Compu Val
Management Associates, an investment advisory firm,
- -10-
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, 1997, the Adviser
was managing 380 individual investment portfolios worth approximately
$555 million.
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, 1997, The Berwyn Fund had net assets of over $100
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 1997, the Fund paid the Adviser $806,436
in advisory fees. Total expenses for the Fund in 1997 were 0.65% 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.
Year 2000
Many computer software systems in use today cannot properly
process date-related information from and after January 1, 2000.
Should any of the computer systems employed by the Fund's major
service providers fail to process this type of information properly,
that could have a negative impact on the Fund's operations and the
services that are provided to the Fund's shareholders. The Adviser,
the Fund's distributor, Berwyn Financial Services Corp., and PFPC,
Inc., the Fund's registrar, transfer agent and dividend disbursing
agent, have advised the Fund that they are reviewing all of their
computer systems with the goal of modifying or replacing such systems
prior to January 1, 2000 to the extent necessary to foreclose any such
negative impact. In addition, the Adviser has been advised by the
Fund's custodian that it is also in the process of reviewing its
systems with the same goal. As of the date of this Prospectus, the
Fund and the Adviser have no reason to believe that these goals will
not be achieved.
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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,
Martin Luther King, Jr. 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.
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 Fund has
authorized certain brokers and intermediaries designated by such
brokers to accept purchase and redemption orders. The receipt of an
order by such broker or its intermediary will be considered the same
as receipt of an order by the Fund's Transfer Agent and the order
received by the broker or its intermediary will receive the net asset
value per share next determined after receipt by the broker or its
intermediary.
The value of the shares in the Fund 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 (each, an "IRA"), the minimum initial investment is $1,000.
The minimum initial investment for a spousal IRA is $250.
- -12-
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, PFPC Inc., 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 ("SAI") 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 and "Invesetment Policies
and Risk Factors" and "Investment Restrictions" in the SAI.)
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 of shares of the Fund are next determined
after receipt of such securities. The amount of the investment in the
Fund will be the offered value of the securities as determined by the
Fund. The value of each security offered by
- -13-
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 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
The Adviser to the Fund also manages The Berwyn Fund. The
Berwyn Fund was closed to new investors on January 1, 1998. Only
investors who were shareholders in Berwyn Income Fund, Inc. as of
December 31, 1997 may exchange their shares for shares in The Berwyn
Fund, Inc. 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
- -14-
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 a notice of sales with
the sate securities administrator.
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
- -15-
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 losses from the sale, redemption or exchange of Fund
shares may also be subject to state and local taxes. The Fund is
required to withhold 31% of taxable dividends, capital gains
distributions, and redemption proceeds 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, including "Roth" IRAs and an "Education"
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.
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.
- -16-
A shareholder who wishes to submit a written redemption request
should mail it to Berwyn Income Fund, c/o PFPC, Inc., 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 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
all accounts 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 accounts 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.
- -17-
GENERAL INFORMATION
Capital Structure
The Fund has authorized capital of 100,000,000 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
PFPC Inc., P. O. Box 8987, Wilmington, Delaware 19899 is the
Transfer Agent and Dividend Paying Agent.
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, the 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.
- -18-
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.
- -19-
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