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:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] 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.
2
<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
3
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PRELIMINARY
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 10:00 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 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
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.
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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. [CONFIRM]
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
1996. President, Treasurer, Director and sole
shareholder of the Adviser from September 1982 to
March 1996.
6
<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
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
7
<PAGE>
officer, Director and the owner of one-third of the outstanding shares of
BFS. Kevin M Ryan is President, 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. Dorsey 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.
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 From Fund Total Compensation Paid From
Fund Complex
<S> <C> <C>
Denis P. Conlon $1,600 $3,200 for the Fund and Fund Complex
Director
Deborah D. Dorsi++ $1,200 $2,400 for the Fund and Fund Complex
Director
William H.Vonier++ $472 $944 for the Fund and Fund Complex
Director
<FN>
++ Ms. Dorsi was elected to the Board of Directors in April 1998 by vote of
the Board of Directors to replace Mr. Vonier.
</FN>
</TABLE>
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
8
<PAGE>
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.
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
9
<PAGE>
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.
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
10
<PAGE>
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.)
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.
11
<PAGE>
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, 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.
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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 Annual
Meeting, or a later date 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.
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
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<PAGE>
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. 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
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) complex 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
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<PAGE>
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.
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
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<PAGE>
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).
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
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<PAGE>
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 the Fund and the New Fund,
is included in Exhibit C, which is entitled "Comparison And Significant
Differences For Delaware Business Trusts And Pennsylvania Corporations."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSED REORGANIZATION
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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
Kevin M. Ryan
Secretary
February 26, 1999
18
<PAGE>
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]*8 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
19
<PAGE>
[Officers] *[officers]* and other trained personnel for the performance of its
obligations under this agreement. Adviser, 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
20
<PAGE>
thereafter, subject to the provisions for termination and all of 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
21
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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
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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 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;
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(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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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.
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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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<TABLE>
<CAPTION>
Comparison and Significant Differences For
DELAWARE BUSINESS TRUST AND PENNSYLVANIA CORPORATIONS
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DELAWARE BUSINESS TRUST
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<S> <C>
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."
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MULTIPLE SERIES AND -- Under the Delaware Act, a declaration of trust may
CLASSES 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.
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SHAREHOLDER VOTING -- The governing instrument determines shareholders'
RIGHTS AND PROXY rights. The Declaration of Trust for the New Fund
REQUIREMENTS 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.
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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.
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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.
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ACTION WITHOUT -- Delaware law permits the governing instrument to
SHAREHOLDERS' MEETING 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.
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MATTERS REQUIRING -- The Delaware Act affords Trustees the ability to
SHAREHOLDER APPROVAL 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.
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AMENDMENTS TO -- The Delaware Act provides broad flexibility with
GOVERNING DOCUMENTS 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.
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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.1
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REMOVAL OF DIRECTORS/ -- The Delaware Act is silent with respect to the
TRUSTEES 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.
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SHAREHOLDER RIGHTS OF -- The Delaware Act sets forth the rights of INSPECTION
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.
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DIVIDENDS AND OTHER -- The Delaware Act does not contain any statutory
DISTRIBUTIONS 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.
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SHAREHOLDER/ -- Personal liability is limited by the Delaware Act
BENEFICIAL OWNER to the amount of investment in the trust and may be
LIABILITY 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.
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DIRECTOR/ TRUSTEE -- Subject to the declaration of trust, the Delaware
LIABILITY 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.
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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.
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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.
COMPARISON AND SIGNIFICANT DIFFERENCES FOR
DELAWARE BUSINESS TRUST AND PENNSYLVANIA CORPORATIONS
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PENNSYLVANIA CORPORATION
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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.
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MULTIPLE SERIES AND -- Pennsylvania law permits a corporation to issue one
CLASSES 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 which 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 -- Pennsylvania law provides that the holder of each
RIGHTS AND PROXY share of stock of a corporation is entitled to one vote
REQUIREMENTS 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 lease 20% 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 -- Under Pennsylvania law, any action required to be
SHAREHOLDERS' MEETING 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 -- Pennsylvania law generally requires shareholder
SHAREHOLDER APPROVAL 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 state 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.
- -----------------------=========================================================
- -----------------------=========================================================
AMENDMENTS TO -- Under Pennsylvania law, the articles of a
GOVERNING DOCUMENTS 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/ -- Under Pennsylvania law, shareholders may remove a
TRUSTEES 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 -- Pennsylvania law provides that during normal
INSPECTION 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 -- Pennsylvania law allows the payment of a dividend or
DISTRIBUTIONS 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/ -- As a general matter, the shareholders of a
BENEFICIAL OWNER Pennsylvania corporation are not under any liability to
LIABILITY 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 -- Pennsylvania law requires a director to perform his
LIABILITY 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.
- --------
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.
</TABLE>
<TABLE>
<CAPTION>
COMPARISON AND SIGNIFICANT DIFFERENCES FOR
DELAWARE BUSINESS TRUST AND PENNSYLVANIA CORPORATIONS (Continued)
- ----------------------=========================================================
PENNSYLVANIA CORPORATION
- ----------------------=========================================================
<S> <C>
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 -- Pennsylvania law permits a corporation to issue one
CLASSES 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 which 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 -- Pennsylvania law provides that the holder of each
RIGHTS AND PROXY share of stock of a corporation is entitled to one vote
REQUIREMENTS 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 lease 20% 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 -- Under Pennsylvania law, any action required to be
SHAREHOLDERS' MEETING 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 -- Pennsylvania law generally requires shareholder
SHAREHOLDER APPROVAL 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 state 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.
- -----------------------=========================================================
- -----------------------=========================================================
AMENDMENTS TO -- Under Pennsylvania law, the articles of a
GOVERNING DOCUMENTS 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/ -- Under Pennsylvania law, shareholders may remove a
TRUSTEES 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 -- Pennsylvania law provides that during normal
INSPECTION 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 -- Pennsylvania law allows the payment of a dividend or
DISTRIBUTIONS 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.
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SHAREHOLDER/ -- As a general matter, the shareholders of a
BENEFICIAL OWNER Pennsylvania corporation are not under any liability to
LIABILITY 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.
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DIRECTOR/ TRUSTEE -- Pennsylvania law requires a director to perform his
LIABILITY 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.
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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.
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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.
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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.
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 notices, 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
tlegraph company, or by express mail, facsimile, electronic mail or
simimlar service.
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