SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Berwyn Income Fund, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
BERWYN INCOME FUND, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Robert E. Killen and Kevin M. Ryan, or either of them, with power of
substitution, are hereby authorized as proxies to represent, and to vote the
shares of common stock (the "Shares") of Berwyn Income Fund, Inc. (the "Fund")
owned by the undersigned shareholder(s) at the Annual Meeting of Shareholders of
the Fund to be held at 11:00 a.m. or immediately following the Annual Meeting of
Shareholders of The Berwyn Fund, Inc., which is scheduled for 10:00 a.m. on
Friday, March 26, 1999 at 1199 Lancaster Avenue, Berwyn, Pennsylvania 19312 and
at any adjournment thereof. The proxies are to vote the Shares of the
undersigned as instructed below and in accordance with their judgment on all
other matters which may properly come before the meeting. If no specification is
made below, this proxy shall be voted in favor of each listed proposal
(including each nominee for Director).
The Board of Directors recommends voting for Proposals 1, 2, 3, and 4.
1. Election of Directors
Nominees: Robert E. Killen, Denis P. Conlon, Anthony N. Carrelli,
Edward A. Killen, II, and Deborah D. Dorsi
For All Nominees _______ Withhold All Nominees ________
Withhold Those Listed Below ______
Instruction: To withhold authority to vote for any individual
nominee, please print his or her name below:
2. Ratification of the selection of PricewaterhouseCoopers, LLP as independent
accountants:
For______ Against______ Abstain______
3. Approval of a New Investment Advisory Agreement:
For______ Against______ Abstain______
4. Approval of the Reorganization of the Fund from a Pennsylvania Corporation
Into a Series of a Delaware Business Trust:
For______ Against______ Abstain______
Please sign and date this proxy and return it promptly in the enclosed envelope.
________________________________________ Dated____________________, 1999
________________________________________ Dated____________________, 1999
Joint Tenant (if any)
Please check here ______ if you are planning to attend the Annual Meeting of
Shareholders.
Please check here ______ if you have comments and please use the back of this
form for your comments.
<PAGE>
BERWYN INCOME FUND, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MARCH 26, 1999
BERWYN, PENNSYLVANIA
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Berwyn Income
Fund, Inc. (the "Fund"), a registered investment company, will be held at the
executive offices of The Killen Group, Inc., 1199 Lancaster Avenue, Berwyn,
Pennsylvania 19312 on Friday, March 26, 1999, at 11:00 a.m., or immediately
following The Berwyn Fund, Inc. Shareholder Meeting, which is
scheduled for 10:00 a.m., for the following purposes:
1. To elect a Board of Directors to serve until the next meeting of
shareholders called for the purpose of electing Directors and/or
until their successors are elected;
2. To consider and ratify the selection of PricewaterhouseCoopers,
LLP as independent accountants for the fiscal year ending December
31, 1999.
3. To consider and approve a new Investment Advisory Agreement
between the Fund and The Killen Group, Inc.
4. To consider and approve the reorganization of the Fund from a
Pennsylvania corporation into a series of a Delaware business
trust.
At such meeting, only holders of common stock of record at the close of business
on February 10, 1999 will be entitled to vote.
You are encouraged to attend this meeting in person, but if you cannot do so,
please complete, date, sign and return the accompanying proxy at your earliest
convenience.
YOUR PARTICIPATION, IN PERSON OR BY PROXY, IS IMPORTANT. BUSINESS MAY BE
TRANSACTED ONLY IF A MAJORITY OF THE SHARES ENTITLED TO VOTE ARE PRESENT IN
PERSON OR BY PROXY.
By Order of the Board of Directors
/s/ Kevin M. Ryan
Kevin M. Ryan, Secretary
February 26, 1999
<PAGE>
PROXY STATEMENT
SOLICITATION, REVOCATION AND VOTING OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors of
Berwyn Income Fund, Inc. (the "Fund"), for use at the Annual Meeting of
shareholders (the "Annual Meeting"), or any adjournment thereof, to be held on
March 26, 1999, at 11:00 a.m., or immediately following the Annual Meeting of
Shareholders of The Berwyn Fund, Inc., which is scheduled for 10:00 a.m., at the
executive offices of The Killen Group, Inc. (the "Adviser" or "Killen Group"),
1199 Lancaster Avenue, Berwyn, Pennsylvania 19312. The Fund's address is 1189
Lancaster Avenue, Berwyn, Pennsylvania 19312. This proxy statement and the
enclosed proxy card are expected to be mailed on or about February 26, 1999, to
shareholders of record at the close of business on February 10, 1999 (the
"Record Date"). On the Record Date, the Fund had outstanding 8,716,853 shares of
common stock. (The Fund issues only common stock.) Shareholders will be entitled
to one vote for each full share, and a partial vote for each partial share, of
the Fund that they own on the Record Date on each matter.
A majority of the shares entitled to vote, represented in person or by proxy,
will constitute a quorum and the presence of a quorum is necessary for the
transaction of business. Abstentions and broker non-votes will be included for
purposes of determining whether a quorum is present at the meeting, but will be
treated as votes not cast and, therefore, will not be counted in determining
whether matters to be voted upon at the meeting have been approved.
The election of the nominees for Director (Proposal 1) and the ratification of
the selection of PricewaterhouseCoopers, LLP as independent accountants of the
Fund (Proposal 2) each require the affirmative vote of a majority of shares
present at the meeting either in person or by proxy. The proposed agreement for
investment advisory services between the Fund and the Adviser (Proposal 3)
requires approval by a "vote of a majority of the outstanding voting securities"
of the Fund as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). Under the 1940 Act, such approval means the affirmative vote at a
meeting of shareholders of the lesser of (a) more than 50% of the Fund's
outstanding shares, or (b) 67% or more of the shares present or represented by
proxy at the meeting, if the holders of more than 50% of the Fund's outstanding
shares are present in person or represented by proxy. Approval of the
reorganization of the Fund from a Pennsylvania corporation into a series of a
Delaware business trust (Proposal 4) requires the affirmative vote of a majority
of the votes cast by all shareholders entitled to vote thereon.
All shares represented by properly executed proxies, unless such proxies have
been previously revoked, will be voted at the Annual Meeting in accordance with
the directions on the proxies. A shareholder who executes and returns a proxy
may revoke it at any time prior to its exercise by delivering to the Secretary
of the Fund written notice of its revocation, sending the Fund a proxy with a
later date, or voting in person at the meeting. The cost of soliciting proxies,
which is estimated at $13,000 is being paid by the Fund. In addition to the
solicitation by mail, officers of the Fund may ask shareholders in personal
conversations or by telephone or telecopy to return proxies.
SINCE THE FUND IS BEARING ALL PROXY SOLICITATION COSTS, IT IS REQUESTED THAT
SHAREHOLDERS WHO WILL NOT ATTEND THE MEETING, SIGN AND RETURN A PROXY AS EARLY
AS POSSIBLE SO AS TO AVOID ANY ADDITIONAL SOLICITATION EXPENSE.
<PAGE>
OWNERSHIP OF SHARES
Officers and Directors of the Fund own less than 2% of the Fund's outstanding
shares.
Shareholders known by the Fund to own more than 5% of the outstanding shares of
the Fund on February 10, 1999, and the percentage of the outstanding shares
owned on that date are listed below.
<TABLE>
<CAPTION>
Name of Shareholder and Address Amount of Shares Owned Percentage of Outstanding Shares
- -------------------------------- ---------------------- --------------------------------
<S> <C> <C>
Charles Schwab & Co. (1)
101 Montgomery Street 3,737,354 42.9%
San Francisco, CA
National Financial Services Corp. (1)
1 World Financial Center 752,907 8.6%
200 Liberty Street
New York, New York
<FN>
(1) Indicates owner of record; the record owner is a registered broker-dealer
and holds the shares listed for the benefit of certain of its customers,
each of which beneficially owns a portion of such shares.
</FN>
</TABLE>
To the Fund's knowledge, no person beneficially owned more than 5% of the
outstanding shares of the Fund on February 10, 1999.
PROPOSAL 1 - NOMINEES FOR ELECTION AS DIRECTORS
Five Directors are to be elected to serve on the Board of Directors of the Fund
(the "Board") until the next Annual Meeting of Shareholders and/or until their
successors have been elected and qualify for office. The nominees are: Robert E.
Killen, Anthony A. Carelli, Edward A. Killen, II, Denis P. Conlon and Deborah D.
Dorsi. The members of the Board of Directors during the fiscal year ended
December 31, 1998, and the nominees for Director are set forth in the following
table. The table also sets forth information about each of them individually,
concerning age, principal occupation, business experience for at least the past
five years, and ownership of shares of the Fund.
<TABLE>
<CAPTION>
NAME (AGE) PRINCIPAL OCCUPATION AND OTHER BUSINESS EXPERIENCE NUMBER OF SHARES BENEFICIALLY OWNED
DURING THE PAST FIVE YEARS & PERCENT OF CLASS AS OF
FEBRUARY 10, 1999
<S> <C> <C>
Robert E. Killen* President and Director of the Fund since February (2)
(57) 1983. Director of Westmoreland Coal Co. (a mining 91,817
1199 Lancaster Avenue company) since July 1996. Director and Shareholder, (1%)
Berwyn, Pennsylvania Berwyn Financial Services Corp. ("BFS"), a financial
services company (registered as a broker-dealer
with the Securities and Exchange Commission
("SEC") since December 1993 and a member of the
National Association of Securities Dealers, Inc.
("NASD") since July 1994), since October 1991.
President and Director of The Berwyn Fund, Inc.
(a registered investment company managed by the
Adviser) since February 1983. Chairman, Chief
Executive Officer and sole Shareholder of the
Adviser (an investment advisory firm) since April
2
<PAGE>
NAME (AGE) PRINCIPAL OCCUPATION AND OTHER BUSINESS EXPERIENCE NUMBER OF SHARES BENEFICIALLY OWNED
DURING THE PAST FIVE YEARS & PERCENT OF CLASS AS OF
FEBRUARY 10, 1999
1996. President, Treasurer, Director and sole
shareholder of the Adviser from September 1982 to
March 1996.
Anthony N. Carrelli* Director of the Fund since December 1986. Director of (3)
(50) The Berwyn Fund, Inc. since January 1995. Vice 553
1189 Lancaster Avenue President of the Adviser since August 1986.
Berwyn, Pennsylvania
Denis P. Conlon Director of the Fund since June 1992. Director of The (3)
(51) Berwyn Fund, Inc. since June 1992. President and 1,369
1282 Farm Road Chief Executive Officer of CRC Industries (a worldwide
Berwyn, Pennsylvania manufacturer) since September 1996. Vice President,
Corporate Development, Berwind Corporation (a
diversified manufacturing and financial company)
from 1990 to September 1996.
Edward A. Killen, II* Director, Secretary and shareholder of BFS since October (3)
(47) 1991. Director of the Fund since January 1995. Director 4,249
1189 Lancaster Avenue of The Berwyn Fund, Inc. from February 1983 to January
Berwyn, Pennsylvania 1995. Vice President, Secretary and Director of the
Adviser since February 1983.
Deborah D. Dorsi (1) Director of the Fund since April 1998. Director of The 0
(43) Berwyn Fund, Inc. since April 1998. Retired Technology
2801 Stanbridge Street Industry Executive since 1994. Director, Worldwide
Norristown, Pennsylvania Customer Support, Kulicke & Soffa Industries, Inc.
(Semi-Conductor Equipment Manufacturer) from 1993-1994.
Corporate Account Manager for Kulicke & Soffa Industries,
Inc. prior to 1993.
William H. Vonier (1) Director of The Berwyn Fund, Inc. and the Fund since 0
(69) June 1992. Independent Consultant Sales and Marketing
524 Lake Louise Circle since 1989. Retired from service on the Board of
#504 Directors of the Fund and The Berwyn Fund, Inc. in
Naples, Florida April 1998.
</TABLE>
All current Directors and officers of the Fund as a group owned 147,271 shares
of the Fund, which constituted approximately 1.7% of its outstanding shares as
of February 10, 1999.
Notes:
* Robert E. Killen, Anthony N. Carrelli, and Edward A. Killen, II are
"interested persons" of the Fund as defined in the 1940 Act (the
"Interested Directors") because of the following affiliations: Robert E.
Killen is an officer, Director and sole shareholder of the Adviser to the
Fund. He is also a Director of BFS, a registered broker-dealer, and owns
one-third of the outstanding shares of BFS. Anthony N. Carrelli is a Vice
President of the Adviser to the Fund. Edward A. Killen, II is an officer
and Director of the Adviser to the Fund. He is also an officer, Director
and the owner of one-third of the outstanding shares of BFS. Kevin M Ryan
is President,
3
<PAGE>
Treasurer, Director and shareholder of one-third of the outstanding shares
of BFS. Mr. Ryan has served as the Fund's Secretary and Treasurer since
1986. Mr. Ryan is also Secretary and Treasurer of The Berwyn Fund, Inc. In
addition, Mr. Ryan has served as legal counsel to the Adviser since
September 1985. Robert E. Killen and Edward A. Killen, II are brothers and
Kevin M. Ryan is brother-in-law of both. BFS serves as the selling agent
for the Fund in certain jurisdiction.
(1) Ms. Dorsi was elected by the Board of Directors in April 1998 to fill
the vacancy on the Board following the retirement of Mr. Vonier.
(2) The shares listed for Robert E. Killen include shares owned by his wife, by
Killen Group and a Partnership of which he is a General Partner.
(3) Indicates ownership of less than 1% of the outstanding shares of the Fund.
The Fund has a standing audit committee of the Board of Directors and does not
have standing nominating or compensation committees of the Board of Directors.
The members of the audit committee are Deborah D. Dorsi and Denis P. Conlon,
both of whom are not "interested persons" (as defined in the 1940 Act) of the
Fund or the Adviser. The audit committee held one meeting during the last fiscal
year of the Fund. The audit committee reviews the financial condition and the
auditing of the financial statements of the Fund and recommends the selection of
the Fund's independent public accountants.
DIRECTOR COMPENSATION
The members of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund (the "Independent Directors") are paid a
fee of $400 for each Board or Committee meeting attended and are reimbursed for
any travel or other expenses of attendance. If a Board and Committee meeting are
held on the same date, the Independent Directors receive only one fee. Officers
of the Fund are not paid compensation by the Fund for their work as officers and
no fees are paid to Interested Directors for the performance of their duties.
The Board held four meetings in the Fund's fiscal year ended December 31, 1998
(the "1998 fiscal year") and all Directors except Mr. Vonier and Ms. Dorsi were
present at each meeting. Mr. Vonier was present, and Ms. Dorsi was not present,
at the January 20, 1998 Board meeting. Ms. Dorsi was present in place of Mr.
Vonier at the remaining three Board meetings in 1998. The Board has an Audit
Committee composed of Mr. Conlon and Ms. Dorsi, each of whom is an Independent
Director. Mr. Vonier served on the Audit Committee in 1998 until he was replaced
by Ms. Dorsi. The Audit Committee recommends the selection of independent public
accountants for the Fund, reviews the scope of the audit, evaluates the
independent accountants' work and opinions and reports its findings to the
Board. The Audit Committee met one time in 1998, and all members of the Audit
Committee were present for the meeting.
For the fiscal year ended December 31, 1998 the Independent Directors received
the following compensation:
<TABLE>
<CAPTION>
Name, Position with Fund Aggregate Compensation Total Compensation
From Fund Paid From
Fund Complex
<S> <C> <C>
Denis P. Conlon $1,600 $3,200 for the Fund and The
Director Berwyn Fund, Inc.
Deborah D. Dorsi++ $1,200 $2,400 for the Fund and The
Director Berwyn Fund, Inc.
William H.Vonier++ $472 $944 for the Fund and The Berwyn
Director Fund, Inc.
</TABLE>
4
<PAGE>
++ Ms. Dorsi was elected to the Board of Directors in April 1998 by vote of
the Board of Directors to replace Mr. Vonier.
PROPOSAL 2 - RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The 1940 Act requires that the Fund's independent accountants be selected by the
Board, including a majority of those Board members who are not "interested
persons" (as defined in the 1940 Act) of the Fund (the "Independent Directors"),
and that such selection be submitted for ratification or rejection at the next
succeeding meeting of shareholders. The Board is requesting ratification of its
selection of PricewaterhouseCoopers, LLP as independent accountants of the Fund
for the current fiscal year ending December 31, 1999. PricewaterhouseCoopers,
LLP, 30 South 17th Street, Philadelphia, Pennsylvania 19103, has served as
independent accountants for the Fund since the Fund began operations.
Other than the receipt of fees by PricewaterhouseCoopers, LLP as independent
accountants and for the provision of certain consulting fees, neither
PricewaterhouseCoopers, LLP nor any of its partners have a direct, or material
indirect, financial interest in the Fund or the Adviser. PricewaterhouseCoopers,
LLP is a major international independent accounting firm. The Board believes
that the continued employment of the services of the independent accountants for
the current fiscal year would be in the Fund's best interests.
No representative of PricewaterhouseCoopers, LLP is expected to be present or to
make a statement at the Annual Meeting. If a representative is present, he or
she will have the opportunity to make a statement and will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS.
PROPOSAL 3 - INVESTMENT ADVISORY AGREEMENT
Proposal Overview
Shareholders of the Fund are being asked to approve a new investment advisory
agreement (the "Proposed Agreement") between the Fund and its current investment
adviser, Killen Group. The Proposed Agreement does not provide for any change in
the investment advisory fees to be paid to Killen Group. The Proposed Agreement
will reflect the following changes to the investment advisory agreement
currently in effect between the Fund and Killen Group (the "Current Agreement"),
all of which are explained in further detail below.
- Elimination of the requirement for shareholder approval of the annual
continuation of the investment advisory agreement.
- Elimination of the requirement for shareholder approval of all
amendments of the investment advisory agreement.
- Revision of the termination provision permitting the investment
adviser to terminate the investment advisory agreement only once a year
upon 60 days' notice.
- Clarification of certain provisions of the Current Agreement.
5
<PAGE>
Proposed Elimination of the Requirement for Shareholders To Approve Annually
the Continuation of the Investment Advisory Agreement
Under the 1940 Act, an investment advisory agreement for an open-end management
investment company (a "mutual fund"), such as the Fund, may be continued beyond
a maximum initial two-year term so long as the continuation is specifically
approved at least annually (i) by vote of a majority of the board of directors
of the mutual fund, or by vote of a majority of the outstanding voting
securities of the mutual fund, and (ii) by vote of a majority of the directors
of the mutual fund who are not parties to the investment advisory agreement or
"interested persons" (as that term is defined in the 1940 Act) of any such party
(the "independent directors"), cast in person at a meeting called for the
purpose of voting on such approval. The purpose of this requirement is to permit
either the board of directors or the shareholders to ensure that the investment
adviser is providing high quality services at a competitive rate of direct
and/or indirect compensation. Under the 1940 Act, the annual review and approval
may be accomplished by either the board of directors or the shareholders of the
mutual fund, as long as a majority of the independent directors also reviews and
approves the continuance of the investment advisory agreement.
In contrast to the 1940 Act provisions, the Current Agreement provides that it
may be continued from year to year only if such continuation is specifically
approved at least annually by vote of a majority of the outstanding voting
securities of the Fund. Consequently, the Current Agreement does not permit,
while the 1940 Act does permit, the Board to continue the agreement annually
without a shareholder vote. Management of the Fund has proposed and the Board of
Directors has approved the adoption of the actual language of the 1940 Act in
the Proposed Agreement. This would permit the Fund to have more flexibility with
respect to the annual continuation of the Fund's investment advisory agreement.
With the Proposed Agreement, the Board can accomplish the annual review and
approval of the Proposed Agreement without the cost and delay of holding a
shareholders' meeting and soliciting the votes of shareholders.
The Current Agreement's requirement for an annual shareholder vote makes more
sense if an annual shareholders meeting is required to be held under the laws of
the state of incorporation of the mutual fund, as is currently the case with the
Fund. As a Pennsylvania corporation, the Fund is required to hold an annual
shareholders meeting, and there is not much additional expense to include a
proxy statement proposal and have a shareholder vote on the investment advisory
agreement at that annual meeting. As described in Proposal 4, the management of
the Fund has proposed, and the Board of Directors has approved and recommended
for approval by shareholders a reorganization of the Fund into a corresponding
series of a Delaware business trust. As a series of a Delaware business trust,
the Fund would not be required to hold an annual shareholders' meeting each
year. Subject to shareholder approval of the reorganization, it is anticipated
that the series that is the successor to the Fund in the reorganization, will
have an investment advisory agreement substantially the same as the Proposed
Agreement. Thus, if the reorganization is approved, the successor series of the
Fund would avoid the considerable costs of holding an annual shareholders'
meeting, and seeking annual shareholder approval of the continuation of the
investment advisory agreement.
Proposed Changes in Shareholder Approval
of Amendments to Investment Advisory Agreement
Under the 1940 Act, shareholder approval is normally required before a mutual
fund's investment advisory agreement can be materially amended. The purpose of
this requirement is to allow shareholders to make decisions concerning
provisions of an investment advisory agreement that could affect their
investment in the mutual fund.
Mutual funds are, however, permitted to make certain amendments to such
agreements without shareholder approval. For example, a mutual fund could,
without shareholder approval, make a change that involves a decrease in advisory
fee rates or a potential decrease in such rates due to the introduction or
restructuring of breakpoints in the amount of net assets to which fee rates will
apply. In such cases, the SEC staff believes that mutual funds should not be
required to experience the delay and costs of seeking shareholder approval,
since shareholders are generally assumed to be in favor of investment advisory
fee decreases.
6
<PAGE>
The Current Agreement requires shareholder approval of any amendment to the
Current Agreement, regardless of whether shareholder approval would be required
under federal law. The Proposed Agreement permits amendments without shareholder
approval in appropriate circumstances, including, but not limited to, those
circumstances described above.
Proposal to Revise the Termination Provision To Permit the Adviser
to Terminate the Investment Advisory Agreement Upon 60 Days' Notice
The 1940 Act requires that a mutual fund's investment advisory agreement provide
that it may be terminated at any time, without the payment of any penalty, by
either the board of directors of the mutual fund or the vote of a majority of
the outstanding voting securities of the mutual fund, on not more than 60 days'
notice to the investment adviser. The purpose of this requirement is to ensure
that the mutual fund can terminate its obligations to an investment adviser on
relatively short notice if the adviser is not performing properly under the
agreement or is not providing high quality services at a competitive rate of
direct and/or indirect compensation. It is common in the investment company
industry for investment advisory agreements to extend to the investment adviser
a similar right to terminate the investment advisory agreement upon 60 days'
notice to the mutual fund.
The Current Agreement, however, permits Killen Group to terminate the Current
Agreement only at one time each year, by notifying the Fund, in writing, at
least 60 days prior to the date of the annual shareholders' meeting in that
year. The Proposed Agreement would permit Killen Group to terminate the Proposed
Agreement at any time during the year by giving the Fund at least 60 days'
notice, in writing. The management of the Fund believes that 60 days' notice at
any time during the year should provide adequate time for the Fund to make
arrangements for and obtain a new investment adviser in the event the Adviser
were to terminate the Proposed Agreement.
Clarifying Changes to the Investment Advisory Agreement
In addition to the changes described above, the Board recommends certain
clarifying changes, which are designed to clarify and/or expressly state current
practice under the Current Agreement. The Proposed Agreement reflects the
following clarifying changes: (1) to clarify, in each case, that the rate of the
investment advisory fee refers to the average daily net assets of the Fund; (2)
to state expressly that the advisory fee is paid in arrears each month; (3) to
define expressly certain terms in the Agreement with reference to the
definitions in the 1940 Act; (4) to state that the Fund is registered with the
SEC, and is qualified to engage in business, in place of stating that the Fund
shall register and shall qualify; (5) to add investment strategies and
registration statements to the list of items the Fund will furnish to the
Adviser; (6) to clarify that the investment advisory fee is for all services
rendered under the agreement without the unnecessary addition that such fee is
also for full reimbursement for all expenses assumed by the Adviser; (7) to add
that the Adviser will provide personnel to administer the Fund's operations; and
(8) to provide for automatic and immediate termination of the Proposed Agreement
upon any assignment of the Proposed Agreement. In addition, there are minor
stylistic changes that clarify and standardize the Proposed Agreement among the
investment companies advised by Killen Group. These changes do not affect the
amounts to be paid by the Fund to Killen Group for investment advisory services.
Information About the Adviser
Killen Group currently serves as the investment adviser to the Fund. The Adviser
is a Pennsylvania corporation formed in September 1982 and its offices are
located at 1199 Lancaster Avenue, Berwyn, Pennsylvania 19312. The officers and
Directors of the Adviser are set forth below. The address of each officer and
Director is 1199 Lancaster Avenue, Berwyn, Pennsylvania 19312.
Robert E. Killen is Chairman, CEO and Treasurer of the Adviser and has worked as
an investment adviser since 1969. In that year, he co-founded the partnership of
Compu Val Management Associates (an investment advisory firm) and was a partner
until February 1983 when he was replaced by the Adviser as a general partner.
(In December of 1983, the partnership of Compu Val Management Associates was
dissolved.)
7
<PAGE>
Tara J. Killen is a Director of the Adviser. She has been employed as a sales
assistant by Advest, Inc., a broker dealer, in Boca Raton, Florida since
November 1998.
Edward A. Killen, II, is Executive Vice President, Secretary and a Director of
the Adviser and was Portfolio Manager for Compu Val Management Associates from
1976 until September 1983. In September 1983, he assumed his present position
with the Adviser.
Anthony N. Carrelli, is Vice President of the Adviser and has held this position
since August 1986.
Robert E. Killen, Chairman of the Board and President of the Fund, Edward A.
Killen, II, Executive Vice President of the Adviser, and Anthony N. Carrelli,
Vice President of the Adviser, are currently members of the Board and nominees
for election as Directors at the Annual Meeting.
Other Information Relevant to Approval of the Proposed Agreement
Killen Group serves as investment adviser to the Fund pursuant to the Current
Agreement, dated May 14, 1993 and would continue as the investment adviser to
the Fund under the Proposed Agreement for an initial two-year period. Under the
terms of both the Current Agreement and the Proposed Agreement (each, an
"Advisory Agreement," and together, the "Advisory Agreements"), the Adviser
provides the Fund with advice and recommendations with respect to investments,
investment policies, the purchase and sale of securities and other investments,
and the management of the Fund's resources.
Under both Advisory Agreements, in addition to providing investment services to
the Fund, the Adviser is obligated to provide and furnish office space for the
Fund and personnel to administer the Fund's operations. The Adviser also is
obligated to pay all expenses associated with the sales promotion of the Fund.
As compensation for the services the Adviser provides, under each Advisory
Agreement the Fund is obligated to pay the Adviser monthly compensation at the
annual rate of 0.50% of the average daily net assets of the Fund. For the Fund's
fiscal year ended December 31, 1998, the Adviser received advisory fees from the
Fund totaling $789,024. Both of the Advisory Agreements provide that the
Adviser's fee will be reduced in any fiscal year by any amount necessary to
prevent the Fund's expenses and liabilities (excluding taxes, interest,
brokerage commissions and extraordinary expenses, determined by the Fund or
Adviser, but inclusive of the Adviser's fee) from exceeding 2.00% of the average
daily net assets of the Fund (1.50% when net assets of the Fund are over $100
million). This expense limitation did not affect the Adviser's fee in the Fund's
1998 fiscal year.
The Advisory Agreements are terminable at any time without penalty by the Board
of Directors or the vote of a majority of the outstanding shares of the Fund, in
either case on 60 days' written notice to the Adviser. The Adviser may terminate
the Current Agreement by written notice to the Fund at least 60 days' prior to
the date of the annual shareholders meeting of any year. The Current Agreement
has a provision that it will automatically and immediately terminate in the
event the Adviser assigns the Advisory Agreement and the Proposed Agreement has
a provision that it will automatically and immediately terminate upon any
assignment of the Proposed Agreement. The Current Agreement provides that,
unless sooner terminated, it will continue in effect from year to year provided
that such continuance is specifically approved at least annually by a "vote of a
majority of the outstanding shares" of the Fund, as such term is defined in the
1940 Act. Continuance of both Advisory Agreements is subject to approval by the
Independent Directors of the Fund annually.
The Current Agreement was last submitted for shareholder approval at the Annual
Meeting of Shareholders held on March 27, 1998. At that time, the Current
Agreement was approved.
Affiliated Brokers
The Fund places a portion of its portfolio transactions through brokers
affiliated with the Adviser and the Fund. In the fiscal year ended December 31,
1998, the affiliated broker used by the Fund was BFS. BFS is affiliated with the
Adviser and Fund by reason of the fact that officers and Directors of the Fund
and the Adviser are officers,
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Directors or shareholders of BFS. In addition, BFS serves as the selling agent
for the Fund in various jurisdictions pursuant to a written agreement. BFS
located at 1199 Lancaster Avenue, Berwyn, Pennsylvania, 19312.
In the fiscal year ended December 31, 1998, the Fund paid a total of $185,795 in
commissions to BFS. This amount represents 85% of the total commissions paid by
the Fund during fiscal year 1998.
Board Consideration and Approval of Proposed Agreement
The Board, including the Independent Directors, unanimously approved the
Proposed Agreement at a meeting held on January 20, 1999. In making its
recommendation to adopt the Proposed Agreement, the Board considered a number of
factors. These factors were the performance of the Fund in fiscal year 1998 and
for the last ten years, the nature and quality of the services provided by the
Adviser, and the Adviser's fee and the expenses of the Fund in comparison to
other mutual funds with a similar investment objective. The Board was also aware
that the Adviser placed portfolio transactions through brokers affiliated with
the Adviser, and the Fund and the Adviser allocated portfolio transactions to
brokers that sold shares of the Fund and that provided research to the Adviser.
Prior to the Board meeting held on January 20, 1999, the members of the Board
were provided with a memorandum prepared by the Adviser that detailed the
experience of the Fund's portfolio manager, the services provided by the Adviser
and the number of employees engaged in providing those services. Also provided
in the memorandum was the annual performance of the Fund for the last ten years,
as well as the annual average total return for the last 1, 5 and 10 years. The
annual performance was compared to the performance of a relevant index. The
memorandum listed the total amount of fees paid to the Adviser for fiscal year
1998, the ratio of expenses to average net assets for the year and the rate of
the fees that the Fund pays the Adviser.
In addition to the Adviser's memorandum, the members of the Board were provided
with information which compared the Fund's expenses and fees to the various
expenses and fees of mutual funds with investment objectives similar to the
Fund's investment objective.
The Board also reviewed the proposed changes to the Current Agreement described
above, which are incorporated in the Proposed Agreement. After a discussion
regarding the Proposed Agreement, the Board unanimously determined that it was
in the best interest of the Fund's shareholders to approve the Proposed
Agreement and submit it, with a recommendation for approval, to the shareholders
for vote at the Annual Meeting.
Effective Date of Proposed Agreement. If shareholders approve the Proposed
Agreement, the Proposed Agreement will take effect on the date of the
shareholder approval at the Annual Meeting, which may be a date later than March
26, 1999, if the Annual Meeting is postponed or adjourned.
The Current Agreement will terminate on March 26, 1999. If the shareholders do
not approve the Proposed Agreement at the Annual Meeting, the Fund will not have
an investment advisory agreement in effect after that date. In that case, the
Board will have to consider what investment advisory agreement to implement and
will have to call a special meeting of the shareholder to seek shareholder
approval of the new investment advisory agreement. The Fund will have to operate
under the Current Agreement or another investment advisory agreement on an
interim basis, pending shareholder approval of another investment advisory
agreement. Under a rule adopted under the 1940 Act, the Fund can, subject to
certain conditions, operate on such an interim basis for as much as 120 days
after the termination of an investment advisory agreement even though the
interim agreement has not yet been approved by the Fund's shareholders. The rule
requires that the interim agreement be approved by the Board and the
compensation paid to the investment adviser under the interim agreement not
exceed the compensation paid under the terminated agreement.
A copy of the Proposed Agreement which has been marked to show the changes from
the Current Agreement is attached as Exhibit A.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED AGREEMENT AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSED AGREEMENT.
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PROPOSAL 4 - APPROVAL OF THE REORGANIZATION OF THE FUND FROM A
PENNSYLVANIA CORPORATION INTO A SERIES OF A DELAWARE BUSINESS TRUST
The Board has approved an Agreement and Plan of Reorganization (the "Plan")
substantially in the form attached to this Proxy statement as Exhibit B. The
Plan provides for a reorganization (a "Reorganization") pursuant to which the
Fund will change its state and form of organization from a Pennsylvania
corporation into a series of a Delaware business trust.
Under the Reorganization, the Fund will be reorganized as a separate series of
shares of a newly created Delaware business trust that will carry on the
business of the Fund. The newly created Delaware business trust is referred to
in this Proposal as the "New Fund." The series of shares of the New Fund that
corresponds to the Fund is referred to in this Proposal as the "New Series." The
New Series will have substantially the same name as the Fund.
Under the Reorganization, the investment objective of the New Series will be the
same as that of the Fund; the portfolio securities of the Fund will be
transferred to the New Series; and shareholders will own the same proportionate
interest in the same portfolio of assets as prior to the Reorganization. The
directors, officers and employees of the Fund on the effective date of the
Reorganization will become the directors, officers and employees of the New Fund
and will operate the New Fund in the same manner as they previously operated the
Fund. Killen Group, the investment adviser responsible for the investment
management of the Fund, will be the investment adviser for the New Series. The
New Fund will have the same fiscal year as the Fund, and the mailing address and
telephone number of the principal executive offices of the New Fund will be the
same as the Fund. The fees and expenses to which the New Series will be subject
subsequent to the Reorganization will be the same as those currently in effect
for the Fund. For all practical purposes, a shareholder's investment in the Fund
will not change under the Reorganization.
Background and Reasons for the Reorganization. The Board unanimously recommends
the reorganization of the Fund into a series of a Delaware business trust
because the Board has determined that the Delaware business trust form of
organization is an inherently flexible form of organization and would provide
certain administrative advantages to the Fund.
In reaching its recommendation of the reorganization, the Board considered the
differences in the legal structures of the Fund and the New Fund and the effect
on the role of the shareholders. Delaware business trust law contains provisions
specifically designed for mutual funds, such as the Fund. Those provisions take
into account the unique structure and operation of mutual funds, and allow
mutual funds to simplify their operations by reducing administrative burdens so
that, in general, they may operate more efficiently. For example, mutual funds
organized as Delaware business trusts are not required to hold annual
shareholders' meetings, and may create new series or classes of shares without
obtaining the approval of shareholders at a meeting.
Under Delaware business trust law, the New Fund will have the flexibility to
respond to future business contingencies. For example, the New Fund will have
the power to cause the New Series to become a separate trust and to change the
New Fund's domicile all without a shareholder vote, unless such vote is required
under the 1940 Act or other applicable law. This flexibility could help to
assure that the New Fund operates under the most advanced form of organization
and could help reduce the expense and frequency of future shareholders' meetings
for non-investment related issues.
Another advantage that is afforded to a mutual fund organized as a Delaware
business trust is that there is a well established body of corporate precedent
that may be relevant in deciding issues pertaining to the trust.
The Reorganization also will increase uniformity among the mutual funds within
the Berwyn Funds family. Killen Group also serves as investment adviser to The
Berwyn Fund, Inc. ("The Berwyn Fund"). Like the Fund, The Berwyn Fund is an
investment company that is organized as a Pennsylvania corporation and issues a
single series of shares. The Board of Directors of The Berwyn Fund has also
approved an agreement and plan of reorganization pursuant to which The Berwyn
Fund would change its state and form of organization from a Pennsylvania
10
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corporation into a corresponding series of the New Fund. If the shareholders of
the Fund approve the Plan at the Annual Meeting, and the shareholders of The
Berwyn Fund approve the agreement and plan of reorganization presented at that
company's annual shareholders meeting, the result of each reorganization would
be a single investment company (mutual fund) with two series of shares.
The Board considered that, if approved by its respective shareholders, the
Reorganization of the Fund, and the similar reorganization of The Berwyn Fund,
would likely result in certain administrative cost savings to both Funds. As
currently structured, the Fund and The Berwyn Fund each maintain a separate
corporate entity, which require the Fund and The Berwyn Fund to make separate
regulatory filings and maintain separate corporate records. The Fund and The
Berwyn Fund have separate boards of directors, and each is registered as a
separate entity with the Securities and Exchange Commission ("SEC") and the
states. After the proposed Reorganization of the Fund, and the proposed
reorganization of The Berwyn Fund, the Fund and The Berwyn Fund would become
separate series of the New Fund. The New Fund would maintain a registration with
the SEC as a single trust entity with two separate series of shares.
The Fund currently pays capital stock taxes to the Commonwealth of Pennsylvania.
This tax applies to the Fund because it is a corporation headquartered in
Pennsylvania. If the Fund were instead organized in the form of a series of a
business trust, it would be exempt from the Pennsylvania capital stock tax.
However, as a business trust, the New Fund may remain subject to a different
tax, the Pennsylvania county personal property tax. (Please see the discussion
under "Certain Federal Income and State Tax Consequences," below.)
For these reasons, the Board believes it is in the best interest of the
shareholders of the Fund to reorganize the Fund into a series of a Delaware
business trust. At present, it appears that the most advantageous time to
consummate the Reorganization is on or about April 30, 1999. This date, however,
may be modified by the Fund and the New Fund. The Board reserves the right to
abandon the Reorganization if the Board determines that such action is in the
best interest of the Fund and its shareholders.
Consequences and Procedures of the Reorganization. Upon consummation of the
Reorganization, the New Series will continue the Fund's business with the same
investment objective, policies and restrictions that are in effect for the Fund
at the time of the consummation of the Reorganization. The net asset value of
the shares of the Fund will not be affected by the Reorganization. The New Fund
has been organized specifically for the purpose of effecting the Reorganization.
Immediately prior to the effective date of the Reorganization (as defined in the
Plan), the New Series will have outstanding only one share of beneficial
interest. The Fund will be the sole holder of the share of beneficial interest
of the New Series. The Plan contemplates that the directors proposed to be
elected at this Annual Meeting will serve as the trustees of the New Fund, with
comparable responsibilities. The officers of the Fund on the effective date of
the Reorganization will become officers of the New Fund with comparable
responsibilities. The Reorganization will not result in the recognition of
income, gain or loss for Federal income tax purposes to the Fund or its
shareholders or to the New Fund. (See "Certain Federal Income and State Tax
Consequences of the Plan," below.)
To accomplish the Reorganization, the Plan provides that the Fund will transfer
all of its assets and liabilities to the New Series. The New Fund will establish
an account for each shareholder of the Fund and will credit to that account the
exact number of full and fractional shares of the New Series that such
shareholder previously held in the Fund on the effective date of the
Reorganization. Each shareholder will retain the right to any declared but
undistributed dividends or other distributions payable on the shares of the Fund
that he or she owned as of the effective date of the Reorganization. On the date
of the Reorganization, the net asset value per share of the Fund will be the
same as the net asset value per share of the New Series. The New Series will
assume all liabilities and obligations of the Fund. As soon as practicable after
the effective date of the Reorganization, the Fund will be dissolved and its
existence terminated.
On the effective date of the Reorganization, each certificate representing
shares of the Fund will represent an identical number of shares of the New
Series. Shareholders will have the right to exchange their certificates of the
Fund for certificates of the New Series of the New Fund.
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<PAGE>
The Plan provides that the effective date of the Reorganization will be (i) the
next business day after the later of the receipt of all necessary regulatory
approvals and the final adjournment of the meeting of shareholders of the Fund
at which the Plan will be considered, or (ii) such later date as the Fund and
the New Fund may mutually agree. It is expected that this will be on or about
April 30, 1999, or such time as the Board deems advisable and in the best
interests of the Fund and its shareholders. The Plan may be terminated and the
Reorganization abandoned by the Board at any time prior to the effective date of
the Reorganization. If the Reorganization does not receive the necessary
regulatory approvals or if the Board determines to terminate or abandon the
Reorganization, the Fund will continue to operate as a Pennsylvania corporation.
Capitalization and Structure. The New Fund was established pursuant to an
Agreement and Declaration of Trust ("Trust Document") under the laws of the
State of Delaware. The New Fund is organized as a series company. The Trust
Document permits the Trustees to issue an unlimited number of shares of
beneficial interest, with no par value. The Board of Trustees of the New Fund
has the power, without shareholder approval, to divide such shares into an
unlimited number of series or classes of shares of beneficial interest. Each
share of the New Series represents an equal proportionate interest in the assets
and liabilities belonging to that series of the New Fund.
Shares of the New Series have substantially the same dividend, redemption,
voting, exchange and liquidation rights as the shares of the Fund. Please see
Exhibit C, "Comparison And Significant Differences For Delaware Business Trusts
And Pennsylvania Corporations." Shares of the Fund and the New Series are fully
paid, non-assessable, and freely transferable and have no
preemptive or subscription rights.
Prior to the Reorganization, the New Series will have nominal assets and no
liabilities. Initially, the sole shareholder of the New Series will be the Fund.
The New Series will have the same investment objective and policies as the Fund
at the time of the Reorganization. Killen Group will provide investment advisory
services to the New Series as it does to the Fund.
In the Reorganization, shares of the Fund will be exchanged for an identical
number of shares of the New Series. Thereafter, shares of the New Series will be
available for issuance at their net asset value applicable at the time of sale.
The shares of beneficial interest of the New Series will be registered under the
Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act.
Effects of Shareholder Approval of the Reorganization. An investment company
registered under the 1940 Act is required to: (i) submit the selection of the
company's independent accountants to all shareholders for their ratification;
(ii) call a special meeting to elect directors (trustees) within 60 days if, at
any time, less than one half of the directors (trustees) holding office have
been elected by all shareholders; and (iii) submit any proposed investment
advisory agreement relating to the investment company or a particular series of
the investment company to the shareholders of that investment company or series
for approval.
The Board believes that it is in the best interest of the shareholders of the
Fund (who will become the shareholders of the New Series if the Reorganization
is approved) to avoid the considerable expense of another shareholders' meeting
to obtain the shareholder approvals described above shortly after the closing of
the Reorganization. The Board also believes that it is not in the best interest
of the shareholders of the Fund to carry out the Reorganization if the surviving
New Fund would not have a Board of Trustees, independent accountants, and an
investment advisory agreement complying with the 1940 Act.
The Board will, therefore, consider approval of the Reorganization by the
requisite vote of the shareholders of the Fund to constitute the approval of the
Plan contained in Exhibit B, and also to constitute, for the purposes of the
1940 Act: (i) ratification of the independent accountants for the Fund at the
time of the Reorganization as the New Fund's independent accountants (please see
Proposal 2); (ii) election of the directors of the Fund who are in office at the
time of the Reorganization as the trustees of the New Fund on the effective date
of the Reorganization (please see Proposal 1); and (iii) approval by the
shareholders of the Fund of the investment advisory agreement between the New
Fund, on behalf of the New Series, and Killen Group, which will be substantially
the same as the Proposed Agreement that is in place between the Fund and Killen
Group on the effective date of the Reorganization (please see Proposal 3).
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<PAGE>
The New Fund will issue a single share of the New Series to the Fund, and,
assuming approval of the Reorganization by shareholders of the Fund, the
officers of the Fund, prior to the Reorganization, will cause the Fund, as the
sole shareholder of the New Series, to vote such share "FOR" the matters
specified in the above paragraph. The Fund will then consider the requirements
of the 1940 Act referred to above to have been satisfied. The Board may
terminate and abandon the Reorganization of the Fund notwithstanding approval
thereof by the shareholders of the Fund, at any time prior to the effective date
of the Reorganization, if in the judgment of the Board, the facts and
circumstances make proceeding with the Plan inadvisable.
Investment Advisory Agreement. If the Proposed Agreement relating to the Fund as
proposed and described in Proposal 3, is approved by the shareholders of the
Fund, the terms of the investment advisory agreement for the New Series will be
substantially the same as the Proposed Agreement.
Certain Federal Income and State Tax Consequences of the Plan. It is anticipated
that the transactions contemplated by the Plan will be tax-free for federal
income tax purposes. Consummation of the Reorganization is subject to receipt of
a legal opinion from the law firm of Stradley, Ronon, Stevens & Young, LLP,
counsel to the Fund and the New Fund, that, under the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), the exchange of assets of the
Fund for the shares of the New Series, the transfer of such shares to the
shareholders of the Fund, and the liquidation and dissolution of the Fund
pursuant to the Plan will not give rise to the recognition of a gain or loss for
federal income tax purposes to the Fund, the New Fund, or shareholders of the
Fund or the New Fund. A shareholder's adjusted basis for tax purposes in the
shares of the New Fund after the exchange and transfer will be the same as his
adjusted basis for tax purposes in the shares of the Fund immediately before the
exchange.
As a business trust, the New Fund (or, in certain circumstances, its
shareholders who are Pennsylvania residents) would be subject to the
Pennsylvania county personal property tax. At present, however, Pennsylvania
counties generally have stopped assessing personal property taxes. This is due,
in part, to ongoing litigation challenging the validity of the tax. If the
personal property tax were reinstituted, however, or any similar state or local
tax were imposed, the New Fund's options would be reevaluated at that time.
Each shareholder should consult his or her own tax adviser with respect to the
details of these tax consequences, and with respect to state and local tax
consequences, of the proposed transaction.
Shareholder Servicing Arrangements. The New Fund will enter into an agreement
with PFPC Inc. for transfer agency, dividend disbursing, and shareholder
servicing that is substantially the same as the agreement currently in effect
for the Fund for such services.
BFS will serve as the distributor of the shares of the New Series, under a
selling agreement between BFS and the New Fund, which is substantially the same
as the selling agreement currently in effect between BFS and the Fund. Under
such selling agreements, BFS serves as the non-exclusive agent in certain
jurisdictions for the continuous offering of the shares of the Fund or the New
Series, respectively.
Requests for Redemption of Shares of the Fund. Any request to redeem shares of
the Fund that is received and processed prior to the Reorganization will be
treated as a redemption of shares of the Fund. Any request to redeem shares of
the Fund that is received or processed after the Reorganization will be treated
as a request for the redemption of shares of the New Series.
Expenses of the Reorganization. Because the Reorganization will benefit the Fund
and its shareholders, the expenses incurred by the Fund in the Reorganization or
arising out of the Reorganization will be paid by the Fund, whether or not the
Reorganization is approved by the shareholders of the Fund.
Comparison of Legal Structures. A comparison of the Delaware Business Trust Act
with the Pennsylvania Business Corporation Law of 1988, including a comparison
of relevant provisions of the governing documents of
13
<PAGE>
the Fund and the New Fund, is included in Exhibit C, which is entitled
"Comparison And Significant Differences For Delaware Business Trusts And
Pennsylvania Business Corporations."
The following is a brief summary of major differences in the legal structure of
the New Fund in comparison to the legal structure of the Fund both in terms of
the governing state law and the charter documents of each. Generally, the legal
structure of the New Fund makes it easier to obtain needed shareholder
approvals, and also permits management to take various actions without being
required to make state filings or obtain shareholder approval. For example,
neither state filings or shareholder approval is required for the New Fund to
create series or classes of shares, as is required for the Fund. The Trustees of
the New Fund have similar duties, responsibilities and authority with respect to
the New Fund as the Directors of the Fund have, with respect to the Fund.
With respect to shareholders' meetings and voting, the New Fund will have much
greater flexibility for proxy solicitations than the Fund, because the New Fund
may accept proxies by any electronic or telecommunications means. The New Fund
will not be required to hold annual shareholder meetings as the Fund is required
to do. Special shareholder meetings for the New Fund may be called at any time
by (1) the Board of Trustees, (2) the Chairperson of the Board, or (3) the
President, any Vice President or the Secretary and any two Trustees; special
shareholder meetings for the Fund may be called at any time by (1) by the
President, (2) the Board of Directors, or (3) shareholders entitled to cast at
least 10% of all eligible votes. The percentage of shareholders needed to
constitute a quorum to hold shareholders' meetings is smaller for the New Fund:
thirty-three and one-third percent for the New Fund compared to a majority for
the Fund (with certain variations for meetings that have been adjourned.) The
percentage of shareholders needed to take action in writing without holding a
shareholders' meeting is smaller for the New Fund: the New Fund requires such
action to be taken by the minimum number of votes that would be necessary to
authorize or take that action at a meeting, whereas the Fund requires such
action to be taken by all of the shareholders entitled to vote on the matter.
(Similarly, for action by the boards, the percentage of Trustees needed to take
action in writing without holding a Trustees' meetings is smaller for the New
Fund: the New Fund requires such action to be taken by a majority of the members
of the Board of Trustees, whereas the Fund requires such action to be taken by
all of the Directors.) There are some small differences with respect to the
notice required for shareholders' meetings: the New Fund is required to give not
less than seven or more than ninety-three days' notice, while the Fund is
required to give at least 10 days' notice for special meetings and not less than
14 nor more than 30 days' notice for the annual meeting.
The Trustees of the New Fund will have more flexibility to take certain actions
for the New Fund than the Directors of the Fund have for the Fund. The New
Fund's Trustees may be authorized to incorporate a Delaware business trust
("DBT"), to merge or consolidate the DBT with another entity, to cause multiple
series of a DBT to become separate trusts, to change the domicile or to
liquidate a DBT, all without having to obtain a shareholder vote. More
importantly, in cases where funds are required or do elect to seek shareholder
approval for transactions, the Delaware law provides great flexibility with
respect to the quorum and voting requirements for approval of such transactions.
In contrast, for the Fund, shareholder approval by a majority of all votes
entitled to be cast is necessary to approve an amendment or restatement of the
articles; a reduction of stated capital; a consolidation, merger, share exchange
or transfer of assets, including a sale of all or substantially all the assets
of the corporation; a distribution in partial liquidation; or a voluntary
dissolution. For amendment of the governing documents, for the New Fund,
shareholder approval to adopt amendments to the Declaration of Trust is only
required if such adoption would adversely affect to a material degree the rights
and preferences of the shares of any series (or class) already issued, so long
as the amendment is consistent with the fair and equitable treatment of all
shareholders, and shareholder approval is not required by the 1940 Act or other
applicable law. In contrast, for the Fund, amendments to the Articles of
Incorporation require the vote of a majority of the outstanding shares entitled
to vote, with certain exceptions (described in Exhibit C), in addition to
adoption of the amendments by resolution of the Board of Directors or petition
of shareholders entitled to cast at least 10% of the votes. With respect to the
By-Laws, the Board of Trustees of the New Fund may adopt, amend or repeal the
By-Laws; in contrast, the Fund's By-Laws may be amended or repealed only by vote
of a majority of the shares entitled to vote thereon.
With respect to electing Trustees or Directors, and filing vacancies or removing
Trustees or Directors, for both the New Fund and the Fund the shareholders have
the authority to elect the Trustees or Directors. Because the New Fund will not
hold annual shareholders' meetings, however, the shareholders of the New Fund
will act less often in
14
<PAGE>
the election of Trustees than the shareholders of the Fund do in the election of
Directors. Also, for the New Fund, the Trustees may fill vacancies in the Board
of Trustees or remove Trustees with or without cause. In contrast, for the Fund,
the shareholders may remove directors with or without cause upon the affirmative
vote of a majority of all votes entitled to be cast for the election of
Directors. Both the New Fund and the Fund are subject to restrictions imposed on
the filling of vacancies in the boards by the provisions of the 1940 Act. The
1940 Act requires that after any vacancy in the Trustees or Directors is filled
by action other than shareholder vote, at least two-thirds of the Trustees or
Directors then holding office shall have been elected to such office by the
shareholders voting at an annual or special shareholders' meeting. The 1940 Act
also requires that in the event that at any time less than a majority of the
Trustees or Directors holding office were elected to such office by the
shareholders voting at an annual or special shareholders' meeting, the New Fund
or the Fund must hold a shareholders' meeting as soon as possible, but at least
within sixty days, for the purpose of electing Trustees or Directors to fill any
existing vacancies.
With respect to dividends, for the New Fund there are no statutory limitations
on the payment of dividends and other distributions. The Fund, however, is
subject to certain statutory limitations on such payments, for example, where
the Fund is insolvent. These differences are not expected to have any practical
impact on the manner in which the New Fund will make such payments.
The foregoing is only a brief summary of major differences in the legal
structures of the New Fund and the Fund. For a more detailed and complete
comparison of these legal structures, shareholders should refer to Exhibit C.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSED REORGANIZATION
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2000 Annual Meeting of
Shareholders must be received by the Fund by November 1, 1999 for inclusion in
the Fund's proxy statement and proxy relating to that meeting. Upon receipt of
any such proposal, the Fund will determine whether or not to include such
proposal in the proxy statement and proxy, in accordance with regulations
governing the solicitation of proxies. The administrator of the Fund is PFPC
Inc., located at 400 Bellevue Parkway, Wilmington, Delaware, 19809.
The financial statements included in the Annual Report to Shareholders for the
fiscal year ended December 31, 1998 which accompanies this proxy statement are
incorporated by reference in this proxy statement.
By Order of the Board of Directors
/s/ Kevin M. Ryan
----------------------------------
Kevin M. Ryan
Secretary
February 26, 1999
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EXHIBIT A
This is a marked version of the Contract for Investment Advisory Services as
proposed. Proposed additions to the contract are shown by boldface type and
double underlines. Proposed deletions are marked through with a single line.
CONTRACT FOR
INVESTMENT ADVISORY SERVICES
Agreement made [May 14, 1993] *[March ___,1999]* between [The] *[the]* Berwyn
Income Fund, Inc., a Pennsylvania corporation, having its principal place of
business at 1189 Lancaster Avenue, Berwyn, Pennsylvania, herein referred to as
the Fund, and The Killen Group, Inc., a Pennsylvania corporation, having its
principal place of business at 1189 Lancaster Avenue, Berwyn, Pennsylvania,
herein referred to as the Adviser.
1. The Fund [shall register] *[is registered]* with the *[U.S.]*
Securities and Exchange Commission as [a diversified,] *[an]*
open-end management investment company under the provisions of
the Investment Company Act of 1940 [and shall qualify]*[, as
amended (the "Act"), and is qualified]* to engage in business
under [said act] *[the Act]* and other applicable federal and
state statutes.
2. The Adviser is registered under the Investment [Advisors Act]
*[Advisers Act of 1940, as amended (the "Advisers Act")]* and is
engaged in the business of acting as an investment adviser and
rendering research and advisory services.
3. The Fund desires to retain the Adviser to render such services to
the Fund in the manner and on the terms and conditions
hereinafter set forth.
4. Nothing contained herein shall be deemed to require the Fund to
take any [actin] *[action]* contrary to its certificate of
incorporation or any applicable statute or regulation, or to
relieve or deprive the Board of Directors of the Fund of its
responsibility for, and control of, the conduct of the affairs of
the Fund.
For the reasons recited above, and in consideration of the mutual promises
contained herein, the Fund and Adviser agree as follows:
SECTION ONE
INVESTMENT ADVICE AND OTHER SERVICES
a. Adviser shall to the extent reasonably required in the conduct of the
business of the Fund, place at the disposal of the Fund, its judgment and
experience and furnish to the Fund advice and recommendations with respect to
investments, investment policies, the purchase and sale of securities, and the
management of [its] *[the Fund's]* resources. Adviser shall also, from time to
time, furnish to or place at the disposal of the Fund such reports and
information relating to industries, businesses, corporations or securities as
may be reasonably required by the Fund or as Adviser may deem to be helpful to
the Fund in the administration of its investments.
b. Adviser agrees to use its best efforts in the furnishing of such advice
and recommendations and in the preparation of such reports and information, and
for this purpose Adviser shall at all times maintain a staff of [Officers]
*[officers]* and other trained personnel for the performance of its obligations
under this agreement. Adviser,
A-1
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may at its expense, employ other persons to furnish to Adviser statistical and
other factual information, advice regarding economic factors and trends,
information with respect to technical and scientific developments and such other
information, advice and assistance as Adviser may desire.
c. The Fund will from time to time furnish to Adviser detailed statements
of the investments and resources of the Fund and information as to its
investment *[strategies and]* problems, and will make available to Adviser such
*[registration statements,]* financial reports, proxy statements, and legal and
other information relating to its investments as may be in possession of the
Fund or available to it.
SECTION TWO
COMPENSATION TO INVESTMENT ADVISER
a. The Fund agrees to pay to Adviser and Adviser agrees to accept, as full
compensation for all services rendered [and as full reimbursement for all
expenses assumed] by Adviser hereunder, *[a fee at]* an annual [fee] *[rate]*
equal to [1/2 of 1%] *[0.50%]* of the average daily *[net]* assets of the Fund.
The fee will be paid monthly *[in arrears]*.
b. Adviser agrees that neither it nor any of its [Officers or Directors]
*[officers or directors]* shall take any long or short position in the capital
stock of the Fund; [but this prohibition shall not prevent the purchase by or
for] *[provided that the] *Adviser or any of its [Officers or Directors of]
*[officers or directors may purchase]* shares of the capital stock of the Fund
at the price at which such shares are available to the public at the moment of
purchase*[; and]* provided *[further]* that (1) such purchase [be] *[is]* made
for investment purposes only and (2) if any shares of *[capital]* stock so
purchased are resold within two months after the date of purchase, such fact
will be immediately reported to the Fund.
SECTION THREE
PAYMENT OF EXPENSES
The Adviser shall provide and furnish office space [for Officers and employees
of the Fund] *[to the Fund and provide personnel to administer the Fund's
operations]*. The Adviser shall pay all expenses associated with the sales
promotion of the Fund. The Fund will pay all other expenses incurred in the
operation of the Fund.
The Adviser hereby agrees to reduce its fee in any fiscal year *[of the Fund]*
by any amount necessary to prevent Fund expenses and liabilities (excluding
taxes, interest, brokerage commissions and extraordinary expenses, determined by
the Fund or Adviser, but inclusive of the Adviser's fee) from exceeding [2%
of]*[an annual rate of 2.00% of the average daily]* net assets of the Fund. When
the [total] *[average daily]* net assets of the Fund exceed $100 million, the
Adviser hereby agrees to reduce its fee 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
Adviser, but inclusive of the Adviser's fee) from exceeding [1 1/2% of the] *[an
annual rate of 1.50% of the average daily]* net assets of the Fund.
SECTION FOUR
DURATION; TERMINATION
a. This agreement shall begin on [May 14, 1993. The agreement] *[the day
and year first above written and]* shall continue in effect [from year to year
thereafter, subject to the provisions for termination and all of
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<PAGE>
the other terms and conditions hereof, if (1) such continuation shall be
specifically approved at least annually] *[for a period of two years, if
approved]* by vote of a majority of the outstanding voting securities of the
Fund*[. After the initial two years of this agreement, this agreement shall
continue in effect from year to year, subject to the provisions for termination
and all of the other terms and conditions hereof; provided that such
continuation shall be specifically approved at least annually (i) by vote of a
majority]*[; and (2) Adviser shall not have notified the Fund, in writing, at
least sixty days prior to the date of the Annual Shareholders Meeting of any
year thereafter, that it does not desire such continuation.]
[b. This agreement may be terminated by the Fund on 60 days notice in
writing to Adviser, without the payment of any penalty, provided such
termination be authorized by resolution] of the Board of Directors of the Fund
or by vote of a majority of [it] *[the]* outstanding voting securities *[of the
Fund, and (ii) by vote of a majority of the directors of the Fund who are not
parties to this agreement or "interested persons" of any such party, cast in
person at a meeting called for the purpose of voting on such approval.]*
*[b. This agreement may be terminated by the Fund or the Adviser on sixty
days' notice in writing to the other party hereto, without the payment of any
penalty; provided that such termination on the part of the Fund is authorized by
resolution of the Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities of the Fund.
c. This agreement shall automatically and immediately terminate in the
event of its assignment.
d. For the purposes of this agreement, the terms "interested persons,"
"vote of a majority of the outstanding voting securities," and "assignment"
shall have the meanings as provided in the Act and the rules and regulations
thereunder].*
SECTION FIVE
AMENDMENT OF AGREEMENT
This agreement may [not be amended, transferred, assigned, sold or in any manner
hypothecated or pledged without the affirmative vote or written consent of the
holders of a majority of the outstanding voting securities of the Fund; and]
*[be amended or modified to the extent, and in the manner, permitted by the Act
and the rules and regulations adopted thereunder; provided that no amendment or
modification of]* this agreement shall [automatically and immediately terminate
in the event of its assignment by Adviser] *[be effective unless the same shall
be in writing and signed by all of the parties hereto]*.
In witness whereof, the parties hereto have caused this agreement to be
signed by their respective [Officers] *[officers]* thereunto duly authorized and
their respective corporate seals to be hereunto affixed, the day and year first
above written.
[THE] BERWYN INCOME FUND, INC. THE KILLEN GROUP, INC.
*[By *[By]*
----------------------------- -------------------------------
Name]* [by]: Kevin M. Ryan [by] *[Name]*: Robert E. Killen
*[Title:]* Secretary -*[and]* Treasurer *[Title:]* President
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<PAGE>
EXHIBIT B
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("Agreement") is made as of this
___ day of ______________, 1999 by and between The Berwyn Funds, a Delaware
business trust ("Fund"), and the Berwyn Income Fund, Inc., a Pennsylvania
corporation ("Corporation") (the Fund and the Corporation are hereinafter
collectively referred to as the "parties").
In consideration of the mutual promises contained herein, and intending to
be legally bound, the parties hereto agree as follows:
1. Plan of Reorganization.
(a) Upon satisfaction of the conditions precedent described in
Section 3 hereof, the Corporation will convey, transfer and deliver to the Fund
at the closing provided for in Section 2 (hereinafter referred to as the
"Closing") all of the Corporation's then-existing assets to be conveyed,
transferred and delivered to a series of shares of beneficial interest of the
Fund designated to receive such assets (the "Berwyn Income Fund series"). In
consideration thereof, the Fund agrees at the Closing (1) to assume and pay, to
the extent that they exist on or after the Effective Date of the Reorganization
(as defined in Section 2 hereof), all of the Corporation's obligations and
liabilities, whether absolute, accrued, contingent or otherwise, including all
fees and expenses in connection with the Agreement, which fees and expenses
shall in turn include, without limitation, costs of legal advice, accounting,
printing, mailing, proxy solicitation and transfer taxes, if any, the
obligations and liabilities of the Corporation to become the obligations and
liabilities of the Berwyn Income Fund series of the Fund, and (2) to deliver, in
accordance with paragraph (b) of this Section 1, full and fractional shares of
beneficial interest, without par value, of the Berwyn Income Fund series, equal
in number to the number of full and fractional shares of common stock, par value
$1.00 per share, of the Corporation, outstanding immediately prior to the
Effective Date of the Reorganization. The transactions contemplated hereby are
intended to qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended ("Code").
(b) In order to effect such delivery, the Fund will establish
an open account for each shareholder of the Corporation and, on the Effective
Date of the Reorganization, will credit to such account full and fractional
shares of the Berwyn Income Fund series of the Fund equal to the number of full
and fractional shares such shareholder holds in the Corporation at the close of
regular trading on the New York Stock Exchange on the business day immediately
preceding the Effective Date of the Reorganization; fractional shares of the
Fund will be carried to the third decimal place. On the Effective Date of the
Reorganization, the net asset value per share of beneficial interest of the
Berwyn Income Fund series of the Fund shall be deemed to be the same as the net
asset value per share of the shares of common stock of the Corporation at the
close of regular trading on the New York Stock Exchange on the business day
immediately preceding the Effective Date of the Reorganization. On the Effective
Date of the Reorganization, each certificate representing shares of the
Corporation will represent the same number of shares of the Berwyn Income Fund
series of the Fund. Each shareholder of the Corporation will have the right to
exchange his (her) share certificates for share certificates of the Berwyn
Income Fund series of the Fund. However, a shareholder need not make this
exchange of certificates unless he (she) so desires. Simultaneously with the
crediting of the shares of the Berwyn Income Fund series of the Fund to the
shareholders of record of the Corporation, the shares of the Corporation held by
such shareholder shall be cancelled.
(c) As soon as practicable after the Effective Date of the
Reorganization, the Corporation shall take all necessary steps under
Pennsylvania law to effect a complete dissolution of the Corporation.
2. Closing and Effective Date of the Reorganization.
The Closing shall consist of (1) the conveyance, transfer and
delivery of the Corporation's assets to the Fund, in exchange for the assumption
and payment by the Fund of the Corporation's liabilities; and (2) the issuance
and delivery of the Fund's shares in accordance with Section 1(b), together with
related acts necessary to consummate such transactions. The Closing shall occur
either on (a) the business day immediately following the
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<PAGE>
later of receipt of all necessary regulatory approvals and the final adjournment
of the meeting of shareholders of the Corporation at which this Agreement will
be considered, or (b) such later date as the parties may mutually agree
("Effective Date of the Reorganization").
3. Conditions Precedent.
The obligations of the Corporation and the Fund to effectuate
the reorganization hereunder shall be subject to the satisfaction of each of the
following conditions:
(a) Such authority and orders from the U.S. Securities and
Exchange Commission ("Commission") as may be necessary to permit the parties to
carry out the transactions contemplated by this Agreement shall have been
received;
(b) (1) One or more post-effective amendments to the
registration statement of the Corporation on Form N-1A ("Registration
Statement") under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended ("1940 Act"), containing such amendments to the
Registration Statement as are determined by the Trustees of the Fund to be
necessary and appropriate as a result of this Agreement shall have been filed
with the Commission; (2) the Fund shall have adopted as its own such
Registration Statement, as so amended; (3) the most recent post-effective
amendment to the Registration Statement filed with the Commission relating to
the Fund shall have become effective, and no stop-order suspending the
effectiveness of the Registration Statement shall have been issued, and no
proceeding for that purpose shall have been initiated or threatened by the
Commission (other than any such stop-order, proceeding or threatened proceeding
that shall have been withdrawn or terminated); and (4) an amendment of the Form
N-8A Notification of Registration filed pursuant to Section 8(a) of the 1940 Act
("Form N-8A") reflecting the change in legal form of the Corporation to a
Delaware business trust shall have been filed with the Commission and the Fund
shall have expressly adopted such amended Form N-8A as its own for purposes of
the 1940 Act;
(c) Each party shall have received an opinion of Stradley,
Ronon, Stevens & Young, LLP, Philadelphia, Pennsylvania, to the effect that the
reorganization contemplated by this Agreement qualifies as a "reorganization"
under Section 368 of the Code, and thus will not give rise to the recognition of
income, gain or loss for federal income tax purposes to the Corporation, the
Fund or the shareholders of the Corporation or the Fund;
(d) The Corporation shall have received an opinion of
Stradley, Ronon, Stevens & Young, LLP, dated the Effective Date of the
Reorganization, addressed to and in form and substance satisfactory to the
Corporation, to the effect that (1) the Fund is duly formed as a business trust
under the laws of the State of Delaware; (2) this Agreement and the
reorganization provided for herein and the execution and delivery of this
Agreement have been duly authorized and approved by all requisite action of the
Fund and this Agreement has been duly executed and delivered by the Fund and is
a legal, valid and binding agreement of the Fund in accordance with its terms;
and (3) the shares of the Fund to be issued in the reorganization have been duly
authorized and, upon issuance thereof in accordance with this Agreement, will
have been validly issued and fully paid and will be nonassessable by the Fund;
(e) The Fund shall have received the opinion of Stradley,
Ronon, Stevens & Young, LLP, dated the Effective Date of the Reorganization,
addressed to and in form and substance satisfactory to the Fund, to the effect
that: (1) the Corporation is a corporation duly organized and validly existing
under the laws of the Commonwealth of Pennsylvania; (2) the Corporation is an
open-end investment company of the management type registered under the 1940
Act; (3) this Agreement and the reorganization provided for herein and the
execution and delivery of this Agreement have been duly authorized and approved
by all requisite corporate action of the Corporation; and (4) this Agreement has
been duly executed and delivered by the Corporation and is a legal, valid and
binding agreement of the Corporation in accordance with its terms;
(f) The shares of the Berwyn Income Fund series of the Fund
are eligible for offering to the public in those states of the United States and
jurisdictions in which the shares of the Corporation are currently eligible for
offering to the public so as to permit the issuance and delivery of shares
contemplated by this Agreement to be consummated;
B-2
<PAGE>
(g) This Agreement and the reorganization contemplated hereby
shall have been adopted and approved by the appropriate action of the
shareholders of the Corporation at an annual or special meeting of the
shareholders or any adjournment thereof;
(h) The shareholders of the Corporation shall have voted to
direct the Corporation to vote, and the Corporation shall have voted, as sole
shareholder of the Berwyn Income Fund series of the Fund, to:
(1) Elect as Trustees of the Fund the following
individuals: Messrs. Robert E. Killen, Edward A. Killen, II, Anthony N. Carrelli
and Denis P. Conlon and Ms.Deborah D. Dorsi;
(2) Select PricewaterhouseCoopers LLP as the
independent accountants for the Fund for the fiscal year ending
December 31, 1999;
(3) If at the annual or special meeting specified
in paragraph (g) of this Section 3 (or any adjournment thereof) the
shareholders of the Corporation approve a proposal for a new investment
advisory agreement ("New Investment Advisory Agreement") between the
current investment adviser to the Corporation (the "Adviser") and the
Corporation, approve an investment advisory agreement between the Adviser and
the Fund on behalf of the Berwyn Income Fund series that is substantially
identical to the New Investment Advisory Agreement;
(i) The Trustees of the Fund shall have taken the following
actions at a meeting duly called for such purposes:
(1) Approval of the investment advisory agreement
described in paragraph (h) of this Section 3 for the Berwyn Income Fund series
of the Fund;
(2) Selection of PricewaterhouseCoopers LLP as
the Fund's independent accountants for the fiscal year ending December 31, 1999;
(3) Approval of the Fund's Transfer Agency
Services Agreement with PFPC Inc.;
(4) Approval of the Custodian Services Agreement
with PFPC Trust Company;
(5) Approval of the Selling Agreement between the
Fund and Berwyn Financial Services Corp. on behalf of the Berwyn Income Fund
series of the Fund;
(6) Authorization of the issuance by the Fund,
prior to the Effective Date of the Reorganization, of one share of the Berwyn
Income Fund series of the Fund to the Corporation in consideration for the
payment of $10.00 per share for the purpose of enabling the Corporation to
vote on the matters referred in paragraph (h) of this Section 3 hereof;
(7) Submission of the matters referred to in
paragraph (h) of this Section 3 to the Corporation as sole shareholder of the
Berwyn Income Fund series of the Fund; and
(8) Authorization of the issuance and delivery by
the Fund of shares of the Berwyn Income Fund series of the Fund on the Effective
Date of the Reorganization in exchange for the assets of the Corporation
pursuant to the terms and provisions of this Agreement.
At any time prior to the Closing, any of the foregoing
conditions may be waived or amended, or any additional terms and conditions may
be fixed by the Board of Directors of the Corporation if, in the judgment of
such Board, such waiver, amendment, term or condition will not affect in a
materially adverse way the benefits intended to be accorded the shareholders of
the Corporation under this Agreement.
4. Termination.
The Board of Directors of the Corporation may terminate this
Agreement and abandon the reorganization contemplated hereby, notwithstanding
approval thereof by the shareholders of the Corporation, at any time prior to
the Effective Date of the Reorganization if, in the judgment of such Board, the
facts and circumstances make proceeding with this Agreement inadvisable.
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<PAGE>
5. Entire Agreement.
This Agreement embodies the entire agreement between the
parties and there are no agreements, understandings, restrictions or warranties
among the parties other than those set forth herein or herein provided for.
6. Further Assurances.
The Corporation and the Fund shall take such further action as
may be necessary or desirable and proper to consummate the transactions
contemplated hereby.
7. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
8. Governing Law.
This Agreement and the transactions contemplated hereby shall
be governed by and construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the Fund and the Corporation have each
caused this Agreement and Plan of Reorganization to be executed on its behalf by
its Chairman, President or Executive Vice President and attested by its
Secretary, all as of the day and year first-above written.
Berwyn Income Fund, Inc.
(a Pennsylvania Corporation)
Attest:
By: By:
- ----------------------------- -----------------------------
Name: Kevin M. Ryan Name: Robert E. Killen
Title: Secretary Title: President
The Berwyn Funds
(a Delaware business trust)
Attest:
By: By:
- ----------------------------- -----------------------------
Name: Kevin M. Ryan Name: Robert E. Killen
Title: Secretary Title: President
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<PAGE>
EXHIBIT C
COMPARISON AND SIGNIFICANT DIFFERENCES BETWEEN
DELAWARE BUSINESS TRUSTS AND PENNSYLVANIA BUSINESS CORPORATIONS
DELAWARE BUSINESS TRUST
- --------------------------------------------------------------------------------
GOVERNING DOCUMENTS -- Created by a governing instrument (which may
consist of one or more instruments, including an
agreement and declaration of trust and By-Laws) and a
Certificate of Trust, which must be filed with the
Delaware Secretary of State. The Delaware Business
Trust ("DBT") statutes found at Del. Code. Ann. Title
12, ss.3801, et seq. are referred to in this chart as
the "Delaware Act."
-- A DBT is an unincorporated association organized
under the Delaware Act, which operates similar to a
typical corporation. A DBT's operations are governed
by a trust instrument and By-Laws. The business and
affairs of a DBT are managed by or under the
direction of a Board of Trustees.
-- A DBT may be organized as an open-end investment
company subject to the Investment Company Act of
1940, as amended (the "1940 Act"). Shareholders own
shares of "beneficial interest" as compared to the
shares of "common stock" issued by corporations.
There is however, no practical difference between the
two types of shares.
-- As described in this chart, DBTs are granted a
significant amount of organizational and operational
flexibility. The Delaware Act makes it easier to
obtain needed shareholder approvals, and also permits
management of a DBT to take various actions without
being required to make state filings or obtain
shareholder approval. The Delaware Act also contains
favorable limitations on shareholder and Trustee
liability, and provides for indemnification out of
trust property for any shareholder or Trustee that
may be held personally liable for the obligations of
a DBT.
-- The newly created DBT is referred to as the "New
Fund," while the series of shares of the new Fund
that correspond to the Berwyn Income Fund, Inc. (the
"Current Fund") is referred to as the "New Series."
- --------------------------------------------------------------------------------
MULTIPLE SERIES AND
CLASSES -- Under the Delaware Act, a declaration of trust may
provide for classes, groups or series of shares, or
classes, groups or series of shareholders, having
such relative rights, powers and duties as the
declaration of trust may provide. The series and
classes of a DBT may be described in the declaration
of trust or in resolutions adopted by the board of
trustees. Neither state filings nor shareholder
approval is required to create series or classes. The
New Fund's Agreement and Declaration of Trust (the
"Declaration of Trust") permits the creation of
multiple series and classes and establishes the
provisions relating to shares.
-- The Delaware Act explicitly provides for a
reciprocal limitation of interseries liability. The
debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with
respect to a particular series of a multiple series
investment company registered under the 1940 Act are
enforceable only against the assets of such series,
and not against the assets of the trust, or any other
series, generally, provided that:
(i) the governing instrument creates one or more
series;
(ii)separate and distinct records are maintained
for any such series;
(iii) the series' assets are held and accounted
for separately from the trust's other assets or
any series thereof;
(iv)notice of the limitation on liabilities of the
series is set forth in the certificate of trust;
and
(v) the governing instrument so provides.
The Declaration of Trust for the New Fund provides
that each of its New Series shall not be charged with
the liabilities of any other series. Further, it
states that any general assets or liabilities not
readily identifiable as to a particular series will
be allocated or charged by the Trustees of the New
Fund to and among any one or more series in such
manner, and on such basis, as the Trustees deem fair
and equitable in their sole discretion. As required
by the Delaware Act, the New Fund's Certificate of
Trust specifically limits the debts, liabilities,
obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular
series of the New Fund as enforceable against the
assets of that series of the New Fund, and not
against the assets of the New Fund generally.
-- A court applying federal securities law may not
respect provisions that serve to limit the liability
of one series of an investment company's shares for
the liabilities of another series. Accordingly,
provisions relating to series liability contained in
a Declaration of Trust may be preempted by the way in
which the courts interpret the 1940 Act.
- --------------------------------------------------------------------------------
SHAREHOLDER VOTING
RIGHTS AND PROXY
REQUIREMENTS -- The governing instrument determines shareholders'
rights. The Declaration of Trust for the New Fund
provides that shareholders of record of each share
are entitled to one vote for each full share, and a
fractional vote for each fractional shares. In
addition, shareholders are not entitled to cumulative
voting for electing a Trustee(s) or for any other
matter. The Declaration of Trust further provides
that voting by the New Fund will occur separately by
series, and if applicable, by class, subject to: (1)
requirements of the 1940 Act where shares of the Fund
must be voted in the aggregate without reference to
series or class, and (2) where the matter affects
only a particular series or class.
The Delaware Act and By-Laws for the New Fund also
permit the New Fund to accept proxies by any
electronic, telephonic, computerized,
telecommunications or other reasonable alternative to
the execution of a written instrument authorizing the
proxy to act, provided such authorization is received
within eleven (11) months before the meeting.
-- Delaware law provides a much greater level of
flexibility for proxy solicitations.
- --------------------------------------------------------------------------------
SHAREHOLDERS' MEETINGS -- Delaware law permits special shareholder meetings
to be called for any purpose. However, the governing
instrument determines beneficial owners' rights to
call meetings. The Declaration of Trust for the New
Fund provides that the Board of Trustees shall call
shareholder meetings for the purpose of (1) electing
Trustees, (2) taking action upon matters prescribed
by law, the Declaration of Trust or By-Laws, or (3)
taking action upon any other matter deemed necessary
or desirable by the Board of Trustees. The By-Laws
further provide that a shareholder meeting may be
called at any time by the Board of Trustees, by the
Chairperson of the Board, or by the President or any
Vice President or the Secretary and any two (2)
Trustees. An annual shareholders' meeting is not
required by Delaware law, the Declaration of Trust or
By-Laws.
- --------------------------------------------------------------------------------
QUORUM REQUIREMENT -- The Declaration of Trust of the New Fund, consistent
with the Delaware Act, establishes a quorum when
thirty-three and one-third percent (33-1/3%) of the
shares entitled to vote are present in person or by
proxy. For purposes of determining whether a quorum
exists, the Declaration of Trust provides that
abstentions and broker non-votes are included and
treated as votes present at the shareholders' meeting
but are not treated as votes cast.
-- The By-Laws provide that a majority of the
Trustees constitute a quorum for the transaction of
business. The Board of Trustees may take action by
written consent of a majority of the members of the
Board of Trustees.
- --------------------------------------------------------------------------------
ACTION WITHOUT
SHAREHOLDERS' MEETING -- Delaware law permits the governing instrument to
set forth the procedure whereby action required to be
approved by shareholders at a meeting may be done by
consent. The Declaration of Trust for the New Fund
allows an action to be taken absent a shareholder
meeting if the shareholders having not less than the
minimum number of votes that would be necessary to
authorize or take that action at a meeting at which
all shares entitled to vote on the matter were
present and voted, consent to the action in writing.
- --------------------------------------------------------------------------------
MATTERS REQUIRING
SHAREHOLDER APPROVAL -- The Delaware Act affords Trustees the ability to
easily adapt a DBT to future contingencies. For
example, Trustees may be authorized to incorporate a
DBT, to merge or consolidate with another entity, to
cause multiple series of a DBT to become separate
trusts, to change the domicile or to liquidate a DBT,
all without having to obtain a shareholder vote. More
importantly, in cases where funds are required or do
elect to seek shareholder approval for transactions,
the Delaware Act provides great flexibility with
respect to the quorum and voting requirements for
approval of such transactions.
-- The Declaration of Trust for the New Fund,
consistent with the Delaware Act, affords
shareholders the power to vote on the following
matters:
(1) the election of Trustees (including the
filling of any vacancies);
(2)as required by the Declaration of Trust,
By-Laws, the 1940 Act or registration statement;
and
(3)other matters deemed by the Board of Trustees
to be necessary or desirable.
-- The Declaration of Trust provides that when a
quorum is present, a majority of votes cast shall
decide any issues, and a plurality shall elect a
Trustee(s), unless a different vote is required by
the Declaration of Trust, By-Laws or under applicable
law.
- --------------------------------------------------------------------------------
AMENDMENTS TO GOVERNING
DOCUMENTS -- The Delaware Act provides broad flexibility with
respect to amendments of governing documents of a
DBT. The New Fund's Declaration of Trust states that,
if shares have been issued, shareholder approval to
adopt amendments to the Declaration of Trust is only
required if such adoption would adversely affect to a
material degree the rights and preferences of the
shares of any series (or class) already issued.
Before adopting any amendment to the Declaration of
Trust relating to shares without shareholder
approval, the Trustees are required to determine that
the amendment is: (i) consistent with the fair and
equitable treatment of all shareholders, and (ii)
shareholder approval is not required by the 1940 Act
or other applicable law.
-- The New Fund's By-Laws may be adopted, amended or
repealed by the Board of Trustees.
- --------------------------------------------------------------------------------
RECORD DATE/NOTICE -- The Delaware Act permits a governing instrument to
contain provisions that provide for the establishment
of record dates for determining voting rights.
-- The Declaration of Trust for the New Fund provides
that the Board of Trustees may fix in advance a
record date which shall not be more than one hundred
eighty (180) days, nor less than seven (7) days,
before the date of any such meeting. The Declaration
of Trust for the New Fund also establishes procedures
by which a record date can be set if the Board fails
to establish a record date in accordance with the
above procedures. In such situations, the record date
for determining which shareholders are entitled to
notice of or to vote at any meeting, is set at the
close of business on the first business day that
precedes the day on which notice is given or, if
notice is waived, at the close of business on the
business day which is five (5) days next preceding
the day on which the meeting is held. The Declaration
of Trust provides that the record date for
determining shareholders entitled to give consent to
action in writing without a meeting is determined in
the following manner: (i) when the Board of Trustees
has not taken prior action, the record date will be
set on the day on which the first written consent is
given; or (ii) when the Board of Trustees has taken
prior action, the record date will be set at the
close of business on the day on which the Board of
Trustees adopt the resolution relating to that action
or the seventy-fifth (75th) day before the date of
such other action, whichever is later.
-- The By-Laws for the New Fund provides that all
notices of shareholder meetings shall be sent or
otherwise given to shareholders not less than seven
(7) or more than ninety-three (93) days before the
date of the meeting. 3
__________________
3 Pursuant to the By-Laws of the New Fund, regular meetings of the Board of
Trustees may be held without notice. Special meetings of the Board of Trustees
require at least seven (7) days notice, if given by United States mail, and at
least forty-eight (48) hours notice, if notice is delivered personally, by
telephone, by courier, to the telegraph company, or by express mail, facsimile,
electronic mail or similar service.
- --------------------------------------------------------------------------------
REMOVAL OF DIRECTORS/
TRUSTEES -- The Delaware Act is silent with respect to the
removal of Trustees. However, the Declaration of
Trust states that the Board of Trustees, by action of
a majority of the then Trustees at a duly constituted
meeting, may fill vacancies in the Board of Trustees
or remove Trustees with or without cause.
- --------------------------------------------------------------------------------
SHAREHOLDER RIGHTS OF
INSPECTION -- The Delaware Act sets forth the rights of
shareholders to gain access to and receive copies of
certain Trust documents and records. This right is
qualified to the extent otherwise provided in the
governing instrument of the DBT as well as a
reasonable demand standard related to the
shareholder's interest as an owner of the DBT.
-- Consistent with Delaware law, the By-Laws of the
New Fund provide that at reasonable times during
office hours, a shareholder may inspect the share
registry and By-Laws. The By-Laws further permit, at
any reasonable time during usual business hours, for
a purpose reasonably related to the shareholder's
interests, a shareholder to inspect and copy
accounting books and records and minutes of
proceedings of the shareholders and the Board of
Trustees and any committee or committees of the Board
of Trustees.
- --------------------------------------------------------------------------------
DIVIDENDS AND OTHER
DISTRIBUTIONS -- The Delaware Act does not contain any statutory
limitations on the payment of dividends and other
distributions. The New Fund By-Laws specify that the
declaration of dividends is subject to the
Declaration of Trust and applicable law. In addition,
the By-Laws provide that prior to payment of
dividends, the New Fund may set aside a reserve(s) to
meet contingencies, equalizing dividends, repairing
or maintaining property or for other purposes deemed
by the Trustees to be in the best interest of the
Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER/ BENEFICIAL
OWNER LIABILITY -- Personal liability is limited by the Delaware Act
to the amount of investment in the trust and may be
further limited or restricted by the governing
instrument. Consistent with Delaware law, the
Declaration of Trust for the New Fund provides that
the DBT, its Trustees, officers, employees, and
agents do not have the power to personally bind a
shareholder. Shareholders of the DBT are entitled to
the same limitation of personal liability extended to
stockholders of a private corporation organized for
profit under the general corporation law of the State
of Delaware.
- --------------------------------------------------------------------------------
DIRECTOR/ TRUSTEE
LIABILITY -- Subject to the declaration of trust, the Delaware
Act provides that a trustee, when acting in such
capacity, may not be held personally liable to any
person other than the DBT or a beneficial owner for
any act, omission or obligation of the DBT or any
trustee. A trustee's duties and liabilities to the
DBT and its beneficial owners may be expanded or
restricted by the provisions of the declaration of
trust.
-- The Declaration of Trust for the New Fund provides
that the Trustees shall not be liable or responsible
in any event for any neglect or wrongdoing of any
officer, agent, employee, manager or principal
underwriter of the New Fund, nor shall any Trustee be
responsible for the act or omission of any other
Trustee. In addition, the Declaration of Trust
provides that the Trustees acting in their capacity
as Trustees, shall not be personally liable for acts
done by or on behalf of the New Fund.
- --------------------------------------------------------------------------------
INDEMNIFICATION -- The Delaware Act permits a DBT to indemnify and
hold harmless any trustee, beneficial owner or agent
from and against any and all claims and demands.
Consistent with the Delaware Act, the Declaration of
Trust for the New Fund provides for the
indemnification of officers and Trustees from and
against any and all claims and demands arising out of
or related to the performance of duties as an officer
or Trustee. The New Fund will not indemnify, hold
harmless or relieve from liability Trustees or
officers for those acts or omissions for which they
are liable if such conduct constitutes willful
misfeasance, bad faith, gross negligence or reckless
disregard of their duties. In addition, the New
Fund's By-Laws provide that a Trustee is not entitled
to indemnification from liability: (i) with respect
to any claim, issue or matter as to which such
Trustee shall have been adjudged to be liable in the
performance of his or her duty to the Fund, unless
the court in which that action was brought shall
determine that the Trustee is fairly and reasonably
entitled to indemnity; (ii) with respect to any
claim, issue or matter as to which the Trustee shall
have been adjudged to be liable on the basis that
personal benefit was improperly received by the
Trustee, whether or not the benefit resulted from an
action taken in the Trustee's official capacity; or
(iii) with respect to amounts paid in settling or
otherwise disposing of a threatened or pending action
which settled or was otherwise disposed of without
court approval, unless the Fund's Board of Trustees
has found that the Trustee has acted in accordance
with the appropriate standard of conduct.
-- The Declaration of Trust also provides that any
shareholder or former shareholder that is exposed to
liability by reason of a claim or demand related to
having been a shareholder, and not because of his or
her acts or omissions, shall be entitled or beheld
harmless and indemnified out of the assets of the
DBT.
- --------------------------------------------------------------------------------
INSURANCE -- The Delaware Act does not contain a provision
specifically related to insurance. The Trust's
Declaration of Trust provides that the Trustees shall
be entitled and have the authority to purchase with
Trust assets insurance for liability and for all
expenses reasonably incurred or paid or expected to
be paid by a Trustee or officer in connection with
any claim, or proceeding in which he or she becomes
involved by virtue of his or her capacity (or former
capacity) with the Trust. The By-Laws of the New Fund
permit such insurance coverage to extend to employees
and other agents of the New Fund.
================================================================================
- --------------------------------------------------------------------------------
PENNSYLVANIA BUSINESS CORPORATION
- --------------------------------------------------------------------------------
GOVERNING DOCUMENTS -- A corporation's articles of incorporation must be
filed with the Department of State, Corporation
Bureau of the Commonwealth of Pennsylvania in order
to form a Pennsylvania corporation.
-- Under Pennsylvania law, the business and affairs
of a corporation are governed by its articles of
incorporation (the "Articles") and by-laws (the
"By-Laws") (collectively, the "charter documents"). A
Board of Directors (the "Board") manages or directs
the business and affairs of a Pennsylvania
corporation.
-- A Pennsylvania corporation organized as an
open-end investment company is subject to the 1940
Act.
- --------------------------------------------------------------------------------
MULTIPLE SERIES AND
CLASSES -- Pennsylvania law permits a corporation to issue
one or more classes of stock and, if the stock is
divided into classes, the charter is required to
describe each class, including any preferences,
conversion or other rights, voting powers,
restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption.
The charter documents that describe a new series or
classes, or a change to an existing series or class,
are amendments to the fund's charter documents and
must be filed with the Commonwealth of Pennsylvania.
-- An amendment to the Articles described above may
be made solely by action of the Board if authorized
by the Articles. Unless otherwise restricted in the
Articles, authority granted to the Board to determine
the number of shares of any class or series shall be
deemed to include the power to increase the number of
shares of the class or series to a number not greater
than the aggregate number of shares of all classes
and series that the corporation is authorized to
issue by the Articles and to decrease the number of
shares of a class or series to a number not less than
the total of all classes and series outstanding. Upon
a decrease of shares, the affected shares shall
continue as part of the aggregate number of shares of
all classes and series that the corporation is
authorized to issue. Unless otherwise restricted in
the Articles, if no shares of a class or series are
outstanding, the Board may amend the designations and
the voting rights, preferences, limitations and
special rights, if any, of the shares of the class or
series.
-- Pennsylvania law does not contain specific
statutory provisions addressing series liability with
respect to a multiple series investment company;
however, if the stock of a corporation is divided
into classes, Pennsylvania law requires the
corporation's charter documents to set forth any
preferences or restrictions relating to such classes.
The Current Fund's charter documents do not create
any classes or series and are silent regarding series
liability.
-- The Articles of Incorporation and By-Laws of the
Current Fund are consistent with Pennsylvania law.
-- A court applying federal securities law may not
respect provisions that serve to limit the liability
of one series of an investment company's shares for
the liabilities of another series. Accordingly,
provisions relating to series liability contained in
the charter documents may be preempted by the way in
which the courts interpret the 1940 Act.
- --------------------------------------------------------------------------------
SHAREHOLDER VOTING
RIGHTS AND PROXY
REQUIREMENTS -- Pennsylvania law provides that the holder of each
share of stock of a corporation is entitled to one
vote for each full share. The charter documents of
the Current Fund further state that shareholders are
not entitled to cumulative voting for electing
director(s). The charter of the Fund is silent
regarding the manner in which series or class voting
occurs.
-- Pennsylvania law permits shareholders to vote in
person at the meeting or by proxy through a signed
writing. The writing must be executed by the
shareholder or his duly authorized attorney-in-fact
and filed with the secretary of the corporation.
Execution may be achieved through a telegram, telex,
cablegram, datagram or similar transmission from a
shareholder or attorney-in-fact, or a photographic,
facsimile or similar reproduction of a writing
executed by a shareholder or attorney-in-fact. In
addition, such execution is proper if the writing
sets forth a confidential and unique identification
number or other mark furnished by the corporation to
the shareholder for the purposes of a particular
meeting or transaction.
- --------------------------------------------------------------------------------
SHAREHOLDERS' MEETINGS -- Pennsylvania law provides for a special meeting
upon the written request of 20% or more of all
eligible votes, unless the Articles contain a
provision setting forth a different percentage of
votes necessary to call the special meeting. In
addition, Pennsylvania law also provides for special
shareholder meetings at any time if called by the
Board or such other corporate officers or other
persons as provided in the by-laws. The Current
Fund's By-Laws permit special meetings of
shareholders to be called by the President, Board, or
shareholders entitled to cast at least 10% of the
eligible votes.
-- Under Pennsylvania law, an annual meeting of
shareholders is required for corporations unless the
articles of incorporation provide otherwise. The
By-Laws of the Current Fund establish an annual
meeting of shareholders on the fourth Friday of March
each year.
- --------------------------------------------------------------------------------
QUORUM REQUIREMENT --
-- Pennsylvania law and the By-Laws of the Current
Fund provide that the presence in person or by proxy
of the holders of record of a majority of the
outstanding shares of stock entitled to vote
constitute a quorum, with the exception that in the
case of an election of directors previously adjourned
for lack of a quorum, those shareholders entitled to
vote who actually attend the meeting of shareholders
in person or by proxy will constitute a quorum. With
respect to other matters previously adjourned for one
or more periods of at least 15 days due to the
absence of a quorum, those shareholders entitled to
vote who actually attend the meeting of shareholders
in person or by proxy will constitute a quorum for
the purpose of acting on any matter set forth in the
notice of meeting if the notice so states that the
shareholders who attend the adjourned meeting shall
constitute a quorum.
-- The By-Laws of the Current Fund require a majority
of the directors present to constitute a quorum to
transact business. The Board of Directors may take
action by unanimous written consent in lieu of a
meeting.
- --------------------------------------------------------------------------------
ACTION WITHOUT
SHAREHOLDERS' MEETING -- Under Pennsylvania law, any action required to be
approved at a meeting of the shareholders may also be
approved by the unanimous written consent of the
shareholders entitled to vote at such meeting.
Pennsylvania law also permits action by partial
written consent upon the written consent of
shareholders entitled to cast the minimum votes
necessary to authorize the action at a meeting of
shareholders, if the by-laws of the corporation so
provide. The By-Laws of the Current Fund are silent
regarding partial written consent.
- --------------------------------------------------------------------------------
MATTERS REQUIRING
SHAREHOLDER APPROVAL
-- Pennsylvania law generally requires shareholder
approval by a majority of all votes entitled to be
cast to approve the following:
(1)amendments or restatements of the articles; 1
(2)reduction of stated capital;
(3)a consolidation, merger, share exchange or
transfer of assets, including a sale of all or
substantially all the assets of the corporation; 2
(4)distribution in partial liquidation; or
(5)a voluntary dissolution.
-- The Current Fund's By-Laws are silent regarding
the specific matters requiring shareholder approval.
_________________
1 Approval of shareholders is not required if: (1) Shares have not been issued;
(2) corporate name change; (3) providing for perpetual existence; (4) a
reduction in authorized shares effected by share repurchase and corresponding
deletion of references to a class or series of shares that is no longer
outstanding; (5) adding or deleting provisions relating to uncerticated shares;
and (6) certain actions by a corporation having only one class of shares
outstanding to permit a stock dividend, effect a stock split, increase the
number of shares and/or change the par value of the shares.
2 Unless otherwise required by the corporation's by-laws, Pennsylvania law does
not require shareholder approval if: (1) the new corporation is also a
Pennsylvania corporation with identical articles of incorporation; (2) each
share of the corporation prior to the merger continues or is converted into an
identical share of the new corporation; (3) the majority of the votes entitled
to be cast for the election of directors in the surviving or new corporation;
(4) another corporation that is a party to the merger owns directly or
indirectly 80% or more of the outstanding shares of each class of the
corporation; or (5) no shares of the corporation have been issued prior to the
adoption of the plan of merger by the board of directors.
- --------------------------------------------------------------------------------
AMENDMENTS TO GOVERNING
DOCUMENTS -- Under Pennsylvania law, the articles of a
Pennsylvania corporation may be amended (i) upon
adoption of a resolution by the directors or by
petition of shareholders entitled to cast at least
10% of the votes, which sets forth the proposed
amendments; and (ii) approval of the proposed
amendment by the holders of a majority of the
corporation's outstanding shares entitled to vote,
unless such shareholder approval is unnecessary as
described above in footnote 1.
-- The Current Fund's charter documents are
consistent with Pennsylvania law. However, the
Current Fund's charter documents are silent regarding
whether certain amendments may be approved without
shareholder approval. Because shareholder approval is
required for most amendments to the Current Fund's
charter documents, Pennsylvania law is more
restrictive than the Delaware Act.
-- Consistent with Pennsylvania law, the Current
Fund's By-Laws also provide that they may be amended
or repealed by the affirmative vote of the holders of
a majority of shares entitled to vote thereon.
- --------------------------------------------------------------------------------
RECORD DATE/NOTICE -- Pennsylvania law contains provisions by which a
corporation may determine which shareholders are
entitled to notice of a meeting, to vote at a
meeting, or to any other rights. Pennsylvania law
requires, unless otherwise restricted in the by-laws,
that the record date be not more than ninety (90)
days prior to the date of meeting of shareholders. If
the corporation does not set a record date,
Pennsylvania law requires, unless otherwise provided
in the by-laws, that the date for determining
shareholders entitled to notice of or to vote at a
meeting of shareholders is the close of business on
the day next preceding the day on which notice is
given or, if notice is waived, at the close of
business on the day immediately preceding the day on
which the meeting is to be held. The record date for
determining shareholders entitled to (i) express
consent or dissent to corporate action in writing
without a meeting, when prior action by the board of
directors is not necessary, (ii) call a special
meeting of the shareholders, or (iii) propose an
amendment to the Articles, is the close of business
on the day on which the first written consent or
dissent, request for a special meeting or petition
proposing an amendment of the Articles is filed with
the secretary of the corporation. In addition, the
record date for determining shareholders for any
other purpose is the close of business on the day on
which the board adopts the corresponding resolution.
-- Consistent with Pennsylvania law, the Current
Fund's By-Laws provide that written notice of the
annual meeting be given to each shareholder not less
than 14 nor more than 30 days prior to the meeting.
With respect to special meetings of shareholders,
written notice must be provided to shareholders at
least 10 days before such meeting.
- --------------------------------------------------------------------------------
REMOVAL OF DIRECTORS/
TRUSTEES -- Under Pennsylvania law, shareholders may remove a
director with or without cause. Unless the by-laws
provide otherwise, Pennsylvania law requires the
affirmative vote of a majority of all votes entitled
to be cast for the election of directors to remove a
director. In addition, unless the charter provides
otherwise, if a class or series is entitled to elect
one or more directors separately, such director may
not be removed without cause except by the
affirmative vote of a majority of all the votes of
that particular series or class.
-- The Current Fund's charter documents are silent
regarding the removal of directors.
- --------------------------------------------------------------------------------
SHAREHOLDER RIGHTS OF
INSPECTION -- Pennsylvania law provides that during normal
business hours a shareholder for any proper purpose
may inspect and copy the following corporate
documents: the share register, books and records of
account, and records of the proceedings of the
incorporators, shareholders and directors. A proper
purpose is deemed a purpose reasonably related to the
interest of the person as a shareholder.
-- If the corporation, or an officer or agent
thereof, refuses to permit an inspection sought by a
shareholder, attorney or other agent acting for the
shareholder or does not reply to the demand within
five (5) business days, the shareholder may apply to
a court for an order to compel inspection. The court
will determine whether the person seeking inspection
is entitled to the inspection sought, and may order
the corporation to permit the shareholder to inspect
and make copies of the share register and the other
books and records of the corporation. Alternatively,
a court may instead order the corporation to furnish
to the shareholder a list of shareholders as of a
specific date on condition that the shareholder pay
the corporation for the reasonable cost of obtaining
and furnishing the list and/or such other conditions
as deemed appropriate. Where the shareholder seeks to
inspect the books and records of the corporation,
other than its share register or list of
shareholders, said shareholder must first establish:
(1) that he has complied with the provisions of this
section respecting the form and manner of making
demand for inspection of the document; and (2) that
the inspection he seeks is for a proper purpose.
-- If the shareholder complies with the inspection
requirements for an inspection of the share register
and/or shareholder lists, then the burden of proof is
on the corporation to establish that the inspection
is for an improper purpose. A court may prescribe
limits or conditions on the inspection or award such
other relief as deemed just and proper.
- --------------------------------------------------------------------------------
DIVIDENDS AND OTHER
DISTRIBUTIONS -- Pennsylvania law allows the payment of a dividend
or other distribution unless, after giving effect to
the dividend or other distribution: (1) the
corporation would not be able to pay its debts as
they become due in the usual course of its business;
or (2) the corporation's total assets would be less
than the corporation's total liabilities plus (unless
the corporation's charter provides otherwise) the
amount that would be needed, if the corporation were
to be dissolved at the time as of which the
distribution is measured, to satisfy the preferential
rights upon dissolution of shareholders whose
preferential rights upon dissolution are superior to
those receiving the distribution.
-- The Current Fund's By-Laws provide that prior to
payment of dividends, funds may be set aside out of
net profits, as a reserve to meet contingencies, for
equalizing dividends, or for repairing or maintaining
Current Fund property or for other purposes deemed by
the directors to be in the best interest of the
Current Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER/ BENEFICIAL
OWNER LIABILITY -- As a general matter, the shareholders of a
Pennsylvania corporation are not under any liability
to the corporation or any creditor of the corporation
with respect to their shares other than the personal
obligation to pay for such shares. The charter
documents are silent regarding shareholder liability.
- --------------------------------------------------------------------------------
DIRECTOR/ TRUSTEE
LIABILITY -- Pennsylvania law requires a director to perform
his or her duties in good faith, in a manner he or
she reasonably believes to be in the best interests
of the corporation and with such care, including
reasonable inquiry, skill and diligence, as a person
of ordinary prudence would use under similar
circumstances. A director who performs his or her
duties in accordance with this standard has no
liability by reason of being or having been a
director. In performing his duties, a director may
rely in good faith on information, opinions, reports
or statements, including financial statements and
other financial data, prepared or presented by
certain third parties which the director reasonably
believes to be reliable and competent. A director is
not considered to be acting in good faith if he has
knowledge concerning the matter in question that
would cause his reliance to be unwarranted.
-- The Current Fund's charter documents do not
contain provisions regarding director liability.
- --------------------------------------------------------------------------------
INDEMNIFICATION -- Under Pennsylvania law, a director, officer or
other representative of the corporation who is
threatened or made a party to a third party and/or
derivative action on behalf of the corporation may be
indemnified against expenses (including attorney's
fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred if such
person acted in good faith and in a manner he
reasonably believed to be in the best interest of (or
not opposed to) the corporation. With respect to any
criminal proceeding, such person would be indemnified
as long as he had no reasonable cause to believe his
conduct was unlawful.
-- Indemnification is generally not provided for
claims or matters as to which the person has been
held liable to the corporation. A court of common
pleas in the judicial district of the county of the
registered office of the corporation may, however,
determine upon application that, despite the
adjudication of liability but in view of all the
circumstances of the case, the person is fairly and
reasonably entitled to indemnity for expenses.
-- Unless ordered by a court, any third party or
derivative action indemnification will be made by the
corporation upon a determination that indemnification
is proper in the circumstances. The determination
shall be made:
(1) by the board of directors by a majority vote
of a quorum consisting of directors who were not
parties to the action or proceeding;
(2) if such a quorum is not obtainable or if
obtainable and a majority vote of a quorum of
disinterested directors so directs, by independent
legal counsel in a written opinion; or
(3) by shareholders.
-- The Current Fund's By-Laws provide that no
director or officer may be indemnified from any
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 Current
Fund may advance to any director or officer funds to
pay attorneys' fees and other expenses incurred in
defending a proceeding. The director or officer
receiving this advance will be personally liable to
repay such advance if it is ultimately determined
that the director or officer is not entitled to
indemnification.
The Current Fund's By-Laws also provide that a
director or officer will be entitled to
indemnification if:
(1) a final decision on the merits by a
court or other body before whom the proceeding was
brought finds such director or officer that is to
be indemnified is not liable or is liable only as
a result of ordinary negligence; or
(2) a reasonable determination by
independent legal counsel in a written opinion,
finds such director or officer was not liable by
reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties
involved in the conduct of his office.
- --------------------------------------------------------------------------------
INSURANCE -- Under Pennsylvania Law, a corporation may purchase
insurance on behalf of any director, officer,
employee or other representative of the corporation
against any liability asserted against and incurred
by such person in any capacity or arising out of such
person's position, whether or not the corporation
would have the power to indemnify such person against
such liability. The Current Fund's By-Laws are silent
with respect to this issue.
================================================================================
