<PAGE>
REGISTRATION NOs. 333-17361
811-07961
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----
PRE-EFFECTIVE AMENDMENT NO. 2 X
-----
POST-EFFECTIVE AMENDMENT NO.
-----
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
-----
AMENDMENT NO. 2 X
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MASON STREET FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
720 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(414) 271-1444
(REGISTRANT'S TELEPHONE NUMBER)
JAMES R. EBEN
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
LAW DEPARTMENT
720 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
CATHY G. O'KELLY
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601-1003
Approximate Date of Proposed Public Offering: Upon this Registration
Statement being declared effective.
Pursuant to Rule 24f-2 promulgated under the Investment Company Act of 1940,
Registrant hereby elects to register an indefinite number of shares of its
Common Stock, $0.001 par value, by this Registration Statement under the
Securities Act of 1933.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
MASON STREET FUNDS, INC.
CROSS REFERENCE SHEET
Cross reference sheet showing location in Prospectus of
information required by the Items in Part A of Form N-1A.
ITEM NUMBER HEADING IN PROSPECTUS
----------- ---------------------
1 Cover Page
2 Summary
3 *
4 The Funds In Detail, Other Information
5 Management Of the Funds
5A *
6 Other Information, Distributions And
Taxes
7 Buying And Selling Fund Shares,
Shareholders Guide
8 Buying And Selling Fund Shares,
Shareholders Guide
9 *
* Indicates inapplicable or negative
<PAGE>
MASON STREET FUNDS
[LOGO]
PROSPECTUS
<PAGE>
MASON STREET FUNDS
P.O. Box 419419
Kansas City, MO 64141-6419
1-888-627-6678
Prospectus dated __________, 1997
This Prospectus offers you nine mutual funds presenting you a wide choice of
investment objectives, including growth of capital, income or a combination
of the two. Each Fund identified below is a series of the Mason Street
Funds, Inc. ("Mason Street Funds" or "MSF"), an open-end management
investment company registered with the Securities and Exchange Commission.
Aggressive Growth Stock Fund
International Equity Fund
Growth Stock Fund
Growth and Income Stock Fund
Index 500 Stock Fund
Asset Allocation Fund
High Yield Bond Fund
Municipal Bond Fund
Select Bond Fund
Northwestern Mutual Investment Services, Inc., a wholly owned subsidiary of The
Northwestern Mutual Life Insurance Company, serves as investment advisor to each
of the Funds, with certain of the Funds also being served by a subadvisor.
This Prospectus contains information about each of the Funds that you should
know before investing and should be kept for future reference. Additional
information about the Funds is contained in a Statement of Additional
Information ("SAI") filed with the SEC. The SAI for the Funds dated __________,
1997, as amended from time to time, is incorporated by reference into this
Prospectus. For a copy of the SAI, write or call at the address or phone number
listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
THE HIGH YIELD BOND FUND INVESTS PRIMARILY IN FIXED INCOME SECURITIES THAT ARE
RATED BELOW INVESTMENT GRADE BY THE MAJOR RATING AGENCIES. SUCH SECURITIES ARE
SOMETIMES REFERRED TO AS "JUNK BONDS" AND ARE CONSIDERED SPECULATIVE. INVESTORS
SHOULD CAREFULLY CONSIDER THE RISKS ASSOCIATED WITH SUCH INVESTMENTS, AS
DESCRIBED IN THIS PROSPECTUS, AND SHOULD UNDERSTAND THAT HIGH YIELD FIXED INCOME
SECURITIES ARE NOT APPROPRIATE FOR SHORT-TERM INVESTMENT PURPOSES.
CONTENTS
Page
- --------------------------------------------------------------------------------
SUMMARY
About the Advisors
Funds at a Glance
Risk Comparison
Description of Classes of Shares
Expense Information
PERFORMANCE
THE FUNDS IN DETAIL
Stock Funds
Multi-Asset Fund
Bond Funds
Other Fund Policies and Associated Risks
Investment Restrictions
MANAGEMENT OF THE FUNDS
BUYING AND SELLING FUND SHARES
Investment Minimums
Flexible Sales Charge Program
How Shares are Priced
SHAREHOLDERS GUIDE
How To Buy Shares
How To Exchange Shares
How To Sell Shares
DISTRIBUTIONS AND TAXES
OTHER INFORMATION
APPENDIX A
APPENDIX B
- --------------------------------------------------------------------------------
<PAGE>
SUMMARY
ABOUT THE ADVISORS
Northwestern Mutual Investment Services, Inc. ("NMIS") is the investment
advisor to the Funds. NMIS is a wholly-owned subsidiary of The Northwestern
Mutual Life Insurance Company ("Northwestern Mutual Life"), the sixth largest
life insurance company in the United States, with more than $60 billion in
assets. Founded in 1857, Northwestern Mutual Life is one of the best
established and well respected companies in operation today. Headquartered in
Milwaukee, Wisconsin, Northwestern Mutual Life has developed its reputation by
providing excellence in both financial management and personal service over the
past 140 years. In addition to the Funds, NMIS has been responsible for
directing the investments of the Northwestern Mutual Series Fund, Inc. ("Series
Fund"), which serves as the investment fund for Northwestern Mutual Life's
variable annuity and life insurance contracts.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan") is the subadvisor
for the Growth and Income Stock Fund.
Templeton Investment Counsel, Inc. ("Templeton") is the subadvisor for the
International Equity Fund.
FUNDS AT A GLANCE
This section will give you a brief summary of the Funds and their
investment objectives. Please refer to the detailed description of investment
objectives and policies (beginning at page ___) for those Funds you wish to
purchase. Many of the Funds have the same investment objectives and policies,
and the same portfolio managers, as corresponding Portfolios of the Series Fund
(and their predecessor funds). Investment performance for each of these
Portfolios is shown at pp. ___. A glossary of terms is included in Appendix A.
STOCK FUNDS
AGGRESSIVE GROWTH STOCK FUND
OBJECTIVE: To seek long-term growth of capital primarily by investing in the
common stocks of companies that can be expected to increase their sales and
earnings at a pace that will exceed the growth rate of the U.S. economy over an
extended period.
PORTFOLIO: Primarily common stocks of small and medium sized companies.
STRATEGY: To locate and invest in companies with above-average potential for
growth.
FOCUS: To pursue higher returns by accepting a higher risk.
INTERNATIONAL EQUITY FUND
OBJECTIVE: To seek long-term growth of capital by investing primarily in stocks
of companies outside the United States.
PORTFOLIO: Primarily common stocks of companies in foreign countries.
STRATEGY: To locate and invest in the under-valued stocks of foreign companies
offering the greatest discounts to their long-term values.
FOCUS: To achieve international diversification and long-term total return.
SUBADVISOR: Templeton
2
<PAGE>
GROWTH STOCK FUND
OBJECTIVE: To seek long-term growth of capital by investing in companies
believed to have above average earnings growth potential; current income is
secondary.
PORTFOLIO: Diversified mix of high-quality growth stocks in medium and large
companies.
STRATEGY: To analyze economic trends to determine their impact on various
sectors and industries. Select high-quality stocks from industries with best
earnings potential.
FOCUS: To achieve attractive total return by investing in stocks with above-
average earnings growth potential.
GROWTH AND INCOME STOCK FUND
OBJECTIVE: To seek long-term growth of capital and income by investing
primarily in dividend-paying common stocks.
PORTFOLIO: Primarily common stocks of medium and large companies identified as
strong candidates for significant long-term returns.
STRATEGY: To actively manage a portfolio of selected equity securities with a
goal of out-performing the total return of the S&P 500-Registered Trademark-
Index.
FOCUS: To remain fully-invested, during ordinary market conditions, in equity
securities of fundamentally sound companies to maximize long-term total returns.
SUBADVISOR: J.P. Morgan
INDEX 500 STOCK FUND
OBJECTIVE: To seek investment results that approximate the performance of the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"), by
investing in stocks included in the S&P 500-Registered Trademark- Index.
During the ten-year period ended December 31, 1996, the S&P 500 Index had
an average annual return of 15.23%. Because the S&P 500 Index is an unmanaged
index, this return does not reflect the deduction of expenses that would exist
with a mutual fund.
FOCUS: To capture broad market performance, at low cost, by investing in a
portfolio modeled after a broadly based stock index.
MULTI-ASSET FUND
ASSET ALLOCATION FUND
OBJECTIVE: To seek to realize as high a level of total return, including
current income and capital appreciation, as is consistent with reasonable
investment risk. The Fund will follow a flexible policy for allocating assets
among common stocks, bonds and cash.
PORTFOLIO: The normal range of investments is 50-70% stocks, 25-35% bonds and
0-15% cash. Up to 50% of its stock allocation may be invested in foreign
stocks. See "Foreign Securities," p. __.
STRATEGY: To adjust the mix between asset sectors to capitalize on the changing
financial markets and economic conditions.
FOCUS: To achieve diversification and long-term total return.
BOND FUNDS
HIGH YIELD BOND FUND
OBJECTIVE: To seek high current income and capital appreciation by investing
primarily in fixed income securities that are rated below investment grade by
the major rating agencies.
PORTFOLIO: Diversified mix of below investment grade fixed income securities,
commonly known as "junk bonds."
STRATEGY: To identify attractive investment opportunities through rigorous
industry and credit analysis. Generate superior performance by selecting
companies with stable or improving credit fundamentals.
FOCUS: Actively manage to maximize total return within prudent investment risk
parameters.
MUNICIPAL BOND FUND
3
<PAGE>
OBJECTIVE: To seek a high level of current income exempt from federal income
taxes, consistent with the preservation of capital, by investing primarily in
investment grade municipal obligations.
PORTFOLIO: Diversified investment grade bonds, with the ability to invest up to
20% of its assets in lower-rated securities.
STRATEGY: Actively manage the portfolio to take advantage of changes in
interest rates, quality, sector, and maturity of fixed income securities.
FOCUS: To provide a competitive level of federally tax-exempt income and an
attractive total return plus a degree of safety.
SELECT BOND FUND
OBJECTIVE: To seek high income and capital appreciation, consistent with
preservation of capital.
4
<PAGE>
PORTFOLIO: Diversified investment-grade corporate, Treasury and government
agency bonds with maturities generally exceeding one year.
STRATEGY: To actively manage the portfolio to take advantage of changes in
interest rates, quality and maturity of fixed income securities.
FOCUS: To provide a stable, high rate of return plus a degree of safety.
RISK COMPARISON
You should select the Funds that reflect your special financial goals,
investment time horizon and willingness to accept risk. When you invest in a
Fund, you assume the risks of investing in the types of securities held by the
Fund. Investing in securities involves varying degrees of market or interest
rate risk, credit or financial risk, and prepayment risk. Market or interest
rate risk is the risk that market conditions, including interest rates, will
change and adversely affect the security. With common stock, market risk is the
risk that the value may fluctuate in response to general market and/or economic
conditions. The prices of bonds generally move in the opposite direction from
interest rates. Credit or financial risk is the risk that the issuer of a bond
may fail to pay principal and interest when due or, with stocks, that the
company will have adverse financial experience. Prepayment risk is the risk
that bonds which include the ability on the part of the issuer to prepay the
amount owed, will be prepaid at a time when interest rates have gone down, and
that the cash received can only be reinvested at a lower rate of return.
Certain instruments such as foreign securities, junk bonds and derivatives
present additional special risks. The risks that are specific to certain types
of securities are discussed in greater detail under "The Funds in Detail" on
page __.
Each Fund's net asset value per share (i.e., share price) will fluctuate to
reflect changes in the value of the securities in its portfolio. The value you
may receive upon redemption of a Fund's shares may be higher or lower than their
original cost.
DESCRIPTION OF CLASSES OF SHARES
To provide you with more flexibility, each Fund has adopted a purchase
program that offers you two alternative ways to purchase shares (Class A or
Class B), each with a different combination of sales charges, ongoing fees,
eligibility requirements, and other features. This program is designed to
permit you to choose the method of purchasing shares that you believe is most
beneficial given the amounts of your investment and current holdings of Fund
shares, the length of time you expect to hold your investment, and other
relevant circumstances.
Under the purchase program, Class A shares may be purchased subject to an
initial sales charge. Class B shares are not subject to a sales charge at the
time of purchase but may be subject to a contingent deferred sales charge at the
time they are sold. (Please see Buying and Selling Fund Shares at page ___ for
a description of the specific sales charges or contingent deferred sales charges
which might apply to your purchase.)
EXPENSE INFORMATION
The expense tables and the example below are intended to help you
understand the direct or indirect costs and expenses that you will bear as an
investor in a Fund. Shareholder Transaction Expenses are charged to your
account directly when you buy or sell shares. Annual Fund Operating Expenses
are paid out of a Fund's assets and include fees for advisory services,
distribution services and expenses relating to the maintenance of shareholder
accounts, such as transfer agent, administrative and similar expenses.
5
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES (ALL FUNDS):
-------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------------------------------------
Maximum Sales Charge on purchases (as % of 4.75% 0.00%
Offering Price) (1)
-------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge(2) 0.00% 5.00% first year
4.00% second year
3.00% third year
3.00% fourth year
2.00% fifth year
1.00% sixth year
-------------------------------------------------------------------------------
Redemption fee(3) None None
-------------------------------------------------------------------------------
Exchange fee None None
-------------------------------------------------------------------------------
(1) The maximum sales charge is applied only to purchases of less than $50,000.
Larger purchases are subject to lower sales charges. Purchases of $1
million or more incur no sales charge, but may be subject to a contingent
deferred sales charge ("CDSC") if the shares are redeemed within 18 months
of purchase.
(2) The CDSC is computed as a percentage of the redemption proceeds when you
redeem your shares. The maximum CDSC only applies if you sell your shares
during the first year after the purchase of less than $50,000. Larger
purchases of Class B shares may be subject to a reduced CDSC. See
"Contingent Deferred Sales Charge" on page ___.
(3) A wire transfer fee (currently $15) may be imposed on a redemption when
you have the proceeds wire transferred.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES:(1)
Aggressive Growth and
Growth International Growth Income Index 500
--------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.85% 0.85% 0.75% 0.75% 0.65% 0.65% 0.30% 0.30%
--------------------------------------------------------------------------------------------------------------------------------
12b-1 Distribution and Service 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
Fees(2)
--------------------------------------------------------------------------------------------------------------------------------
Other Expenses (after 0.20% 0.20% 0.45% 0.45% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
reimbursement)(3)
--------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after 1.30% 1.95% 1.65% 2.30% 1.30% 1.95% 1.20% 1.85% 0.85% 1.50%
reimbursement)(3)
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Asset High Yield
Allocation Bond Municipal Bond Select Bond
--------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.70% 0.70% 0.75% 0.75% 0.30% 0.30% 0.30% 0.30%
--------------------------------------------------------------------------------------------------------------------------------
12b-1 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
Distribution
and Service
Fees(2)
--------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.30% 0.30% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
(after
reimbursement)(3)
--------------------------------------------------------------------------------------------------------------------------------
Total Operating 1.35% 2.00% 1.30% 1.95% 0.85% 1.50% 0.85% 1.50%
Expenses (after
reimbursement)(3)
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) An annual custodial fee of $15 per taxpayer identification number is
charged to investors who maintain IRA accounts, which if not paid by the
investor, may be charged against the assets of the account.
6
<PAGE>
(2) The 12b-1 Distribution and Service Fees include a 0.25% shareholder
servicing fee with a 0.10% distribution fee on Class A shares and a
0.75% distribution fee on Class B shares. As the result of the accrual
of 12b-1 fees, long-term shareholders may pay more than the economic
equivalent of the maximum initial sales charge permitted by the National
Association of Securities Dealers.
(3) NMIS and affiliates have agreed to waive their fees and absorb certain
other operating expenses during the first year of operations to the
extent necessary so that Total Operating Expenses will not exceed the
amount shown for each Fund. After the first year of operations, NMIS
expects the Funds' total operating expenses, after reimbursement, not to
exceed the amounts shown. In the absence of the waivers, the estimated
Other Expenses for the Class A and the Class B shares of each Fund for
the first year of operations would be: Aggressive Growth Stock Fund,
.43% and .43%; International Equity Fund, .71% and .71%; Growth Stock
Fund, .46% and .46%; Growth and Income Stock Fund, .55% and .55%, Index
500 Stock Fund, .54% and .54%; Asset Allocation Fund, .77% and .77%; High
Yield Bond Fund, .56% and .56%; Municipal Bond Fund, .57% and .57%; and
Select Bond Fund .53% and .53%, respectively, and the estimated Total
Operating Expenses of the Class A and Class B shares of the Funds would
be: Aggressive Growth Stock Fund, 1.53% and 2.18%; International Equity
Fund, 1.91% and 2.56%; Growth Stock Fund, 1.56% and 2.21%; Growth and
Income Stock Fund, 1.55% and 2.20%, Index 500 Stock Fund, 1.19% and
1.84%; Asset Allocation Fund, 1.82% and 2.47%; High Yield Bond Fund,
1.66% and 2.31%; Municipal Bond Fund, 1.22% and 1.87%; and Select Bond
Fund 1.18% and 1.83%, respectively.
EXPENSE EXAMPLES
An investor would have paid the following expenses at the end of the period
shown on a $1,000 investment, assuming a 5% annual return and redemption at the
end of each period.
FUND 1 YEAR 3 YEARS
- ---- ------ -------
Class A Class B Class A Class B
Aggressive Growth Stock Fund $60 $70 $87 $91
International Equity Fund $63 $73 $97 $102
Growth Stock Fund $60 $70 $87 $91
Growth and Income Stock Fund $59 $69 $84 $88
Index 500 Stock Fund $56 $65 $73 $77
Asset Allocation Fund $61 $70 $88 $93
High Yield Bond Fund $60 $70 $87 $91
Municipal Bond Fund $56 $65 $73 $77
Select Bond Fund $56 $65 $73 $77
Using the same assumptions as for the first table but assuming that you did
not redeem your shares at the end of each period, you would bear the following
expenses:
FUND 1 YEAR 3 YEARS
- ---- ------ --------
Class A Class B Class A Class B
Aggressive Growth Stock Fund $60 $20 $87 $61
International Equity Fund $63 $23 $97 $72
Growth Stock Fund $60 $20 $87 $61
Growth and Income Stock Fund $59 $19 $84 $58
Index 500 Stock Fund $56 $15 $73 $47
Asset Allocation Fund $61 $20 $88 $63
High Yield Bond Fund $60 $20 $87 $61
Municipal Bond Fund $56 $15 $73 $47
Select Bond Fund $56 $15 $73 $47
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE RETURNS
OR EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The example assumes a
5% annual rate of return pursuant to requirements of the Securities and Exchange
Commission.
PERFORMANCE
The performance of the Funds is generally measured in terms of TOTAL
RETURN. In addition, the Bond Funds may measure YIELD as well. Our newsletters
and advertisements may include comparisons of a Fund's performance to the
performance of other mutual funds, mutual fund averages or recognized indices.
PERFORMANCE TERMS
7
<PAGE>
CUMULATIVE TOTAL RETURN represents the actual return on an investment for a
specified period without any deduction of a sales charge. Cumulative total
return is generally quoted for more than one year (e.g., the life of the Fund).
A cumulative total return does not show interim fluctuations in the value of an
investment.
AVERAGE ANNUAL TOTAL RETURN represents the average annual percentage change of
an investment over a specified period, after the deduction of the maximum
applicable sales charge. It is calculated by taking the cumulative total return
for the stated period (less the sales charge) and determining what constant
annual return would have produced the same cumulative return. Average annual
returns for more than one year tend to smooth out variations in a Fund's return
and are not the same as actual annual results.
YIELD shows the rate of income a Fund earns on its investments as a percentage
of the Fund's share price. It is calculated by dividing a Fund's net investment
income for a 30-day period by the average number of shares entitled to receive
dividends, annualizing this number, and dividing the result by the Fund's NAV
per share at the end of the 30-day period. Yield does not include changes in
NAV.
Yields are calculated according to standardized SEC formulas and may not equal
the income on an investor's account. Yield is usually quoted on an annualized
basis. An annualized yield represents the amount you would earn if you remained
in a Fund for a year and that Fund continued to have the same net investment
income for the entire year.
DISTRIBUTION RATE is a measure of the level of income dividends and may include
short-term capital gains distributed for a specific period. A distribution rate
is not a complete mirror of performance, and may be higher than yield for
certain periods.
TAX-EQUIVALENT YIELD. For the Municipal Bond Fund, tax-equivalent yield shows
the before-tax yield that an investor would have to earn to equal the Fund's
tax-free yield. It is calculated by dividing a Fund's tax-free yield by the
result of one minus a stated federal tax rate.
The investment performance for certain Portfolios of Northwestern Mutual Series
Fund, Inc. is shown below based upon the average annual total return for the
one, three, five and ten year periods (or since inception) ending December 31,
1996, adjusted to reflect the expenses of the Funds, including sales charges
where indicated. The investment policies of each of the Series Fund Portfolios
are essentially the same as those of the respective MSF Funds, with the
exception of the Select Bond Fund, which is permitted to invest to a limited
extent in foreign securities and high yield bonds, whereas the Select Bond
Portfolio of the Series Fund is not. NMIS does not believe these differences
in investment policy would cause a material difference in performance. THE
PERFORMANCE DISCLOSED BELOW IS NOT THE PERFORMANCE OF THE FUNDS BUT RATHER OF
THE CORRESPONDING SERIES FUND PORTFOLIO. THE PERFORMANCE FIGURES ARE BASED UPON
HISTORICAL RESULTS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
INVESTMENT RETURNS AND NET ASSET VALUE WILL FLUCTUATE SO THAT YOUR SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
The table below sets forth each Fund, and its corresponding Series Fund
Portfolio, its inception date and asset size as of December 31, 1996:
ASSUMING CLASS A SHARE TOTAL FUND OPERATING EXPENSES AND THE MAXIMUM INITIAL
SALES CHARGE APPLICABLE TO CLASS A SHARES.
<TABLE>
<CAPTION>
10 Years
Corresponding Portfolio Portfolio or Since
Fund (Inception Date and Asset Size) (Inception Date) 1 Year 3 Years 5 Years Inception
- ---- ------------------------------- ---------------- ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Aggressive Growth Stock Aggressive Growth Stock 11.27% 17.18% 14.93% 20.91%
Stock (November 30, 1990*) (November 30, 1990*)
$872 million
8
<PAGE>
International Equity International Equity International Equity 13.94% 8.68% NA 13.47%
(April 30, 1993*) (April 30, 1993*)
$505.2 million
Growth Stock Growth Stock Growth Stock 14.35% NA NA 16.52%
(May 3, 1994) (May 3, 1994)
$170.5 million
Growth and Income Growth and Income Stock Growth and Income Stock 13.66% NA NA 15.97%
Stock (May 3, 1994) (May 3, 1994)
$234.2 million
High Yield Bond High Yield Bond High Yield Bond 13.26% NA NA 11.90%
(May 3, 1994) (May 3, 1994)
$93.9 million
Select Bond Select Bond Select Bond -2.11% 4.03% 5.87% 7.21%
(June 26, 1984) (June 26, 1984)
$214.3 million
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CLASS A SHARE TOTAL FUND OPERATING EXPENSES WITH NO INITIAL
SALES CHARGE.
<S> <C> <C> <C> <C> <C>
The following four tables show the average annualized total Aggressive Growth Stock 16.82% 19.09% 16.05% 21.88%
returns for the Series Fund Portfolios and predecessor (November 30, 1990*)
funds for the one, three, five and ten year (or life of the International Equity 19.62% 10.46% NA 14.98%
Portfolio, if shorter) periods ended December 31, 1996. (April 30, 1993*)
These figures are based on the actual gross investment Growth Stock 20.05% NA NA 18.66%
performance of the Portfolios. From the gross (May 3, 1994)
investment performance figures, the maximum Total Fund Growth and Income Stock 19.33% NA NA 18.11%
Operating Expenses reflected in the fee table on (May 3, 1994)
page __ are deducted to arrive at the net return. The first High Yield Bond 18.91% NA NA 13.97%
table for each Class shown reflects a deduction for the (May 3, 1994)
maximum applicable sales charge, while the second table for Select Bond 2.77% 5.73% 6.91% 7.73%
each Class shown reflects no deduction for sales (June 26, 1984)
charges. Performance figures will be lower when sales
charges are taken into effect.
* Includes performance of predecessor fund that was merged into the
Series Fund on May 3, 1994
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CLASS B SHARE TOTAL FUND OPERATING EXPENSES AND ASSUMING CLASS B SHARE TOTAL FUND OPERATING EXPENSES AND NO
REDEMPTION AT THE END OF THE APPLICABLE TIME PERIOD. REDEMPTION AT THE END OF THE APPLICABLE TIME PERIOD.
10 Years 10 Years
Portfolio or Since Portfolio or Since
(Inception Date) 1 Year 3 Years 5 Years Inception (Inception Date) 1 Year 3 Years 5 Years Inception
- ---------------- ------ ------- ------- --------- ---------------- ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth Aggressive Growth Stock 16.01% 18.37% 15.33% 21.10%
Stock 11.01% 17.65% 15.11% 21.10% November 30, 1990*
November 30, 1990*
International Equity 13.91% 8.94% NA 13.68% International Equity 18.91% 9.77% NA 14.26%
April 30, 1993* April 30, 1993*
Growth Stock 14.19% NA NA 17.04% Growth Stock 19.19% NA NA 17.90%
May 3, 1994 May 3, 1994
Growth and Income Growth and Income Stock 18.48% NA NA 17.29%
Stock 13.48% NA NA 16.42% May 3, 1994
May 3, 1994
High Yield Bond 13.20% NA NA 12.32% High Yield Bond 18.20% NA NA 13.25%
May 3, 1994 May 3, 1994
Select Bond -2.96% 4.16% 5.89% 7.03% Select Bond 2.04% 5.07% 6.21% 7.03%
June 26, 1984 June 26, 1984
</TABLE>
* Includes performance of predecessor fund that was merged into the Series Fund
on May 3, 1994
9
<PAGE>
THE FUNDS IN DETAIL
This section takes a closer look at the Funds' investment objectives and
policies and the securities that may be purchased. Please review the "Other
Fund Policies and Associated Risks" section on page ___ for more detailed
information about risks associated with each investment. As with any mutual
fund, there is no assurance that a Fund will achieve its objective.
The investment objective of each Fund is "fundamental" and may not be
changed without a shareholder vote. All other policies, unless noted as
"fundamental," may be changed by Mason Street Fund's Board of Directors
without a vote of the shareholders. This allows for flexibility in the
management of the Funds, for example, to permit investments in new types
of instruments. You will be notified of any changes that are material.
The investment horizon is the amount of time you should plan to hold your
investment in a Fund to increase the likelihood of achieving the Fund's
objective. Descriptions of ratings are provided in Appendix B.
STOCK FUND CATEGORY
STOCK FUNDS PROFILE
Investment Objective: Who May Want to Invest: These Funds
may be appropriate for investors who
Aggressive Growth Growth of are willing to tolerate stock market
Stock Fund Capital fluctuations in return for potentially
International Equity high long-term returns. These Funds
Fund are designed for those looking for
Growth Stock Fund long-term growth potential.
Growth and Income Growth of The fundamental risk associated with
Stock Fund Capital any common stock fund is the risk that
and Income the value of the stocks it holds might
decrease. Stock values may fluctuate
Index 500 Stock Fund Approximate in response to the activities of an
the S&P 500 individual company or in response to
Stock Index general market and/or economic
Performance conditions. Historically, common
stocks have provided greater long-term
Primary Holdings Common Stocks returns and have entailed greater
short-term risks than other investment
Shareholder's Long Term choices. Smaller or newer issuers are
Investment Horizon more likely to realize more substantial
growth as well as suffer more
significant losses than larger or more
established issuers. Investments in
such companies can be both more
volatile and more speculative.
Investments in foreign securities may
involve additional risks not present
when investing in comparable domestic
securities.
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<PAGE>
AGGRESSIVE GROWTH STOCK FUND
The investment objective of the Aggressive Growth Stock Fund is long-term
growth of capital. The Fund will seek to achieve this objective primarily by
investing in the common stocks of companies that the advisor believes can
reasonably be expected to increase their sales and earnings at a pace that will
exceed the growth rate of the U.S. economy over an extended period. These
companies, for the most part, are smaller and newer companies whose stock may
experience substantial price volatility. Under normal circumstances, the Fund
will invest at least 65% of its assets in stocks.
INTERNATIONAL EQUITY FUND
The investment objective of the International Equity Fund is long-term
growth of capital. The Fund will seek to achieve this objective by investing
primarily in stocks of companies outside the United States. The Fund will
invest at least 65% of its assets in stocks of issuers in a minimum of three
countries outside the United States. Although the Fund generally invests in
common stocks, it may also invest in preferred stocks and certain debt
securities such as convertible bonds.
The International Equity Fund has an unlimited right to purchase securities
in any foreign country, developed or developing. You should consider carefully
the risks involved in investing in securities issued by companies and
governments of foreign nations, particularly those in developing countries,
which are in addition to the usual risks inherent in domestic securities. See
"Foreign Securities," p. [ ].
GROWTH STOCK FUND
The investment objective of the Growth Stock Fund is long-term growth of
capital; current income is secondary. The Fund will seek to achieve this
objective by selecting investments in companies which have above average
earnings growth potential. Under normal circumstances, the Fund will invest at
least 65% of its assets in stocks.
The Growth Stock Fund invests primarily in common stocks of well-
established companies, with emphasis placed on high quality companies with
strong financial characteristics. The investment process is initiated with an
analysis of the economic outlook. Further study of economic sectors leads to
the identification of growth-oriented industries, and to detailed studies of
individual companies. In evaluating individual companies, factors such as the
company management team, product outlook, global exposure, industry leadership
position, and financial characteristics are important variables used in the
analysis.
The market capitalization of companies the Fund may invest in is not
limited by size, but the Fund will generally invest in large- and medium-sized
companies.
GROWTH AND INCOME STOCK FUND
The investment objectives of the Growth and Income Stock Fund are long-term
growth of capital and income. The Fund seeks to achieve these objectives
consistent with reasonable investment risk. Ordinarily, the Fund pursues its
investment objectives by investing primarily in dividend-paying common stocks.
The Fund may also invest in other equity securities, consisting of, among other
things, nondividend-paying common stock. Under normal circumstances, the Fund
will invest at least 65% of its assets in stocks.
The Fund is not subject to any limit on the size of companies in which it
may invest, but intends, under normal circumstances, to be fully invested to the
extent practicable in the large- and medium-sized companies. In managing the
Fund, the potential for appreciation and dividend growth is given more weight
than current dividends. Nonetheless, the manager of the Fund will normally
strive for gross income for the Fund at a level not less than 75% of the
dividend income generated on the stocks included in the S&P 500 Index, although
this income level is merely a guideline and there can be no certainty that this
income level will be achieved.
The Fund attempts to reduce risk by investing in many different economic
sectors, industries and companies. The manager of the Fund may under-weight or
over-weight selected economic sectors against the sector weightings of the S&P
500 Index to seek to enhance the Fund's total return or reduce fluctuations in
market value relative to the S&P 500 Index. In selecting securities, the
manager may emphasize securities that it believes to be undervalued. Securities
of a company may be undervalued for a variety of reasons such as an overreaction
by investors to unfavorable news about a company, an industry or the stock
markets in general; or as a result of a market decline, poor economic
conditions, tax-loss selling, or actual or anticipated unfavorable developments
affecting a company.
During normal market conditions, the Fund will be as fully invested as
practicable in equity securities.
11
<PAGE>
INDEX 500 STOCK FUND
The investment objective of the Index 500 Stock Fund is to achieve
investment results that approximate the performance of the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index"). The Fund will attempt to meet
this objective by investing in stocks included in the S&P 500 Index in
proportion to their weighting in the index.
The S&P 500 Index* is composed of 500 common stocks representing more than
70% of the total market value of all publicly-traded common stocks in the United
States.
The Index 500 Stock Fund will not be managed in the traditional sense using
economic, financial and market analysis. A computer program will be used to
determine which stocks are to be purchased or sold to achieve the Fund's
objective. The Fund will, to the extent feasible, remain fully invested and
will normally hold at least 450 of the 500 issues that comprise the S&P 500
Index. The Fund will not buy stocks that are not in the S&P 500 Index and
will seek to sell such stocks in an orderly manner in the event of changes
in the Index or spin-offs.
The Index 500 Stock Fund's ability to match the performance of the S&P 500
Index will be affected to some extent by the size and timing of cash flows into
and out of the Fund. The Fund will be managed with a view to reducing such
effects.
*"Standard & Poor's-Registered Trademark-", "S&P"-Registered Trademark-, "S&P
500-Registered Trademark-", "Standard & Poor's 500", and "500" are trademarks
of McGraw-Hill, Inc. and have been licensed for use by Northwestern Mutual
Life and Mason Street Funds. The Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the Fund.
OTHER INVESTMENTS
In addition to investments in equity securities, the Stock Funds may from
time to time invest in investment grade debt securities, certificates of
deposit, bank time deposits in the currency of any nation, bankers acceptances,
corporate debt obligations, commercial paper, short-term U.S. Treasury
obligations, or temporarily hold assets in cash. Stock Funds other than the
Index 500 Stock Fund may invest all or a larger portion of their assets in these
investments for temporary defensive purposes. The Stock Funds may also invest
in options contracts, stock index futures contracts, including indexes on
specific industries, foreign
12
<PAGE>
currency futures and forward contracts and repurchase agreements. See
"Financial Futures Contracts," p. __. Although the Funds generally invest in
common stocks, they may also invest in preferred stocks and securities
convertible into common stock, including debt securities with conversion
privileges or warrants.
The Funds may also invest in American Depositary Receipts (ADRs). The
Aggressive Growth Stock and Growth Stock Funds have the authority to invest up
to 25% of their assets in ordinary shares of foreign securities. These Funds
will normally not invest in ordinary shares of foreign securities, but may do so
from time to time. See "Foreign Securities," p.___. The Funds may enter into
firm commitment agreements and purchase securities on a "when-issued" basis.
The International Equity Fund may purchase and sell financial futures
contracts, stock index futures contracts, and foreign currency futures contracts
for hedging purposes only and not for speculation. It may engage in such
transactions only if the total contract value of the futures contracts does not
exceed 20% of the Portfolio's total assets. See "Financial Futures Contracts,"
p.__.
DIVERSIFICATION
The aim of each Fund is to seek to reduce overall risk by diversifying its
assets in an appropriate manner. This diversification will span economic
sectors, industry groups, and companies, while emphasizing high quality
investments.
13
<PAGE>
MULTI-ASSET FUND CATEGORY
ASSET ALLOCATION FUND PROFILE
Investment Total Return Who May Want to Invest: This Fund may
Objective: be appropriate for investors who seek a
combination of growth of capital and
income, and are willing to ride out
stock market fluctuations in pursuit of
Primary Holdings Common Stocks potentially high long-term returns. The
and Fixed Asset Allocation Fund is designed for
Income investors who want their investments
Securities actively managed among the major asset
classes in pursuit of potentially high
total return. It is not designed for an
investor who wishes to have a consistent
level of income.
Shareholder's Long-Term The value of the Fund's investments and
Investment income will vary from day to day, and
Horizon generally reflect market conditions,
interest rates, and other company,
political or economic news. In the
short-term, stock prices can fluctuate
dramatically in response to these
factors. Over time, however, stocks
have shown greater appreciation
potential than other types of
securities. The prices of fixed income
securities generally move in the
opposite direction from interest rates.
Investments in foreign securities may
involve additional risks not present
when investing in comparable domestic
securities.
ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is as high a level of
total return, including current income and capital appreciation, as is
consistent with reasonable investment risk. The Fund seeks to achieve its
objective through a flexible policy of allocating assets among common stocks,
bonds and cash.
Under normal market conditions, the Fund's net assets will be allocated
according to a benchmark of 50-70% stocks, 25-35% bonds and 0-15% cash. NMIS
intends to actively manage the Fund's assets, maintaining a balance over time
between investment opportunities and their associated potential risks. In
response to changing market and economic conditions, NMIS may reallocate the
Fund's net assets among these asset categories. Those allocations normally will
be within the ranges indicated above. However, in pursuit of total return, NMIS
may under-allocate or over-allocate the Fund's net assets in a particular
category.
Not more than 75% of the Fund's net assets may be invested in either the
stock sector or the bond sector. Up to 100% of the Fund's net assets may be
invested in money market instruments. No minimum percentage has been
established for any of the sectors.
The stock portion of the portfolio may be invested in any of the types of
securities eligible for the Stock Funds, including foreign securities. To take
advantage of investment opportunities around the world, the Fund will normally
invest 20-25% of its stock investments in foreign stocks (including both direct
investments and depository receipts) but will not invest more than 50% of its
equity investments in foreign equities. Foreign investments involve risks not
normally found when investing in securities of U.S. issuers. See "Foreign
Securities," p.__.
The bond portion of the portfolio may be invested in any of the types of
securities eligible for the Select Bond Fund or the High Yield Bond Fund. The
Fund may purchase securities on a "when-issued" or forward commitment basis.
Bonds purchased by the Fund will be primarily investment-grade debt obligations,
although the Fund may invest up to 10% of its total assets in non-investment-
grade debt obligations.
The cash portion of the Fund may include, but is not limited to, debt
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, commercial paper, banker's acceptances, certificates of
deposit and time deposits. The Fund may invest in obligations of domestic and
foreign banks and their subsidiaries and branches.
14
<PAGE>
Within the asset-allocation categories described above, NMIS will allocate
the Fund's investments among countries (including developing countries),
geographic regions, and currencies in response to changing market and economic
trends. In making geographical allocations of investments, NMIS will consider
such factors as the historical and prospective relationships among currencies
and governmental policies that influence currency-exchange rates, current and
anticipated interest rates, inflation levels, and business conditions within
various countries, as well as other macroeconomic, social, and political
factors.
The Fund may invest in or write option contracts, stock index futures
contracts, including indexes on specific industries, interest rate futures
contracts, foreign currency futures and forward contracts, repurchase agreements
and warrants. See "Financial Futures Contracts," p. __.
BOND FUND CATEGORY
BOND FUNDS PROFILE
Investment Who May Want to Invest: Thee Funds are
Objective: designed for investors who primarily seek
current income.
High Yield Bond High Current
Fund Income and The High Yield Bond Fund is designed for
Capital investors who are willing to accept
Appreciation higher levels of credit and market risks
in return for potentially higher return.
Municipal Bond High Level of Because of these risks, this Fund is not
Fund current income appropriate for short-term investment
exempt from purposes.
federal income
taxes and The Municipal Bond Fund is designed for
preservation of investors who want income that is exempt
capital from regular federal income tax and are
willing to accept higher interest rate
Select Bond High Income and risk and moderate credit risks.
Fund Capital
Appreciation The Select Bond Fund is designed for
Consistent With investors who want moderate levels of
Preservation of interest rate and credit risks while
Capital seeking high current income.
Primary Holdings: A fundamental risk associated with any
fund investing in fixed income securities
High Yield Bond Corporate Bonds is that fixed income securities tend to
Fund - Non decline in value when interest rates
Investment Grade rise. This effect is generally greater
for longer-term bonds, but they generally
offer higher yields to compensate for
Municipal Bond Municipal these risks. In addition, securities
Fund Securities that permit prepayment have the risk that
they will be paid during periods when
Select Bond Corporate Bonds interest rates are falling, which
Fund - Investment generally results in the proceeds being
Grade invested at a lower rate of return.
Shareholder's Intermediate to
Investment Long-Term
Horizon:
15
<PAGE>
HIGH YIELD BOND FUND
The investment objective of the High Yield Bond Fund is high current income
and capital appreciation. The High Yield Bond Fund seeks to achieve its
objective by investing primarily in a diversified selection of fixed income
securities rated below investment grade by Moody's or Standard & Poor's. The
Fund may also invest in nonrated securities. These securities are considered
speculative and are sometimes known as "junk bonds." Under normal circumstances,
the Fund will invest at least 65% of its assets in high yield bonds.
The primary investment strategy of the High Yield Bond Fund is to invest in
industries or individual companies that have stable or improving fundamental
financial characteristics. The success of this strategy depends on the
manager's analytical and portfolio management skills. These skills are more
important in the selection of high yield/high risk securities than would be the
case with a portfolio of high quality bonds. In selecting securities, the
manager will consider the ratings assigned by the major rating agencies, but
primary reliance will be placed on the manager's evaluation of credit and market
risk in relationship to the expected rate of return. The manager of the Fund
seeks to reduce the volatility of these securities through careful evaluation of
credit risk and market risk and diversification of the Fund's investments.
The value of the securities held by the Fund will be directly affected by
the market perception of the creditworthiness of the securities' issuers and
will fluctuate inversely with changes in interest rates. Lower rated securities
are more likely to react to developments affecting market and credit risk than
are more highly rated securities. In addition, the secondary market for high
yield/high risk securities, which is concentrated in relatively few market
makers, may not be as liquid as the secondary market for more highly rated
securities.
In addition to notes and bonds, the Fund may invest in preferred stocks and
convertible securities, including warrants or other equity securities issued as
part of a fixed income offering. The Fund may purchase put and call options, on
individual securities as well as indexes, and may write covered call and secured
put options. The Fund may invest available temporary cash in short-term
obligations. The Fund may invest more substantially in such short-term
obligations or in investment grade securities rated by Moody's or Standard &
Poor's, without limit, when market conditions warrant a more defensive
investment posture.
The High Yield Bond Fund may invest in foreign securities consistent with
its investment objective. Such investments may be in United States currency
denominated debt issues or in debt securities in the currency of other nations.
The Fund may, but will not necessarily, attempt to hedge its exposures by
engaging in transactions in foreign currency futures contracts. For a
discussion of the risks involved in these contracts see "Financial Futures
Contracts," p.__.
MUNICIPAL BOND FUND
The investment objective of the Municipal Bond Fund is a high level of
current income exempt from federal income taxes, consistent with preservation of
capital. The Fund invests primarily in a diversified portfolio of investment-
grade municipal obligations.
Municipal obligations are debt obligations issued by states, territories
and possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate agencies
or authorities, the interest from which is, in the opinion of bond counsel to
the issuer, exempt from federal income tax. Municipal obligations generally
include debt obligations issued to obtain funds for various public purposes as
well as certain industrial development bonds issued by or on behalf of public
authorities.
Normally the Fund will invest at least 80% of the value of its net assets
in municipal obligations, exempt from Federal taxes. However, taxable debt
securities are also permitted for investment. Taxable debt may exceed 20% at
times for temporary defensive purposes, with no maximum percentage. At least
80% of the value of the Fund's net assets will be invested in (1) securities
rated in the top four categories by a nationally recognized statistical rating
organization (NRSRO), such as Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"), or (2) commercial paper rated in the
top two categories by a NRSRO, or (3) cash or cash equivalents. Up to 20% of
the value of the Fund's net assets may be invested in lower rated securities
(below investment grade). See High Yield/High Risk Securities on p. ___. The
Fund also may invest in securities which, while not rated, are determined by the
advisor to be of comparable quality to those rated securities in which the Fund
may invest; for purposes of the 80% requirement described in this paragraph,
such unrated securities shall be deemed to have the ratings so determined.
16
<PAGE>
While the Fund has no security maturity restrictions, its average maturity
will normally be 10 years or longer.
The Fund may invest up to 30% of the value of its net assets in alternative
minimum tax (AMT) bonds. AMT bonds are tax-exempt "private activity" bonds
issued after August 7, 1986, whose proceeds are directed at least in part to a
private, for-profit organization. While the income from AMT bonds is exempt
from regular federal income tax, it is a tax preference item for purposes of the
"alternative minimum tax." The alternative minimum tax is a special tax that
applies to a limited number of taxpayers who have certain adjustments to income
or tax preference items.
The Fund may engage in various investment techniques, such as lending
portfolio securities and options and futures transactions. Use of certain of
these techniques may give rise to taxable income. See "Investment Policies" in
the Statement of Additional Information.
Even though interest-bearing securities are investments which promise a
stable stream of income, the prices of such securities are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations.
Certain provisions in the Internal Revenue Code relating to the issuance of
municipal obligations may reduce the volume of municipal obligations qualifying
for federal tax exemption. One effect of these provisions could be to increase
the cost of the municipal obligations available for purchase by the Fund and
thus reduce available yield. Proposals that may restrict or eliminate the
income tax exemption for interest on municipal obligations may be introduced in
the future. If any such proposal were enacted that would reduce the
availability of municipal obligations for investment by the Fund so as to
adversely affect Fund shareholders, the Fund would reevaluate its investment
objective and policies and submit possible changes in the Fund's structure to
shareholders for their consideration. If legislation were enacted that would
treat a type of municipal obligation as taxable, the Fund would treat such
securities as a permissible taxable investment within the applicable limits set
forth herein.
Federal income tax law requires the holders of a zero coupon security or of
certain pay-in-kind bonds to accrue income with respect to these securities
prior to the receipt of cash payments. To maintain its qualification as a
regulated investment company and avoid liability for Federal income taxes, the
Fund may be required to distribute such income accrued with respect to these
securities and may have to dispose of portfolio securities under disadvantageous
circumstances in order to generate cash to satisfy these distribution
requirements.
The Fund may invest, to a limited extent, in options and futures. See
"Financial Futures Contracts," p. __ and "Options," p.__.
The Fund may also invest in repurchase agreements, reverse repurchase
agreements or may purchase securities on a "when-issued" or forward commitment
basis.
The Fund may invest in municipal lease obligations. Such obligations do
not constitute general obligations of the municipality, but are ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make payments in future years unless money is appropriated for
such purpose on a yearly basis. Such obligations are secured by the leased
property.
The Fund may also invest in any of the securities in which the Select Bond
Fund may invest, including, but not limited to, preferred stock, mortgage-backed
and asset-backed fixed income securities, and obligations of or guaranteed by
the United States Government or its agencies.
SELECT BOND FUND
The investment objective of the Select Bond Fund is as high a level of
income and capital appreciation as is consistent with preservation of
shareholders' capital.
The Select Bond Fund's assets will be invested primarily in the following
types of securities: investment grade corporate debt securities rated by Moody's
or Standard & Poor's; obligations of or guaranteed by the United States
Government or its agencies; up to 10% in high grade obligations (payable in U.S.
dollars) of or guaranteed by the Government of Canada or of a Province of Canada
or any instrumentality or political subdivision thereof rated by Moody's or
Standard & Poor's; and high quality debt securities issued or guaranteed by a
national or state bank or bank holding company.
At least 70% of the Select Bond Fund's total assets will normally be
invested in bonds and debentures which have maturities of at least one year.
However, during periods of particular volatility or when an unusual decline in
the value of long-term obligations is anticipated, for
17
<PAGE>
temporary defensive purposes the Fund may place all or a larger portion of its
assets in cash and short-term obligations, which may include: certificates of
deposit of banks or bank holding companies; high quality commercial paper rated
by Moody's or Standard & Poor's and cash or cash equivalents. In addition, the
Fund may invest in unrated privately placed corporate debt securities that in
the judgment of Mason Street Fund's Board of Directors, are of comparable
quality to debt securities rated investment grade or better by Moody's or
Standard & Poor's; preferred stocks, convertible securities; and securities
carrying warrants to purchase equity securities.
The Select Bond Fund will not invest in common stocks directly, but may
retain up to 10% of its total assets in common stocks acquired upon conversion
of debt securities or upon exercise of warrants acquired with debt securities.
The Select Bond Fund invests in obligations of a number of U.S. Government
agencies. Obligations of some agencies are supported by the full faith and
credit of the U.S. Treasury, others are supported only by the credit of an
agency. No assurance can be given that the U.S. Government would provide
financial support to any agency if it is not obligated to do so by law. The
Select Bond Fund will invest in the securities of a particular agency only when
the investment advisor is satisfied that the credit risk with respect to such
agency is minimal.
The Select Bond Fund may invest up to 15% of its total net assets in high
yield/high risk bonds and up to 15% of its total net assets in foreign
securities, consistent with its investment objective. See "Foreign Securities,"
pp. ___ and "High Yield/High Risk Securities," pp. ___. The Fund may also
invest in preferred stock and mortgage-backed and asset-backed fixed income
securities.
The Select Bond Fund may also invest in interest rate futures contracts and
repurchase agreements. See "Financial Futures Contracts," p. ___.
The Select Bond Fund may purchase securities on a "when-issued" or forward
commitment basis.
OTHER FUND POLICIES AND ASSOCIATED RISKS
FOREIGN SECURITIES
INVESTMENTS IN FOREIGN SECURITIES, INCLUDING THOSE OF FOREIGN GOVERNMENTS,
INVOLVE ADDITIONAL RISKS NOT NORMALLY PRESENT WHEN INVESTING IN COMPARABLE
DOMESTIC SECURITIES.
Some securities of foreign companies and governments may be traded in the
United States, such as ADRs, but most are traded primarily in foreign markets.
The risks of investing in foreign securities include:
- - CURRENCY RISK. For securities that are based in value on foreign currencies
(including ADRs), the Fund in essence must buy the local currency in order to
buy a foreign security and sell the same local currency after it sells the
security. Therefore, the value of that security to the Fund is affected by the
value of the local currency relative to the U.S. currency. As a result, if the
value of the local currency falls relative to U.S. currency, the value of that
security falls, even though the security has not decreased in value in its home
country.
- - POLITICAL AND ECONOMIC RISK. Foreign investments can be subject to greater
political and economic risks. In some countries, there is the risk that the
government may take over assets or operation of the company or impose taxes or
place limits on the removal of assets that would adversely affect the value of
the security. The possibility of
18
<PAGE>
default in foreign government securities, political or social instability or
diplomatic developments generally are more of a concern in developing countries,
where the possibility of political instability (including revolution) and
dependence on foreign economic assistance may be greater than in developed
countries.
- - REGULATORY RISK. In many countries there is less publicly available
information about issuers than is available for companies in the United States.
Foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to United States companies. In many foreign
countries there is less government supervision and regulation of business and
industry practices, and it may be more difficult to obtain or enforce judgments
obtained against foreign entities.
- - MARKET RISKS. Foreign securities often trade with less frequency and volume
than domestic securities and are therefore less liquid and more volatile than
securities of comparable domestic issuers. Further, the settlement period of
securities transactions in foreign markets may be longer than in domestic
markets.
- - TRANSACTION COSTS. Commission rates in foreign countries, which are generally
fixed rather than subject to negotiation as in the United States, are likely to
be higher. In addition, other costs, such as tax and custody costs, are
generally higher than for domestic transactions.
- - PARTICULAR RISKS FOR DEVELOPING COUNTRIES. In general, the risks noted above
are heightened for developing countries. In addition, certain developing
countries have experienced substantial, and in some cases, rapidly fluctuating
rates of inflation for a number of years. Inflation has, and may continue to
have a debilitating effect on the underlying economies of these countries. Many
developing countries are heavily dependent on international trade and can be
adversely affected by trade barriers and protectionist measures, as well as the
depreciation or devaluation of their currencies.
HIGH YIELD/HIGH RISK SECURITIES
These securities tend to offer higher yields than higher rated securities
of comparable maturities because the historical financial condition of the
issuers of these securities is usually not as strong as that of other issuers.
High yield fixed income securities usually present greater risk of loss of
income and principal than higher rated securities.
For example, because investors generally perceive that there are greater
risks associated with investing in medium or lower rated securities, the yields
and price of such securities may tend to fluctuate more than those of higher
rated securities. Moreover, in the lower quality segments of the fixed income
securities market, changes in perception of the creditworthiness of individual
issuers tend to occur more frequently and in a more pronounced manner than do
changes in higher quality segments of the fixed income securities market. The
yield and price of medium to lower rated securities therefore may experience
greater volatility than is the case with higher rated securities.
Under adverse market or economic conditions, the secondary market for
high yield/high risk securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a
result, Mason Street Funds could find it more difficult to sell such
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such
lower rated securities therefore may be less than the prices used in
calculating the Fund's net asset value. In the absence of readily available
market quotations, high yield/high risk securities will be valued by Mason
Street Fund's Directors using a method that, in the good faith belief of the
Directors, accurately reflects fair value. Valuing such securities in an
illiquid market is a difficult task. The Directors' judgment plays a more
significant role in valuing such securities than those securities for which
more objective market data are available.
FINANCIAL FUTURES CONTRACTS
Each of the Funds (except the Bond Funds) may enter into stock index
futures contracts, including indexes on specific securities, as a hedge against
changes in the market values of common stocks. The Bond Funds, the Asset
Allocation Fund and the International Equity Fund may enter into interest rates
futures contracts as a hedge against changes in prevailing levels of interest
rates. In both cases, the purpose is to establish more definitely the effective
return on securities held or intended to be acquired by the Funds. The Funds'
hedging may include sales of futures as an offset against the effect of expected
decreases in
19
<PAGE>
stock values or increases in interest rates, and purchases of futures as an
offset against the effect of expected increases in stock values or decreases in
interest rates.
A Fund will not enter into a futures contract if, as a result thereof, the
sum of the initial margin deposits of all open futures positions (other than an
offsetting transaction) would be more than 5% of the Fund's total assets. More
than 5% of the Fund's total assets may be committed to the aggregate of initial
and variation margin payments however. Furthermore, in order to be certain that
the Fund has sufficient assets to satisfy its obligations under a futures
contract, the Fund deposits cash or cash equivalents equal in value to the
market value of the futures contract in a segregated account for the Fund with
the Fund's custodian.
Financial futures prices are volatile and difficult to forecast and the
correlation between changes in prices of futures contracts and the securities
being hedged can only be approximate. A decision of whether, when and how to
hedge involves the exercise of skill and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected stock market or interest rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. A relatively small price movement in a
futures contract may result in immediate and substantial loss, as well as gain,
to the investor. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract.
A description of financial futures contracts is included in the Statement
of Additional Information.
OPTIONS
Each of the Funds may purchase put or call options or write covered put or
call options with respect to certain securities, indices or foreign currencies.
A description of put and call options and covered put and call options is
included in the Statement of Additional Information.
EURODOLLAR CERTIFICATES OF DEPOSIT
The Growth Stock, Growth and Income Stock, Asset Allocation, High Yield
Bond and Municipal Bond Funds may purchase Eurodollar certificates of deposit
issued by foreign branches of U.S. banks, but consideration will be given to
their marketability and possible restrictions on the flow of international
currency transactions. Investment in such securities involves considerations
which are not ordinarily associated with investing in domestic instruments,
including currency exchange control regulations, the possibility of
expropriation, seizure, or nationalization of foreign deposits, less liquidity
and increased volatility in foreign securities markets as well as the impact of
political, social or diplomatic developments or the adoption of other foreign
government restrictions that might adversely affect the payment of principal
and interest. If the Fund were to invoke legal processes, it might encounter
greater difficulties abroad than in the United States.
REPURCHASE AGREEMENTS AND WARRANTS
Certain securities of each Fund may be subject to repurchase agreements.
Each of the Funds (except the Select Bond Fund) may also invest in warrants. A
description of repurchase agreements and warrants is included in the Statement
of Additional Information.
INVESTMENT RESTRICTIONS
The significant investment restrictions common to all the Funds are described
below. The investment restrictions of a Fund may be changed only with the
approval of the majority of the Fund's shares outstanding. These investment
restrictions provide that each Fund will not:
1. Acquire more than 25% of any class of equity securities of any one issuer.
2. With respect to at least 75% of the value of the total assets of the Fund,
invest more than 5% of the value of such
20
<PAGE>
assets in the securities of any one issuer (except securities issued or
guaranteed by the U.S. Government or its agencies), or invest in more than
10% of the outstanding voting securities of any one issuer.
3. Purchase the securities of any other investment company in amounts
exceeding 10% of the total assets of the Fund, except in connection with
mergers, consolidations or acquisitions of assets.
4. Invest more than 15% of the value of the net assets of the Fund in
securities which are restricted as to disposition under federal securities
laws and in other illiquid assets.
5. Invest 25% or more of the value of the total assets of the Fund in
securities of issuers in any one industry except for obligations of or
guaranteed by the U.S. Government, its agencies or instrumentalities.
6. Make loans aggregating more than 10% of the total assets of the Fund at any
one time, provided that none of the following is to be considered a loan:
(1) the purchase of a portion of an issue of publicly distributed bonds,
debentures, or other debt securities; (2) the purchase of short-term debt
securities; (3) lending portfolio securities; or (4) repurchase agreements.
Additional investment restrictions are included in the Statement of Additional
Information.
MANAGEMENT OF THE FUNDS
DIRECTORS
The Board of Directors of Mason Street Funds is responsible for setting
and overseeing the investment objectives and policies of each Fund, but
delegates daily management of the Funds to the investment advisor, the
sub-advisors where applicable and the officers of Mason Street Funds.
21
<PAGE>
INVESTMENT ADVISORS
ALL FUNDS
The Funds' investment advisor is NMIS, a wholly-owned subsidiary of
Northwestern Mutual Life. The address of NMIS is 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202. NMIS has served as investment advisor to each of
the mutual funds sponsored by Northwestern Mutual Life, including Northwestern
Mutual Series Fund, Inc., subject to the supervision and control of the boards
of directors of the funds, since their incorporation. NMIS provides investment
advice and recommendations regarding the purchase and sale of securities for the
Funds. Northwestern Mutual Life employs a full staff of investment personnel to
manage its investment assets. Northwestern Mutual Life's personnel and related
facilities are utilized by NMIS in performing its investment advisory functions.
For the Funds identified below, NMIS has retained a subadvisor to provide
investment advice and, in general, to conduct the management investment program
of the Fund, subject to the general control of the advisor and the Board of
Directors of Mason Street Funds.
GROWTH AND INCOME STOCK FUND
J.P. Morgan Investment Management, Inc. ("J.P. Morgan"), a Delaware
corporation with principal offices at 522 Fifth Avenue, New York, New York
10036, a wholly-owned subsidiary of J.P. Morgan & Co., is the sub-advisor for
the Growth and Income Fund.
INTERNATIONAL EQUITY FUND
Templeton Investment Counsel, Inc. ("Templeton"), a Florida corporation
with principal offices at 500 East Broward Boulevard, Ft. Lauderdale, Florida
33394, a wholly-owned indirect subsidiary of Franklin Resources, Inc., is the
sub-advisor for the International Equity Fund.
FUND MANAGERS
MARK G. DOLL, Senior Vice President of Northwestern Mutual Life, joined
Northwestern Mutual Life in 1972 and holds B.A. and M.B.A. degrees from the
University of Wisconsin-Milwaukee. He is a Chartered Financial Analyst. Mr.
Doll is responsible for investment management of the Asset Allocation Fund and
supervision of investment management for all of the Funds. He is also
responsible for the publicly traded investments of Northwestern Mutual Life, and
for investment management of the Balanced Portfolio of the Series Fund.
PATRICIA L. VANKAMPEN, Vice President of Common Stocks of Northwestern
Mutual Life, joined Northwestern Mutual Life in 1974. She holds a B.A. degree
from St. Norbert College and an M.B.A. from Marquette University, and is a
Chartered Financial Analyst. Ms. Van Kampen is responsible for the equity
portion of the Asset Allocation Fund. She is also responsible for all common
stock investments of Northwestern Mutual Life, and for investment management of
the equity portion of the Balanced Portfolio of the Series Fund.
WILLIAM R. WALKER, Director of Common Stocks of Northwestern Mutual Life,
joined Northwestern Mutual Life in 1984. Prior to this, he worked for the
Chicago Board Options Exchange, the Milwaukee Company, and Armco Insurance. Mr.
Walker is a Chartered Financial Analyst, and holds a B.S. degree from Marquette
University and an M.B.A. from Miami of Ohio. He has primary responsibility for
the management of the Aggressive Growth Stock Fund. He also has primary
responsibility for the Aggressive Growth Stock Portfolio of the Series Fund, as
well as the small company portfolio of Northwestern Mutual Life.
JULIE M. VANCLEAVE, Director of Common Stocks of Northwestern Mutual Life,
joined Northwestern Mutual Life in 1984 and holds B.A. and M.B.A. degrees from
the University of Wisconsin-Madison. Ms. Van Cleave is a Chartered Financial
Analyst and has primary responsibility for the Growth Stock Fund. She also has
primary responsibility for the Growth Stock Portfolio of the Series Fund and the
large company portfolio of Northwestern Mutual Life.
STEVEN P. SWANSON, Vice President of Securities of Northwestern Mutual
Life, joined Northwestern Mutual Life in 1981. He received a B.A. degree from
Lawrence University and an M.B.A. from the University of Michigan. Mr. Swanson
is responsible for the High Yield Bond Fund. He is also responsible for the
High Yield Bond Portfolio of the Series Fund and also manages the high yield
bond portfolio of Northwestern Mutual Life.
22
<PAGE>
JEFFERSON V. DEANGELIS, Vice President - Fixed Income of Northwestern
Mutual Life, joined Northwestern Mutual Life in 1983. Subsequently, he was a
portfolio manager for Van Kampen Merritt. Before returning to Northwestern
Mutual Life in 1992, he served as a portfolio manager for Putnam Management
Company from February of 1987 through February of 1992. He received a BA degree
from Carroll College and a MBA degree from Marquette University, and is a
Chartered Financial Analyst. Mr. DeAngelis has primary investment
responsibility for the Select Bond Fund and the fixed income portion of the
Asset Allocation Fund. He also has primary investment responsibility for the
Select Bond Portfolio of the Series Fund, the fixed-income securities of the
Balanced Portfolio of the Series Fund and various portfolios of Northwestern
Mutual Life.
RONALD C. ALBERTS, Associate Director - Fixed Income of Northwestern
Mutual Life, joined Northwestern Mutual Life in 1984. He received a B.A.
degree from Carroll College and an MBA degree from Marquette University, and
is a Chartered Financial Analyst. Mr. Alberts is responsible for the
Municipal Bond Fund as well as management of other client accounts.
LISA WALLER ORAM, Managing Director of J.P. Morgan Investment, joined J.P.
Morgan in 1982. She holds undergraduate and graduate degrees from the
University of Wisconsin-Madison. Ms. Oram is a Chartered Financial Analyst.
She has primary responsibility for the Growth and Income Stock Fund. She also
has primary responsibility for the Growth and Income Stock Portfolio of the
Series Fund, and also manages several pension fund and other mutual fund
accounts.
MARC S. JOSEPH, Vice President/Portfolio Manager of Templeton Investment
Counsel, Inc., joined Templeton in September of 1993. Prior to this, Mr. Joseph
served as Vice President of Pacific Financial Research from May of 1990 through
August of 1993. He holds a BS degree in Computer Science from the College of
William & Mary, an MBA from Harvard Business School, and a JD from Harvard Law
School. He has primary responsibility for the International Equity Fund. He
also has primary responsibility for the International Equity Portfolio of the
Series Fund, and manages several other mutual funds and separate accounts.
Mr. Joseph also has various research responsibilities at Templeton.
INVESTMENT ADVISORY FEES
Each Fund pays NMIS an annual fee, payable in monthly installments, for
investment advisory services. The investment advisory agreement describes the
services to be provided and the fee to be paid, which is at an annual rate based
on the average daily net assets of the Fund according to the following schedule:
Fund Fee
---- ---
Aggressive Growth Stock 0.75%
International Equity 0.85%
Growth Stock 0.75%
Growth and Income Stock 0.65%
Index 500 Stock 0.30%
Asset Allocation 0.70%
High Yield Bond 0.75%
Municipal Bond 0.30%
Select Bond 0.30%
Of the amounts received from the Fund, NMIS pays the sub-advisor for the
Growth and Income Stock Fund at the annual rate of .45% on the first $100
million of assets, .40% on the next $100 million, .35% on the next $200 million
and .30% on assets over $400 million. For the International Equity Fund, NMIS
pays the sub-advisor at the annual rate of .50% of assets, reduced to .40% on
assets over $100 million. The breakpoints for the fees paid to the sub-advisors
will be based on the aggregate assets of the respective Fund and the
corresponding Portfolio of the Series Fund.
NMIS and affiliates have agreed to waive their fees or reimburse each
Fund for expenses if the total operating expenses of the Fund exceed the
Total Operating Expenses set forth in the table on p.__ in the first year of
operations.
23
<PAGE>
OTHER SERVICE PROVIDERS
The following parties provide the Funds with administrative and other
services:
TRANSFER AGENT
National Financial Data Services ("NFDS")
Post Office Box 419419
Kansas City, Missouri 64141-6419
CUSTODIAN
For the domestic assets For the domestic assets of
of Growth and Income Aggressive Growth Stock Fund,
Stock Fund, High Yield Growth Stock Fund, Index 500
Bond Fund and Municipal Stock Fund, Asset Allocation
Bond Fund: Fund and Select Bond Fund:
Bankers Trust Company The Chase Manhattan Bank, N.A.
16 Wall Street One Chase Manhattan Plaza
New York, New York 10015 New York, New York 10081
For the International Equity
Fund and any foreign assets of
the other Funds:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
ADMINISTRATOR
The Northwestern Mutual International Equity Fund fund accounting:
Life Insurance Company Brown Brothers Harriman & Co.
720 East Wisconsin Avenue 40 Water Street
Milwaukee, Wisconsin 53202 Boston, Massachusetts 02109
DISTRIBUTOR
Robert W. Baird & Co. Incorporated ("Baird")
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
The Distributor is controlled by Northwestern Mutual Life and, therefore,
an affiliate of NMIS.
FUND EXPENSES
In addition to the investment advisory fee, each Fund pays fees to certain
other service providers, such as the transfer agent, custodian and
administrator. Each Fund also bears certain expenses, such as brokerage and
other transaction costs, outside professional and auditing fees, registration
fees, association fees, trademark fees, organizational costs, insurance
premiums, printing and mailing costs of sending reports and other information to
existing shareholders, the fees and expenses of the Directors who are not
officers or employees of an affiliated company and any interest, taxes and
extraordinary expenses incurred by the Funds. In addition, each Fund pays the
Distributor certain fees for shareholder servicing and distribution expenses,
which vary based on the class of shares. (See "Distribution and Service Fees,"
p.__)
24
<PAGE>
ADMINISTRATIVE FEES
Each Fund pays Northwestern Mutual Life a monthly fee at an annual rate of
0.10% plus costs of pricing securities; for administrative services, which
include recordkeeping, preparation of reports and filing tax returns; and for
fund accounting (except for the International Equity Fund). For the
International Equity Fund, Northwestern Mutual Life waives a portion of its fee
equal to the fund accounting fee paid to Brown Brothers Harriman & Co.
PORTFOLIO TRANSACTIONS
In executing portfolio transactions, the investment advisor or sub-advisor
will attempt to obtain the best net results for a Fund, taking into account such
factors as price (including the applicable brokerage commission or dollar
spread), size of order, the nature of the market for the security, the timing of
the transaction, the reputation, experience and financial stability of the
broker-dealer involved, the quality of the service, the difficulty of execution
and operational facilities of the firms involved, and the firm's risk in
positioning a block of securities. In effecting purchases and sales of
portfolio securities in transactions on United States stock exchanges for the
account of a Fund, the investment advisor or sub-advisor may pay higher
commission rates than the lowest available when the investment advisor or
sub-advisor believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction. The advisor and sub-advisors are authorized to place orders with
the Distributor, subject to all applicable legal requirements, when they believe
that the combination of price and execution are comparable to that of other
broker-dealers.
The frequency of portfolio transactions, a Fund's turnover rate, will vary
from year to year depending on market conditions. It is anticipated that the
annual portfolio turnover rate for the Index 500 Stock Fund will not exceed 10%
and that the rate for the High Yield Bond Fund will not exceed 140%. For the
other Funds, it is anticipated that the rate will not exceed 100%. Higher
portfolio turnover may result in additional brokerage costs and may result in
inceased taxable capital gains for shareholders. See "Taxes," p. __.
BUYING AND SELLING FUND SHARES
<TABLE>
<CAPTION>
INVESTMENT MINIMUMS
TYPE OF ACCOUNT INVESTMENT MINIMUM
--------------- ------------------
<S> <C> <C> <C>
Shares of the Funds are
available through registered INITIAL SUBSEQUENT
representatives of Robert W. INVESTMENT INVESTMENT
---------- ----------
Baird & Co. Inc. ("Baird"),
including Northwestern Mutual Regular Account $1,000 $100
Life agents and Baird Investment
Officers or, in certain cases, Individual IRAs (regular or $ 500 $100
from the Fund itself. The spousal)
following table illustrates the
minimum investment requirements Other Tax Qualified $ 50 $ 50
for the initial and subsequent Retirement Plans
investments in each of the
Funds, which may be changed at Automatic Investment Plans $ 50 $ 50
any time at the sole discretion
of the Fund.
</TABLE>
25
<PAGE>
FLEXIBLE SALES CHARGE OPTIONS
WHICH OPTION IS RIGHT FOR YOU?
Each Fund offers its shares in two classes to allow you to choose the
method of purchasing shares that is most beneficial to you in light of such
factors as the amount of your investment, your holdings of Fund shares, how long
you expect to hold your investment and other such circumstances.
Class A shares are available for investors choosing an initial sales charge
and Class B shares are for investors who prefer a deferred sales charge. The
two classes of shares each represent interests in the same Fund, have the same
rights and, except with respect to differences in sales charge and distribution
charges, are identical in all respects. Class A and Class B shares each bear
expenses of shareholder servicing fees and distribution fees as well as any
expenses (which may include incremental transfer agency costs) resulting from
such arrangements, and have exclusive voting rights with respect to their
particular distribution plan. The two Classes have different exchange
privileges, as described below.
The net income attributable to Class A or Class B shares and the dividends
payable thereon will be reduced by the amount of the shareholder servicing and
distribution fees attributable to such shares and incremental expenses
associated with such class. Sales personnel will receive equal compensation for
selling Class A and Class B shares.
CLASS A SHARES
INITIAL SALES CHARGE
The following table sets forth the initial sales charge that applies to
purchases of Class A shares of the Funds.
------------------------------------------------------------------------------
Sales charge as
percentage of
------------------------------------------------------------------------------
Amount of Purchase Offering Net Dealer
Price Amount Allowance(1)
Invested
------------------------------------------------------------------------------
Less than $50,000 4.75% 4.99% 4.00%
$50,000 but less 3.75% 3.90% 3.00%
than 100,000
$100,000 but less 2.75% 2.83% 2.00%
than 250,000
$250,000 but less 2.00% 2.04% 1.50%
than 500,000
$500,000 but less 1.50% 1.52% 1.00%
than 1,000,000
$1,000,000 or more None(2) None 1.00%(3)
------------------------------------------------------------------------------
- -------------------------
(1) Dealer allowance may be changed periodically.
(2) No sales charge is imposed at the time of purchase on amounts of $1 million
or more. However a contingent deferred sales charge will be charged if
shares are redeemed within 18 months following their purchase at the rate
of 1% on the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gains distributions) or the cost of such
shares. The contingent deferred sales charge may be waived in certain
circumstances. See "When Will the Contingent Deferred Sales Charge Be
Waived," p.__.
(3) A dealer allowance is paid on sales of $1 million or more at the rates of
1.00% on the amount up to $2.5 million; 0.50% on the next $2.5 million; and
0.25% on amounts over $5 million.
WHICH INVESTMENTS IN RELATED ACCOUNTS QUALIFY FOR REDUCED SALES CHARGES?
Investments in related accounts in both Class A and Class B shares (in
certain circumstances) which may be aggregated to qualify for a reduced sales
charge include purchases made for you, your spouse and children under the age of
21 as well as those made in a tax qualified plan such as an IRA for those
individuals or by a company solely controlled by those individuals or in a trust
established exclusively for the benefit of those individuals. Purchases by a
trustee or other fiduciary if the investment is for a single trust, estate or
fiduciary account including pension, profit-sharing or other
26
<PAGE>
employee benefit trusts created pursuant to a qualified plan may be combined to
qualify for a reduction of the sales charge. Reduced sales charges may also be
applied to purchases by qualified employee benefit plans of a single corporation
or of corporations affiliated with each other. Purchases made for a customer in
nominee or street name accounts (accounts which hold the customer's shares in
the name of a broker or another nominee such as a bank trust department) may not
be aggregated with those made for other accounts and may not be aggregated with
other nominee or street name accounts unless otherwise qualified as noted above.
WHEN WILL THE SALES CHARGE ON CLASS A SHARES BE REDUCED OR WAIVED?
There are several ways to reduce or eliminate the initial sales
charge:
- combined purchases
- cumulative discount
- letter of intent
- special waivers for certain categories of investors
COMBINED PURCHASES. Purchases made at the same time for any of the Funds
in related accounts may be aggregated for the purpose of receiving a discounted
sales charge. Notice must be given at the time the orders are placed that there
are multiple orders which qualify for a reduced sales charge.
CUMULATIVE DISCOUNT. Purchases may also qualify for a reduced sales charge
based on the current total net asset value of your account and any related
accounts in any of the Funds or the SSGA Money Market Fund. Notice must be
given at the time the order is placed that it qualifies for a reduced sales
charge based on related holdings in existing Fund accounts.
LETTER OF INTENT. Reduced sales charges may be applied to purchases
over a period of 13 months by entering into a non-binding Letter of Intent.
Existing holdings may be combined with new purchases in related accounts as
shown above to reach the investment commitment of the Letter of Intent. Up to
5% of the stated amount of the Letter of Intent will be held in escrow to
cover additional sales charges which may be due if investments over the 13
month period are not sufficient to qualify for the sales charge reduction.
See the Statement of Additional Information and the Fund account application
for further details.
SPECIAL WAIVERS. Class A shares may be purchased without an initial sales
charge in the following situations. No dealer allowance is paid on such
purchases.
- Shares purchased by the officers, directors, employees, agents,
employees of agents, and employees of agencies of Mason Street Funds,
Northwestern Mutual Life, NMIS, or the Distributor, or their spouses
or children under the age of 21 or trust or retirement plans for their
benefit. Such purchases may be made directly from Mason Street Funds
through the transfer agent.
- Shares purchased by reinvesting the proceeds of the redemption of
shares of one or more open-end mutual funds. The purchaser must
provide appropriate documentation that the redemption occurred not more
than 90 days prior to the reinvestment of the proceeds in Class A
shares, and that the mutual fund charged an initial sales charge or
contingent deferred sales charge.
- Shares purchased by the reinvestment of dividends or other
distributions from a Fund.
- Shares purchased by the reinvestment of loan repayments by participants
in retirement plans.
- Shares issued in connection with the acquisition by a Fund of another
investment company.
Class A shares may also be purchased without an initial sales charge
in the following situations. However, redemptions of such shares within 18
months of purchase are subject to a contingent deferred sales charge of 1% of
the
27
<PAGE>
lesser of the value of the shares redeemed or the total cost of the shares. A
dealer allowance is paid on such purchases at the rates of 1.00% on the amount
up to $2.5 million; 0.50% on the next $2.5 million; and 0.25% on amounts over $5
million.
- any purchase of $1 million or more of the Funds' shares;
- purchases by qualified retirement plans with an initial investment of
$250,000 or more, or which have at least 50 eligible participants; and
- purchases by bank trust departments investing funds over which they
exercise exclusive discretionary investment authority and that are held
in a fiduciary, agency, advisory, custodial or similar capacity.
REINSTATEMENT PRIVILEGE. If you redeem some or all of your Fund shares,
you have up to 90 days to reinvest all or part of the redemption proceeds in
Class A shares of the Fund without paying a sales charge. This privilege
applies only to redemptions of Class A shares on which an initial or deferred
sales charge was paid or to redemptions of Class A shares of the Fund that you
purchased by reinvesting dividends or distributions. You must ask the Transfer
Agent or your registered representative to apply this privilege when you send
your payment.
The reduced sales charge programs may be changed or discontinued at any
time upon prior written notice to shareholders of the Funds.
DISTRIBUTION AND SERVICE FEES
Each Fund has adopted plans pursuant to Rule 12b-1 under the Investment
Company Act of 1940, which provide that all shareholders shall be subject to a
distribution fee. Class A shares are subject to a distribution fee of up to
0.10% per year of the average daily net assets of Class A shares. The
distribution fee is payable to the Distributor to reimburse it for services and
expenses incurred in connection with the distribution of Fund shares. These
expenses include payments to registered representatives, expenses of printing
and distributing prospectuses to persons other than Fund shareholders, and
expenses of preparing and printing and distributing advertising and sales
literature.
In addition, each Fund is subject to a shareholder servicing fee. Each
class pays a shareholder servicing fee of up to 0.25% per year of the average
daily net assets of that class, which may be paid to brokers who provide ongoing
account services to shareholders. These services may include establishing and
maintaining shareholder accounts, answering shareholder inquiries and providing
other personal services to shareholders.
CLASS B SHARES
CONTINGENT DEFERRED SALES CHARGE
Unlike an initial sales charge, which is paid when you purchase shares, a
contingent deferred sales charge is only paid if you sell your shares during a
certain period of time. Class B shares are offered at net asset value without
an initial sales charge but subject to a contingent deferred sales charge as set
forth in the table below. The schedule shows the contingent deferred sales
charges applicable for the first through seventh years of redemption after
purchase for different purchase amounts. The schedule applicable to a specific
purchase varies by the amount of that purchase and is determined at the time the
purchase is made; it may be reduced as described under "Combined Purchases" and
"Cumulative Discount," p.__.
28
<PAGE>
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge Applicable in the Year of Redemption After Purchase(1)
----------------------------------------------------------------------------------------------------------------------------------
Amount of First Second Third Fourth Fifth Sixth Seventh Dealer
Purchases on Allowance(2)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Less than $50,000 5% 4% 3% 3% 2% 1% 0% 4.00%
$50,000 but less 4% 3% 3% 2% 1% 0% 0% 3.00%
than 100,000
$100,000 but less 3% 3% 2% 1% 0% 0% 2.00%
than 250,000
$250,000 but less 3% 2% 1% 0% 0% 1.50%
than 500,000
$500,000 but less 2% 1% 0% 0% 1.00%
than 1,000,000
$1,000,000 or more N/A(3)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
(1) No contingent deferred sales charge is paid on an exchange of shares nor is
one paid on the sale of shares received as a reinvestment of dividends or
capital gains distributions. Class B shares will convert to Class A shares
two years after the expiration of the contingent deferred sales charge for
that purchase. Shares received as a reinvestment of dividends or capital
gains distributions will be converted to Class A shares in the same
proportion as purchased shares are converted.
(2) Dealer allowance may be changed periodically.
(3) Purchases of $1 million or more are not accepted in Class B shares. Class
A shares will be issued in these cases.
In determining whether a contingent deferred sales charge is applicable to
a redemption of Class B shares, the calculation will be made in a manner that
results in the lowest possible charge. It will be assumed that the redemption
is made first from shares acquired through the reinvestment of dividends and
distributions; then from amounts representing the increase in net asset value of
your holdings of Class B shares above the total amount of payments for the
purchase of Class B shares during the preceding six years; then from shares
held beyond the applicable contingent deferred sales charge period; and finally,
from shares subject to the lowest contingent deferred sales charge.
If you are exchanging shares for shares of the SSGA Money Market Fund, no
contingent deferred sales charge is charged at the time of the exchange. If you
later redeem your Money Market Fund shares, you will be charged the applicable
contingent deferred sales charge as if your shares were redeemed as of the time
of your exchange into the Money Market Fund. The contingent deferred sales
charge will not decrease for the time amounts are held in the Money Market Fund.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares are automatically converted to Class A shares two years
after the expiration of any contingent deferred sales charge. This conversion
feature relieves Class B shareholders of the higher asset-based sales charge
that otherwise applies to Class B shares under the Class B distribution plan
described below. The conversion is based on the relative net asset value of the
two classes, and no charge is imposed in connection with the conversion.
WHEN WILL THE CONTINGENT DEFERRED SALES CHARGE SCHEDULE BE REDUCED?
There are two ways to reduce the contingent deferred sales charge
schedule:
COMBINED PURCHASES. Purchases made at the same time for any of the Funds
in related accounts may be aggregated for the purpose of receiving a reduced
contingent deferred sales charge schedule. Notice must be given at the time the
orders are placed that there are multiple orders which qualify for a reduced
contingent deferred sales charge schedule.
29
<PAGE>
CUMULATIVE DISCOUNT. Purchases may also qualify for a reduced contingent
deferred sales charge schedule based on the current total net asset value of
your account and related accounts in any of the Funds or the SSGA Money Market
Fund. Notice must be given at the time the purchase order is placed that it
qualifies for a reduced contingent deferred sales charge schedule based on
related holdings in existing Fund accounts.
The Letter of Intent option is not available for Class B shares.
WHEN WILL THE CONTINGENT DEFERRED SALES CHARGE BE WAIVED?
A contingent deferred sales charge will not be assessed on Class A or B
shares for:
- exchanges of Class A or B shares of one Fund for the same class of
shares of another Fund;
- redemptions from tax deferred retirement plans and Individual
Retirement Accounts for required minimum distributions due to
attainment of age 70 1/2;
- redemptions from tax deferred retirement plans for returns of excess
contributions to the plan, termination of employment, participant loans
and hardship withdrawals;
- redemptions as a result of death of the registered shareholder or in
the case of joint accounts, of all registered shareholders;
- redemptions as a result of the disability of the registered shareholder
(as determined in writing by the Social Security Administration) which
occurs after the account was established;
- redemptions for failure to meet minimum account balances; and
- systematic withdrawal amounts provided amounts withdrawn do not exceed
on an annual basis 10% of the account value at the time the Transfer
Agent receives the request.
DISTRIBUTION AND SHAREHOLDER SERVICING FEES
Class B shares are charged fees at an annual rate of 1.00% of the average
daily net assets of Class B shares to compensate the Distributor for certain
distribution and shareholder servicing expenses. These fees consist of a fee at
an annual rate of 0.75% for distribution expenses pursuant to a plan adopted
under Rule 12b-1 under the Investment Company Act of 1940 and a fee at an annual
rate of 0.25% for shareholder servicing expenses. See "Distribution and Service
Fees," p.__. Upon the conversion of Class B shares to Class A shares, those
fees are lowered from 1.00% to 0.35%.
HOW SHARES ARE PRICED
Shares are purchased at their public offering price, which is based upon a
Fund's net asset value per share, plus an initial sales charge on the Class A
shares. Each Fund calculates its net asset value ("NAV") as follows:
NAV = (Value of Fund Assets) - (Fund Liabilities)
-------------------------------------------
Number of Outstanding Shares
Net asset value is determined as of the end of regular trading hours on the
New York Stock Exchange (the "Exchange") (normally 4:00 p.m. Eastern time) on
days the Exchange is open.
Each Fund values its assets at their current market value when market
quotations are readily available. If a market value cannot be established,
assets are valued at fair value as determined in good faith by or under the
direction of Mason Street Fund's Board of Directors. Short-term securities
which mature in 60 days or less are valued by using the amortized cost
method, unless the Board determines that this does not represent fair value.
All investments by the International Equity Fund are valued daily in U.S.
dollars based on the then prevailing
30
<PAGE>
exchange rate. Specific information about how the Funds value certain assets is
set forth in the Statement of Additional Information.
SHAREHOLDERS GUIDE
HOW TO BUY SHARES
GENERAL
You must indicate at the time of investment whether you are purchasing
Class A shares or Class B shares. You also are required by federal regulations
to certify your taxpayer identification (social security) number when opening
your account. Failure to provide an identification number could subject you to
back-up withholding on any distributions, redemptions or disbursements from your
account.
Purchase orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Transfer Agent.
If your check used for investment does not clear, a fee may be imposed by
the Transfer Agent. All payments should be in U.S. dollars and, to avoid fees
and delays, should be drawn only on U.S. banks. The Funds reserve the right to
reject any purchase order.
All checks should be made payable to Mason Street Funds. Third party
checks will not be accepted.
OPENING AN ACCOUNT
Contact your registered representative for instructions.
ADDING TO AN ACCOUNT
Contact your registered representative for instructions
or
By Mail Identify the Fund and account number or use the remittance slip
attached to your account statement. Send a check payable to
Mason Street Funds. Mail all subsequent investments to the
address on the left.
[NFDS]
By Wire Initial or subsequent purchase payments can also be made by
Federal Funds wire, transferred along with proper instructions
directly to your account. Before an initial wire transfer can be
[Bank] accepted, an account must be established for you. See your
registered representative or call 1-800-_______ for further
instructions. Your financial institution may charge a fee for
wiring funds to your account. Consult your bank for information
on remitting funds by wire and any associated bank charges.
- 31 -
<PAGE>
By Telephone This service allows you to purchase additional shares quickly and
conveniently through an electronic transfer of money. When you
make a purchase by telephone, your predesignated bank account
[telephone will be debited for the desired amount. You can establish this
number] privilege when you open your account or, if your account is
already established, call 1-800-________ to request the
appropriate form. This option will become effective ___ days
after the form is received.
AUTOMATIC INVESTMENT PROGRAMS
Automatic Money is automatically transferred from your bank account to your
Investing Fund account monthly or quarterly. The minimum amount per
transfer is $50 per Fund account. This privilege may be set up
when your account is opened or at any later date by completing
the appropriate section of the Fund application. You may
discontinue your participation in this program at any time.
Payroll If your employer can initiate an automatic payroll deduction, you
Deduction may make regular investments of $50 or more per Fund account up
to once per month from your paycheck. To obtain information on
establishing this option call 1-800-_______.
Systematic In order to assist you in a dollar-cost averaging purchase
Exchange program, you may designate the amount of money ($50 minimum per
Fund account) to be automatically exchanged from one Fund to
another once per month. In order to set up this option, you must
have at least $5,000 in the Fund from which you are exchanging.
You may discontinue your participation in this program at any
time. For more information on how to establish this option, call
1-800-________.
HOW TO EXCHANGE SHARES
On any business day you may exchange your shares for shares of another Fund
of the same class.
By Mail
[Address] To exchange your shares, your written request should include
the following information:
- the name of the Fund(s) exchanging out of and into;
- the account number(s);
- the amount of money or number of shares being redeemed;
- the name(s) on the account;
- the signature(s) of all registered account owners (see
How to Sell Shares for more information about the
signature requirements based on the type of account); and
- your daytime telephone number.
By Telephone Accounts are automatically eligible for the telephone
[telephone number] exchange option unless this privilege was declined on the
application or otherwise in writing Call the number noted
with the same information as noted above.
General Exchange
Policies
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<PAGE>
- - Except for Systematic Exchanges and qualified plans, the exchange minimum
is $1,000, or the total account value if less.
- - You may make twelve exchanges out of each Fund during a calendar year
(exclusive of Systematic Exchanges). There is no charge for exchanges.
Special rules apply for qualified plans.
- - Exchanges between accounts will only be accepted if the registrations are
identical.
- - Because excessive trading can hurt Fund performance and shareholders, the
investment advisor may refuse any exchange purchase if (i) the advisor
believes the Fund would be harmed or unable to invest effectively, or (ii)
the Fund receives or anticipates simultaneous orders that may significantly
affect the Fund.
- - An exchange represents the sale of shares from one Fund and the purchase of
shares of another Fund, which may produce a taxable gain or loss in a non-
tax deferred account.
You may also exchange your shares for shares of the SSGA Money Market Fund.
- - A copy of the SSGA Money Market Fund prospectus should be read before
making such exchange.
- - General Exchange Policies apply to exchanges to the SSGA Money Market Fund.
- - If you are exchanging Class A shares, the shares are exchanged at net asset
value (in or out).
- - If you are exchanging Class B shares, no contingent deferred sales charge
is charged at the time of the exchange. See "Contingent Deferred Sales
Charge," p.__.
HOW TO SELL SHARES
THROUGH YOUR REGISTERED REPRESENTATIVE
Contact your representative directly for instructions
THROUGH THE TRANSFER AGENT
By Mail
[Address] Send a written request, signed by each owner (if joint
account) to the Transfer Agent at the address on the left.
By Wire As soon as appropriate information regarding your bank
account has been established for your Fund account, you may
write or telephone redemption requests to the Transfer
Agent, and redemption proceeds will be wired in federal
funds to the commercial bank you have specified.
Information regarding your bank account may be provided on
the Account Application or in a signature guaranteed letter
of instruction to the Transfer Agent. Signature guarantee
requirements are discussed below.
Redemption proceeds will normally be wired the next business
day following the day on which your request and any other
necessary documents have been received by the Transfer
Agent. Requests must be for at least $______ and may be
subject to limits on frequency and amount. A charge of $15
may be imposed for wire redemptions.
33
<PAGE>
Wire Privileges may be modified or suspended at any time.
Contact your bank for information on any charges imposed by
the bank in connection with receipt of redemptions by wire.
By Telephone
[telephone number] Accounts (other than IRAs) have this option unless this
option was specifically declined on the application or in
writing. You may redeem up to $50,000 daily from your
account by calling the listed number before 4:00 p.m.
Eastern time. Checks will be sent to the address of record.
AUTOMATIC REDEMPTION
Systematic
Withdrawals You may provide for the automatic redemption of a specific
dollar amount from your account on a regular basis. The
minimum amount of a withdrawal is $100 and the minimum
account size is $10,000.
Minimum Accounts The Fund reserves the right to redeem any Regular Account
if, after sixty days written notice, the account's value
remains below a $1000 minimum balance.
General Redemption Policies
- - Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Transfer Agent.
When you redeem your Class B shares within six years of purchase, you may
be subject to a contingent deferred sales charge as set forth in this
prospectus.
- - Redemption requests must be signed by each shareholder, including each
joint owner. When redeeming shares, you should indicate whether you are
redeeming Class A or Class B shares. If you own both Class A and Class B
shares, Class A shares will be redeemed first unless you request otherwise.
Certain types of redemption requests will need to include a signature
guarantee. Signature guarantees must accompany redemption requests for:
(i) an amount in excess of $50,000; or (ii) any amount if the redemption
proceeds are to be sent somewhere other than the address of record on the
Funds' books or if the current address of record has not been on the Fund's
books for sixty days.
- - You may obtain a signature guarantee from: (i) a bank which is a member of
the FDIC; (ii) a trust company; (iii) a member firm of a national
securities exchange; or (iv) another eligible guarantor institution.
Guarantees must be signed by an authorized signatory of the guarantor
institution and be accompanied by the words "Signature Guaranteed." A
notary public cannot provide a signature guarantee.
- - The Fund ordinarily will make payment for all shares redeemed within three
business days after the Transfer Agent receives a request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
However, if the shares to be redeemed have been purchased by check, the
Fund will, upon the clearance of the purchase check, mail the redemption
proceeds. It may take up to 15 days for the purchase check to clear. This
does not apply to situations where a Fund receives payment via immediately
available funds for the purchase of shares.
QUICK ADDRESS AND TELEPHONE REFERENCE
Regular Mail Express or Certified Mail
Mason Street Funds Mason Street Funds
[telephone numbers]
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<PAGE>
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes substantially all of its net realized capital gains
and net investment income to its shareholders. A capital gain or loss is the
difference between the purchase and sale price of a security. The Funds will
have net capital gains if their capital gains exceed their capital losses, which
cannot be assured. Net investment income is determined by subtracting expenses
from any interest and dividend income earned by a Fund.
All the Funds distribute any net realized short and long-term capital gains
at least annually.
The Stock Funds and the Asset Allocation Fund distribute any net investment
income to shareholders annually. The Bond Funds declare net investment income
dividends daily and distribute such dividends to the shareholders monthly.
Each Fund pays its dividends and other distributions in additional Fund
shares at net asset value unless the shareholder requests cash payments.
Shareholders who elect to receive dividends and/or other distributions in cash
or in shares of another Fund should contact their registered representative or
the Transfer Agent or complete the applicable item on the Fund application.
TAXES
Each Fund is separate for investment and accounting purposes and will be
treated as a separate entity for federal income tax purposes. Each Fund intends
to qualify as a regulated investment company under the Internal Revenue Code so
that it will not be subject to federal income taxes on net investment income and
net capital gains distributed to its shareholders.
TAXES ON REDEMPTIONS
When shares of any of the Funds are redeemed, including by exchange into
another Fund, a shareholder may realize a taxable gain or a loss. The gain or
loss is measured by the difference between the redemption proceeds and the
shareholder's adjusted basis for the redeemed shares.
TAXES ON FUND DISTRIBUTIONS
THE FOLLOWING SUMMARY DOES NOT APPLY TO ACCOUNTS THAT ARE OPENED FOR
QUALIFIED RETIREMENT PLANS OR BY TAX-EXEMPT INVESTORS. TAXES ON FUND
DISTRIBUTIONS TO QUALIFIED RETIREMENT PLAN ACCOUNTS ARE DEFERRED UNTIL MONEY IS
WITHDRAWN FROM THOSE ACCOUNTS. THIS SUMMARY ALSO DOES NOT APPLY TO
DISTRIBUTIONS FROM THE MUNICIPAL BOND FUND. INFORMATION ABOUT DISTRIBUTIONS
FROM THE MUNICIPAL BOND FUND APPEARS SEPARATELY BELOW.
Dividends and capital gains distributions from the Funds are taxable
whether received in cash or additional Fund shares. If such dividends and
distributions are declared in October, November or December, they are taxable
for the year in which they were declared, if paid by February 1 of the following
calendar year. Net investment income dividends and short-term capital gains
distributions are taxable as ordinary income. A capital gain distribution is
short-term or long-term depending on how long the Fund held the securities that
produced it, not how long the shareholder held his or her shares in the Fund.
Dividends paid by Funds that are attributable to the Fund's investments in U.S.
government securities may be exempt from state and local income taxes.
Among other things, a Fund's net asset value reflects undistributed income
and capital gains. When such income and gains are distributed, the net asset
value is reduced by the amount of the distribution. An investor who acquires
shares prior to or on the record date for distributions is entitled to receive
these distributions.
DISTRIBUTIONS FROM THE MUNICIPAL BOND FUND
Net investment income dividends declared and paid by the Municipal Bond
Fund are, for the most part, "exempt-interest" dividends, whether received in
cash or additional shares of the Fund. Exempt-interest dividends are not
subject to
35
<PAGE>
federal income tax, but they may affect the tax liabilities of taxpayers who are
subject to the alternative minimum tax ("AMT"). Exempt-interest dividends are
also includible in the modified income of shareholders who receive Social
Security benefits for purposes of determining the extent to which such benefits
may be taxed. Generally, exempt-interest dividends are not exempt from state or
local taxes. However, a state or locality may provide tax exemptions for its
residents who receive exempt-interest dividends that relate to Municipal
Obligations issued within that state or locality.
Net investment income dividends derived from taxable obligations held in
the Municipal Bond Fund and any capital gains distributions by the Fund are
normally taxable as ordinary income and capital gain, respectively, whether
received in cash or additional shares of the Fund. Market discount on Municipal
Obligations acquired after April 30, 1993 is also treated as ordinary income.
NMIS intends to manage the Fund to minimize taxable distributions to the Fund's
shareholders. However, there can be no assurance that the Fund will never make
such distributions.
Certain individuals and corporations may be subject to the AMT. For them,
exempt-interest dividends derived from private activity bonds are treated as a
tax preference item. In addition, for corporate shareholders only, all other
exempt-interest dividends are a component of the adjusted current earnings
preference item for purposes of the AMT, and a component for computing the
corporate environmental tax.
Corporations and Social Security beneficiaries should consult their tax
advisors about the possible consequences to them of investing in the Municipal
Bond Fund.
WITHHOLDING
The Funds are currently required to withhold 31% of all taxable
distributions and redemption proceeds payable to any shareholder who has not
certified his taxpayer identification number, or who is otherwise subject to
backup withholding. Corporate and governmental entities are generally exempt
from withholding requirements.
TAX INFORMATION FOR SHAREHOLDERS
Following the end of each calendar year, each Fund notifies its
shareholders of the amount of dividends and capital gains distributions paid (or
deemed paid) during that year, and shows the portion of those dividends that
qualifies for the corporate dividends-received deduction. The Funds identify
amounts taxable as ordinary income and amounts taxable as capital gains, and
indicate whether any portion of such income is possibly exempt from state or
local taxes. The Municipal Bond Fund provides its shareholders with information
about the exempt-interest dividends paid to them (since they must disclose it on
their federal income tax returns), and reports the amount that relates to
private activity bonds which could be subject to the AMT. Under certain
circumstances, notices provided to the International Equity Fund shareholders
also specify their respective shares of foreign taxes paid by that Fund.
International Equity Fund shareholders are required to include their pro-rata
share of those taxes in gross income, but may be entitled to claim a credit or
deduction for them.
The foregoing is only a summary of some important federal tax law
provisions that can affect the Funds and their shareholders. There may be other
federal, state or local tax law provisions which affect some or all investors.
Prospective investors and current shareholders are urged to consult their tax
advisors about their individual circumstances.
OTHER INFORMATION
ORGANIZATION
Mason Street Funds was incorporated in Maryland on August 30, 1996.
Mason Street Funds issues a separate series of capital stock for each
Fund. Each share of capital stock issued with respect to a Fund has a pro
rata interest in the assets of that Fund and has no interest in the assets
of any other Fund. Each share of capital stock is entitled to one vote on
all matters submitted to a vote of shareholders. Shares of a Fund will be
voted separately, however, on matters affecting only that Fund, including
approval of the Investment Advisory Agreement and changes in fundamental
investment polices of a Fund. The assets of each Fund are charged with the
liabilities of the Fund and their proportionate share of the general
liabilities of Mason Street Funds generally based on the relative asset size
of the Funds at the time the liabilities are incurred. All shares may be
redeemed for cash at any time.
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<PAGE>
VOTING RIGHTS
Neither Mason Street Funds nor its Funds are required to hold annual
meetings of shareholders, but special meetings may be called to elect or
remove Directors, change fundamental policies or the 12b-1 plans, or to
approve an investment advisory agreement. All shares of the Funds have equal
voting rights. Shares are voted in the aggregate, unless voting by series is
required by law, or when an issue affects the series or class separately.
Shares of each Fund are fully paid and nonassessable when issued, are
transferrable without restriction and have no preemptive or conversion rights.
APPENDIX A
GLOSSARY
The following glossary gives you a more detailed description of some of the
types of securities in which the Funds may invest, subject to their specific
restrictions and policies. It also discusses other investment techniques and
other terminology that is included in this Prospectus. Additional information
on eligible investments can be found elsewhere in this Prospectus and in the
Statement of Additional Information.
EQUITY AND DEBT SECURITIES
AMERICAN DEPOSITORY RECEIPTS (ADRS): see Depositary receipts.
BONDS are debt securities issued by a company, municipality or government
agency. The issuer of a bond is required to pay the holder the amount of the
loan (or par value) at a specified maturity and to make scheduled interest
payments.
COMMERCIAL PAPER is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. The Funds may purchase commercial paper issued
under Section 4(2) of the Securities Act of 1933. NMIS may determine that such
securities are liquid under guidelines established by the Directors.
COMMON STOCK represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on common
stock are not fixed but are declared at the discretion of the issuer's board of
directors.
CONVERTIBLE SECURITIES are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio.
DEPOSITARY RECEIPTS are receipts for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts),
foreign banks (Global or European Depositary Receipts) and broker-dealers
(depositary shares).
FIXED-INCOME SECURITIES are securities that pay a fixed rate of return. The
term generally includes short- and long-term government, corporate and municipal
obligations that pay a fixed rate of interest or coupons for a specified period
of time and preferred stock, which pays fixed dividends. Coupon and dividend
rates may be fixed for the life of the issue or, in the case of adjustable and
floating rate securities, for a shorter period.
HIGH QUALITY INSTRUMENTS are securities rated AA or better by Standard & Poor's
and Aa or better by Moody's.
HIGH GRADE INSTRUMENTS are securities rated A or better by Standard & Poor's or
Moody's.
HIGH-YIELD/HIGH-RISK BONDS are securities that are rated below investment grade
by the primary rating agencies (BB or lower by Standard & Poor's and Ba or lower
by Moody's). Other terms commonly used to describe such securities include
"lower rated bonds," "noninvestment grade bonds" and "junk bonds."
INDUSTRIAL DEVELOPMENT BONDS are revenue bonds that are issued by a public
authority but which may be backed only by the credit and security of a private
issuer and
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<PAGE>
may involve greater credit risk. See "Municipal securities" below.
INVESTMENT GRADE BONDS are securities rated BBB or higher by Standard & Poor's
and Baa or higher by Moody's.
MORTGAGE- AND ASSET-BACKED SECURITIES are shares in an organized pool of
mortgages or other debt. These securities are generally pass-through
securities, which means that principal and interest payments on the underlying
securities (less servicing fees) are passed through to shareholders on a pro
rata basis. These securities involve prepayment risk, which is the risk that the
underlying mortgages or other debt may be refinanced or paid off prior to their
maturities during periods of declining interest rates. In that case, a
portfolio manager may have to reinvest the proceeds from the securities at a
lower rate. Potential market gains on a security subject to prepayment risk may
be more limited than potential market gains on a comparable security that is not
subject to prepayment risk.
MUNICIPAL SECURITIES are bonds or notes issued by a U.S. state or political
subdivision. A municipal security may be a general obligation backed by the
full faith and credit (i.e., the borrowing and taxing power) of a municipality
or a revenue obligation paid out of the revenues of a designated project,
facility or revenue source.
PASSIVE FOREIGN INVESTMENT COMPANIES (PFICS) are foreign investment funds or
trusts. In addition to bearing their proportionate share of a Fund's expenses,
shareholders may indirectly bear similar expenses of PFICS and similar trusts.
PREFERRED STOCK is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights.
REPURCHASE AGREEMENTS involve the purchase of a security by a Fund and a
simultaneous agreement (generally with a bank or dealer) to repurchase the
security from the Fund at a specified date or upon demand. This technique
offers a method of earning income on idle cash. These securities involve the
risk that the seller will fail to repurchase the security, as agreed. In that
case, a Fund will bear the risk of market value fluctuations until the security
can be sold and may encounter delays and incur costs in liquidating the
security.
U.S. GOVERNMENT SECURITIES includes direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. government securities also include
indirect obligations of the U.S. government that are issued by federal agencies
and government sponsored entities. Unlike Treasury securities, agency
securities generally are not backed by the full faith and credit of the U.S.
government. Some agency securities are supported by the right of the issuer to
borrow from the Treasury, others are supported by the discretionary authority of
the U.S. government to purchase the agency's obligations and others are
supported only by the credit of the sponsoring agency.
WARRANTS are securities, typically issued with preferred stock or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD TRANSACTIONS generally involve the
purchase of a security with payment and delivery due at some time in the future,
i.e., beyond normal settlement. The Funds do not earn interest on such
securities until settlement and bear the risk of market value fluctuations in
between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S government securities may be sold in this manner.
ZERO COUPON BONDS are debt securities that do not pay at regular intervals, but
are issued at a significant discount from face value. The discount approximates
the total amount of interest the security will accrue from the date of issuance
to maturity. The market value of these securities generally fluctuates more in
response to changes in interest rates than interest-paying securities of
comparable maturity.
FUTURES, OPTIONS AND OTHER DERIVATIVES
FUTURES CONTRACTS are contracts the obligate the buyer to receive and the seller
to deliver an instrument or money at a specified price on a specified date. The
Funds may buy and sell futures contracts on foreign currencies, securities and
financial indices including interest rates or an index of U.S. government,
foreign government, equity or fixed-income securities. An option on a
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futures contract gives the buyer the right, but not the obligation, to buy or
sell a futures contract at a specified price on or before a specified date.
Futures contracts and options on futures are standardized and traded on
designated exchanges.
OPTIONS are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Funds may purchase put and call options on certain securities,
securities indices and foreign currencies and may write covered put or call
options.
FORWARD CONTRACTS are contracts to purchase or sell a specified amount of
property for an agreement upon price at a specified time. Forward contracts are
not currently exchange traded and are typically negotiated on an individual
basis. The Funds may enter into forward currency contracts to hedge against
declines in the value of non-dollar denominated securities or to reduce the
impact of currency appreciation on purchases of non-dollar denominated
securities. They may also enter into forward contracts to purchase or sell
securities or other financial indices.
OTHER TERMS
NET ASSET VALUE ("NAV") is the value of a single share of a Fund. It is computed
by adding the value of all of a Fund's investments and other assets, subtracting
any liabilities and dividing the result by the number of shares outstanding.
FUND TURNOVER RATE is a measure of the amount of a Fund's buying and selling
activity. It is computed by dividing total purchases or sales, whichever is
less, by the averaging monthly market value of a Fund's securities.
TOTAL RETURN is the percentage increase or decrease in the value of an
investment over a stated period of time. A total return percentage includes
both income and changes in NAV. For the purposes of calculating total return,
it is assumed that dividends and distributions are reinvested at the net asset
value on the day of the distribution.
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APPENDIX B
BOND RATING EXPLANATION
================================================================================
STANDARD & POOR'S AAA Highest rating; extremely strong capacity to pay
CORPORATION principal and interest.
- --------------------------------------------------------------------------------
AA High quality; very strong capacity to pay
principal and interest.
- --------------------------------------------------------------------------------
A Strong capacity to pay principal and interest;
somewhat more susceptible to the adverse effects
of changing circumstances and economic
conditions.
- --------------------------------------------------------------------------------
BBB Adequate capacity to pay principal and interest;
normally exhibits adequate protection
parameters, but adverse economic conditions or
changing circumstances more likely to lead to a
weakened capacity to pay principal and interest
than for higher rated bonds.
- --------------------------------------------------------------------------------
BB, B, Predominantly speculative with respect to the
CCC, CC issuer's capacity to meet required interest and
principal payments. BB- lowest degree of
speculation; CC- the highest degree of
speculation. Quality and protective
characteristics outweighed by large
uncertainties or major risk exposure to adverse
conditions.
- --------------------------------------------------------------------------------
D In default.
================================================================================
MOODY'S INVESTORS Aaa Highest quality, smallest degree of investment
SERVICE, INC. risk.
- --------------------------------------------------------------------------------
Aa High quality; together with Aaa bonds, they
compose the high-grade bond group.
- --------------------------------------------------------------------------------
A Upper-medium grade obligations; many favorable
investment attributes.
- --------------------------------------------------------------------------------
Baa Medium-grade obligations; neither highly
protected nor poorly secured. Interest and
principal appear adequate for the present but
certain protective elements may be lacking or
may be unreliable over any great length of time.
- --------------------------------------------------------------------------------
Ba More uncertain, with speculative elements.
Protection of interest and principal payments
not well safeguarded during good and bad times.
- --------------------------------------------------------------------------------
B Lack characteristics of desirable investment;
potentially low assurance of timely interest and
principal payments or maintenance of other
contract terms over time.
- --------------------------------------------------------------------------------
Caa Poor standing, may be in default; elements of
danger with respect to principal or interest
payments.
- --------------------------------------------------------------------------------
Ca Speculative in a high degree; could be in
default or have other marked shortcomings.
- --------------------------------------------------------------------------------
C Lowest-rated; extremely poor prospects of ever
attaining investment standing.
================================================================================
<PAGE>
MASON STREET FUNDS, INC.
CROSS REFERENCE SHEET
Cross reference sheet showing location in Statement of Additional
Information required by the Items in Part B of Form N-1A.
Heading in Statement
Item Number of Additional Information
----------- -------------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Policies
14 Management of MSF
15 Ownership of Shares of MSF
16 Investment Advisory Services, Distribution
Arrangements
17 Portfolio Transactions and Brokerage Allocation
and Other Practices
18 Other Information About MSF
19 Determination of Net Asset Value, Purchase and
Redemption of Shares
20 Taxes
21 Distribution Arrangements, Underwriter
22 Investment Performance
23 Report of Independent Accountants, Financial
Statements
<PAGE>
MASON STREET FUNDS, INC.
Consisting of
Aggressive Growth Stock Fund
International Equity Fund
Growth Stock Fund
Growth and Income Stock Fund
Index 500 Stock Fund
Asset Allocation Fund
High Yield Bond Fund
Municipal Bond Fund
Select Bond Fund
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Prospectus for Mason
Street Funds, Inc. ("MSF"). A copy of the Prospectus may be obtained from
The Northwestern Mutual Life Insurance Company, 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, telephone number (414) 271-1444.
The date of the Prospectus to which this Statement of
Additional Information Relates is March 31, 1997.
The date of this Statement of Additional Information is March 31, 1997.
B-1
<PAGE>
TABLE OF CONTENTS
CROSS-REFERENCE TO
PAGE PAGE IN PROSPECTUS
---- ------------------
Investment Policies B-4 __
Investment Restrictions B-4 __
Portolio Securities for the Municipal Bond Fund B-5 -
Repurchase Agreements B-7 __
Financial Futures Contracts B-8 __
Options - In General B-14 -
Future Developments B-15 -
Reverse Repurchase Agreements B-15 -
Warrants B-15 __
Asset-Backed and Variable Rate Securities B-15 -
Short-Term Trading B-16 -
Firm Commitment Agreements and "When-Issued" B-16 -
Securities
Private Placement Transactions B-16 __
and Illiquid Assets
Risk Factors for the International
Equity Fund and International Investments
of the Other Funds B-17 __
Portfolio Turnover B-19 -
Management of MSF B-20 __
Other Information About MSF B-22 -
Investment Advisory Services B-23 __
Fund Expenses B-26
Distribution Arrangements B-26
Distribution Financing Plans and
Shareholder Servicing Agreement B-27
Class A Plan and Agreement B-27
Class B Plan and Agreement B-27
General B-28
Portfolio Transactions and
Brokerage Allocation and Other Practices B-28 -
Determination of Net Asset Value B-30
Purchase and Redemption of Shares B-32
Cumulative Discount B-32
Letter of Intent B-32
Systematic Withdrawal Plan B-32
Special Redemptions B-33
B-2
<PAGE>
Suspension of Redemptions B-33
Investment Performance B-33
Standardized Average Annual Total
Return Quotations B-33
Standardized Yield Quotations B-35
Non-Standardized Performance B-35
General Information B-35
Taxes B-37
Municipal Bond Fund B-41
State and Local B-42
Custodians B-42
Transfer Agent Services B-42
Independent Certified Public Accountants B-42
Financial Statements B-42
Appendix A B-43 __
Appendix B B-51 __
Report of Independent Accountants B-__ __
Financial Statements B-__ __
B-3
<PAGE>
INVESTMENT POLICIES
The following information supplements and should be read in conjunction
with the sections in MSF's Prospectus entitled "The Funds in Detail."
INVESTMENT RESTRICTIONS
The investment restrictions not listed in the Prospectus and generally
common to the Index 500 Stock, Select Bond, Municipal Bond, Asset Allocation,
Growth and Income Stock, Growth Stock, Aggressive Growth Stock, High Yield Bond
and International Equity Funds of MSF (the "Funds") are described below. The
investment restrictions of the Funds numbered 1-8 below are "fundamental
policies" and may be changed only with the approval of the majority of the
Fund's shares outstanding. These investment restrictions provide that each Fund
will not:
1. Invest for the purpose of influencing management or exercising
control, but freedom of action is reserved with respect to exercise of
voting rights in respect of each Fund's securities.
2. Purchase any security on margin, but each Fund may obtain such
short-term credits as are necessary for the clearance of purchases and
sales of securities.
3. Make short sales of securities.
4. Act as a securities underwriter for other issuers, but each Fund may
purchase securities under circumstances where, if the securities are
later publicly offered or sold by the Fund, it might be deemed to be
an underwriter for purposes of the Securities Act of 1933.
5. Purchase or sell real estate. However, each Fund may invest in
securities issued by companies, including real estate investment
trusts, which invest in real estate or interests therein.
6. Invest in commodities or commodity contracts. However, each Fund
(except the Select Bond, Municipal Bond and High Yield Bond Funds) may
invest in stock index futures contracts, including indexes on specific
industries, and the Municipal Bond, Select Bond, High Yield Bond,
International Equity and Asset Allocation Funds may invest in interest
rate futures contracts in accordance with their investment objectives
and policies. The International Equity, Asset Allocation, Select
Bond, Aggressive Growth Stock, Growth Stock and High Yield Bond Funds
may invest in foreign currency futures and forward contracts.
7. Issue senior securities or borrow money except for short-term credits
as may be necessary for the clearing of transactions and except for
temporary purposes to the extent of 5% of the total assets of the
Fund or to meet redemption requests. Reverse repurchase agreements and
financial futures contracts are not considered to be "senior
securities" or "borrowing money" for the purpose of this restriction.
8. Make loans to persons who intend to use the proceeds for non-business
purposes or to companies which (including predecessors) have been in
business for less than three years.
B-4
<PAGE>
Repurchase agreements are not considered to be "loans" for the purpose
of this restriction.
As a non-fundamental investment policy, which may be changed by the Board
of Directors without shareholder approval, the International Equity Fund will
not invest more than 15% of its total assets in securities of foreign issuers
which are not listed on a recognized United States or foreign securities
exchange.
PORTFOLIO SECURITIES FOR THE MUNICIPAL BOND FUND
Municipal Obligations. The term "Municipal Obligations" generally
includes debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. Other public purposes for which Municipal
Obligations may be issued include refunding outstanding obligations, obtaining
funds for general operating expenses and lending such funds to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds to provide for the construction, equipment, repair or improvement of
privately operated housing facilities, sports facilities, convention or trade
show facilities, airport, mass transit, industrial, port or parking facilities,
air or water pollution control facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal; the interest paid on
such obligations may be exempt from Federal income tax, although current tax
laws place substantial limitations on the size of such issues. Such obligations
are considered to be Municipal Obligations if the interest paid thereon
qualifies as exempt from Federal income tax in the opinion of bond counsel to
the issuer. There are, of course, variations in the security of Municipal
Obligations, both within a particular classification and between
classifications.
Floating and variable rate demand notes and bonds are tax exempt obligations
ordinarily having stated maturities in excess of one year, but which permit the
holder to demand payment of principal at any time, or at specified intervals.
The issuer of such obligations ordinarily has a corresponding right, after a
given period, to prepay in its discretion the outstanding principal amount of
the obligations plus accrued interest upon a specified number of days' notice to
the holders thereof. The interest rate on a floating rate demand obligation is
based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a variable
rate demand obligation is adjusted automatically at specified intervals.
For the purpose of diversification under the Investment Company Act of 1940, as
amended (the "1940 Act"), the identification of the issuer of Municipal
Obligations depends on the terms and conditions of the security. When the
assets and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the subdivision
and the security is backed only by the assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the case
of an industrial development bond, if that bond is backed only by the assets and
revenues of the non-governmental user, then such non-governmental user would be
deemed to be the sole issuer. If, however, in either case, the creating
government or some other entity guarantees a security, such a guaranty would be
considered a separate security and will be treated as an issue of such
government or other entity.
B-5
<PAGE>
The yields on Municipal Obligations are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions in the Municipal Obligations market, size of a particular offering,
maturity of the obligation and rating of the issue. The imposition of the
Fund's investment advisory fee, as well as other operating expenses, will have
the effect of reducing the yield to investors.
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with Municipal Obligations. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation ordinarily is backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. The staff of the Securities and Exchange
Commission currently considers certain lease obligations to be illiquid.
Determination as to the liquidity of such securities is made in accordance with
guidelines established by MSF's Board. Pursuant to such guidelines, the Board
has directed NMIS to monitor carefully the Municipal Bond Fund's investment in
such securities with particular regard to (1) the frequency of trades and quotes
for the lease obligation; (2) the number of dealers willing to purchase or sell
the lease obligation and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the lease obligation;
(4) the nature of the marketplace trades including the time needed to dispose of
the lease obligation, the method of soliciting offers and the mechanics of
transfer; and (5) such other factors concerning the trading market for the lease
obligation as NMIS may deem relevant. In addition, in evaluating the liquidity
and credit quality of a lease obligation that is unrated, the Fund's Board has
directed NMIS to consider (a) whether the lease can be cancelled; (b) what
assurance there is that the assets represented by the lease can be sold; (c) the
strength of the lessee's general credit (e.g., its debt, administrative,
economic, and financial characteristics); (d) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of nonappropriation"); (e) the
legal recourse in the event of failure to appropriate; and (f) such other
factors concerning credit quality as NMIS may deem relevant. The Fund will not
invest more than 15% of the value of its net assets in lease obligations that
are illiquid and in other illiquid securities.
Tender option bonds are generally long-term securities that have been coupled
with an option to tender the securities to a bank, broker-dealer or other
financial institution at periodic intervals and receive the face value of the
bond. The Municipal Bond Fund will purchase tender option bonds only when it is
satisfied that the custodial and tender option arrangements, including the fee
payment arrangements, will not adversely affect the tax exempt status of the
underlying Municipal Obligations and that payment of any tender fees will not
have the effect of creating taxable income for the Fund. Based on the tender
option bond agreement, the Fund expects to be able to value the tender option
bond at par; however, the value of the instrument will be monitored to assure
that it is valued at fair value.
B-6
<PAGE>
Ratings of Municipal Obligations. Subsequent to its purchase by the Municipal
Bond Fund, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such Municipal Obligations by the Fund,
but NMIS will consider such event in determining whether the Fund should
continue to hold the Municipal Obligations. To the extent that the ratings
given by Moody's, S&P or Fitch for Municipal Obligations may change as a result
of changes in such organizations or their rating systems, the Fund will attempt
to use comparable ratings as standards for its investments in accordance with
the investment policies contained in the Prospectus and this Statement of
Additional Information. The ratings of Moody's, S&P and Fitch represent their
opinions as to the quality of the Municipal Obligations which they undertake to
rate. It should be emphasized, however, that ratings are relative and
subjective and are not absolute standards of quality. Although these ratings
may be an initial criterion for selection of portfolio investments, NMIS also
will evaluate these securities.
REPURCHASE AGREEMENTS
Each of the Funds may invest in repurchase agreements. A repurchase
agreement customarily obligates the seller at the time it sells securities to
the Fund to repurchase the securities at a mutually agreed upon time and price.
The total amount received on repurchase would be calculated to exceed the price
paid by the Fund, reflecting an agreed upon market rate of interest for the
period from the time of the repurchase agreement to the settlement date, and
would not necessarily be related to the interest rate on the underlying
securities. The differences between the total amount to be received upon
repurchase of the securities and the price which was paid by the Fund upon their
acquisition is accrued as interest and is included in the Fund's net income
declared as dividends. Each Fund intends to limit repurchase agreements to
transactions with financial institutions having total assets in excess of
$1,000,000,000 and with broker-dealers. Securities subject to repurchase
agreements shall be limited to obligations of or guaranteed by the U.S.
Government or its agencies or by the Government of Canada or of a Province of
Canada or any instrumentality or political subdivision thereof, certificates of
deposit of banks or commercial paper which meets the criteria for other
commercial paper in which the Fund may invest. A Fund will not invest more than
10% of its total assets in repurchase agreements which have maturities of more
than seven days and will not invest in repurchase agreements with maturities of
over 30 days. Under no circumstances will a Fund enter into a repurchase
agreement with The Northwestern Mutual Life Insurance Company ("Northwestern
Mutual Life").
Each Fund has the right to sell securities subject to repurchase agreements
but would be required to deliver identical securities upon maturity of the
repurchase agreement unless the seller fails to pay the repurchase price. It is
each Fund's intention not to sell securities subject to repurchase agreements
prior to the agreement's maturity. To the extent that the proceeds from any
sale upon a default in the obligation to repurchase were less than the
repurchase price, the Fund would suffer a loss. the Fund might also incur
disposition costs in connection with liquidating its collateral and, if
bankruptcy proceedings are commenced with respect to the seller, realization
upon the collateral by the Fund may be delayed or limited and a loss may be
incurred if the collateral securing the repurchase agreement declines in value
during the bankruptcy proceedings. To minimize the possibility of losses due to
the default or bankruptcy of the seller, MSF has adopted standards of
creditworthiness for all broker-dealers with which MSF
B-7
<PAGE>
enters into repurchase agreements and will review compliance by such
broker-dealers periodically.
FINANCIAL FUTURES CONTRACTS
The Index 500 Stock, Asset Allocation, Growth and Income Stock, Growth
Stock, Aggressive Growth Stock, and International Equity Funds may invest in
stock index futures contracts, including indexes on specific industries, and the
Select Bond, High Yield Bond, Municipal Bond, International Equity and Asset
Allocation Funds may invest in interest rate futures contracts. The following
describes the stock index and interest rate futures markets and the manner in
which the Funds will implement the policy.
USE. The Funds, as identified above, may enter into stock index futures
contracts as a hedge against changes in the market values of common stocks and
may enter into interest rate futures contracts as a hedge against changes in
prevailing levels of interest rates. In both cases, the purpose is to establish
more definitely the effective return on securities held or intended to be
acquired by the Funds. The Funds' hedging may include sales of futures as an
offset against the effect of expected decreases in stock values or increases in
interest rates, and purchases of futures as an offset against the effect of
expected increases in stock values or decreases in interest rates.
The Funds will not enter into financial futures contracts for speculation,
and will only enter into futures contracts that are traded on national futures
exchanges and are standardized as to maturity date and underlying securities.
Currently, stock index futures contracts can be purchased or sold with respect
to various Standard and Poor's stock indicies on the Chicago Mercantile
Exchange, the New York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Stock Index on the Kansas City Board of Trade. The
principal interest rate futures exchanges in the United States are the Chicago
Board of Trade, the Chicago Mercantile Exchange and the New York Futures
Exchange. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission.
A Fund will not enter into a futures contract if, as a result thereof the
sum of the initial margin deposits of all open futures positions (other than an
offsetting transaction) would be more than 5% of the Fund's total assets. More
than 5% of the Fund's total assets may be committed to the aggregate of initial
and variation margin payments however.
The Funds will incur brokerage commissions in connection with transactions
in futures contracts.
DESCRIPTION. A stock index futures contract is an agreement whereby one
party agrees to take and another party agrees to make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the close of the last trading day of the contract and the price
at which the futures contract is originally struck. A stock index assigns
relative values to the common stocks included in the index, and the index
fluctuates with changes in the market values of the common stocks included. No
physical delivery of the underlying stocks in the index is made.
Currently, stock index futures contracts covering the stock market as a
whole and covering certain industries are being traded. It is expected that
futures contracts covering stock indexes of additional industries will
eventually be traded.
B-8
<PAGE>
An interest rate futures contract is an agreement whereby one party agrees
to sell and another party agrees to purchase a specified amount of a specified
financial instrument (debt security) at a specified price at a specified date,
time and place. Although interest rate futures contracts typically require
actual future delivery of and payment for financial instruments, the contracts
are usually closed out before the delivery date.
A public market exists in interest rate futures contracts covering
primarily the following financial instruments: U.S. Treasury bonds; U.S.
Treasury notes; Government National Mortgage Association (GNMA) modified
pass-through mortgage-backed securities; three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit; and Eurodollar certificates of
deposit. It is expected that futures contracts trading in additional financial
instruments will be authorized. The standard contract size is $100,000 for
futures contracts in U.S. Treasury bonds, U.S. Treasury notes and GNMA
pass-through securities and $1,000,000 for the other designated contracts.
It is each Fund's policy to close out open futures contracts before
delivery. Closing out an open futures contract sale or purchase is effected by
entering into an offsetting futures contract purchase or sale, respectively, for
the same aggregate amount of the stock index or the financial instrument and the
same delivery date. If the offsetting purchase price is less than the original
sale price, the Fund realizes a gain, and if it is more, the Fund realizes a
loss. Conversely, if the offsetting sale price is more than the original
purchase price, the Fund realizes a gain, and if it is less, the Fund realizes a
loss. The transaction costs must also be included in these calculations. There
can be no assurance, however, that the Fund will be able to enter into an
offsetting transaction with respect to a particular contract at a particular
time. If the Fund is not able to enter into an offsetting transaction, the Fund
will continue to be required to maintain the margin deposits on the contract.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September Treasury Bills on an exchange
may be fulfilled at any time before delivery of the contract is required (i.e.,
on a specified date in September, the "delivery month") by the purchase of one
contract of September Treasury Bills on the same exchange. In such instance
the difference between the price at which the futures contract was sold and the
price paid for the offsetting purchase, after allowance for transaction costs,
represents the profit or loss to the Fund.
Persons who trade in futures contracts may be broadly classified as
"hedgers" and "speculators." Hedgers, such as the Funds, whose business
activity involves investment or other commitment in equity and debt securities
or other obligations, use the financial futures markets primarily to offset
unfavorable changes in value that may occur because of fluctuations in the value
of the securities or obligations held or expected to be acquired by them.
The speculator, like the hedger, generally expects neither to deliver nor
to receive the security underlying the futures contract, but unlike the hedger,
hopes to profit from fluctuations in prevailing stock market values or interest
rates.
Each Fund's futures transactions will be entered into for traditional
hedging purposes--that is, futures contracts will be sold to protect against a
B-9
<PAGE>
decline in the price of securities that the Fund owns, or futures contracts will
be purchased to protect the Fund against an increase in the price of securities
it intends to purchase. As evidence of this hedging intent, each Fund expects
that approximately 75% of such futures contract purchases will be "completed";
that is, upon sale (offsetting) of these long contracts, equivalent amounts of
related securities will have been or are then being purchased by the Fund in the
cash market.
MARGIN. Initial margin is the amount of funds that must be deposited by a
Fund with its broker in order to initiate futures trading. An initial margin
deposit is intended to assure the Fund's performance of the futures contract.
The margin required for a particular futures contract is set by the exchange on
which the contract is traded and may range upward from less than 5% of the value
of the contract being traded.
Variation margin is the amount of subsequent payments that must be made to
and from the broker to maintain the Fund's open position in the futures
contracts. Variation margin payments are made on a daily basis as the price of
the underlying stock index or financial instrument fluctuates. If the value of
the open futures position changes (by increase, in the case of a sale, or by
decrease, in the case of a purchase) so that the loss on the futures contract
reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require the Fund to make a variation margin
payment in the amount of the insufficiency. However, if the value of a position
increases because of favorable price changes in the futures contract so that the
margin deposit exceeds the required margin, the Fund will promptly demand
payment by the broker of variation margin in the amount of the excess. All
variation margin payments received by the Fund will be held by the Fund's
custodian in a separate account for the Fund.
In computing net asset value daily each Fund will mark to market the
current value of its open futures contracts. Each Fund expects to earn interest
income on its initial margin deposits.
EXAMPLE OF PURCHASE OF STOCK INDEX FUTURES CONTRACT. A Fund might purchase
a stock index futures contract when it anticipates a significant market or
market sector advance and wishes to participate in such advance at a time when
the Fund is not fully invested, for example, because the Fund has not selected
the individual stocks which it wishes to purchase. The Fund would be endeavoring
to eliminate the effect of all or part of an expected increase in the market
price of the stocks that the Fund may purchase at a later date.
For example, assume that the prices of certain stocks that the Fund may
later purchase tend to move in concert with the Standard and Poor's 500 Stock
Index. The Fund wishes to attempt to fix the purchase price of its anticipated
stock investment until the time (three months in this example) when it may
purchase the stock. Assume the stock has a market price of 125 and the Fund
believes that, because of an anticipated advance in the stock market, the price
will have risen in three months. The Fund might enter into futures contract
purchases of the Standard and Poor's 500 Stock Index for a price of 125. If the
market price of the stock should increase from 125 to 130, the futures market
price for the Standard and Poor's 500 Stock Index might also increase, e.g.,
from 125 to 130. In that case, the five-point increase in the price that the
Fund would have to pay for the stock would be offset by the five-point gain
realized by closing out the futures contract purchase.
B-10
<PAGE>
If the Fund should be mistaken in its forecast of market values, and the
stock index should decline below 125, the market value of the stocks being
hedged would presumably decline. Unless the Fund would purchase the stocks for
the decreased price, the Fund would realize a loss on the sale of the futures
contract which would not be offset by the price decrease.
EXAMPLE OF SALE OF STOCK INDEX FUTURES CONTRACT. The Fund might sell stock
index futures contracts in anticipation of a general market or market sector
decline that may adversely affect the market values of the stocks held by the
Fund. The Fund would be endeavoring to substantially reduce the risk of a
decline in the value of its stocks without selling the stocks with resultant
transaction costs.
For example, assume that the market price of certain stocks held by the
Fund tend to move in concert with the Standard and Poor's 500 Stock Index. The
stock currently has a market value of 125, which the Fund believes will decline
because of an anticipated decline in the stock market. The Fund wishes to
attempt to fix the current market value of the stock until some time in the
future. The Fund might enter into a futures contract sale of the Standard and
Poor's 500 Stock Index at a price of 125. If the market price of the stock
should decline from 125 to 120, the futures market price of the Standard and
Poor's 500 Stock Index might also decline, e.g. from 125 to 120. In that case
the five-point loss in the market value of the stock would be offset by the
five-point gain realized by closing out the futures contract. The futures
market price of the Standard and Poor's 500 Stock Index might decline to more or
less than 120 because of the imperfect correlation with the prices of the stocks
hedged.
If the Fund should be mistaken in its forecast of the stock market, and the
futures market price of the Standard and Poor's 500 Stock Index should increase
above 125, the market price of the stock would increase. The benefit of this
increase would be offset by the loss realized on closing out the futures
contract sale.
EXAMPLE OF PURCHASE OF INTEREST RATE FUTURES CONTRACT. The Fund might
purchase an interest rate futures contract when it wishes to defer for a time a
fully invested position in longer term securities, for example, in order to
continue holding shorter term securities with higher yields. The Fund would be
endeavoring to eliminate the effect of all or part of an expected increase in
market price of the longer term bonds that the Fund may wish to purchase at a
later date.
For example, assume that the market price of a type of longer term bonds
that the Fund may later purchase, currently yielding 10%, tends to move in
concert with futures market prices of long-term U.S. Treasury bonds. The Fund
wishes to attempt to fix the purchase price (and thus the 10% yield) of its
anticipated longer term bond investment until the time (four months away in this
example) when it may purchase the bond. Assume the longer term bond has a
market price of 100, and the Fund believes that, because of an anticipated
decline in interest rates, the price will have risen (and correspondingly the
yield will have declined) in four months. The Fund might enter into futures
contract purchases of Treasury bonds for a price of 98. If the market price of
the longer term bond should increase from 100 to 105, the futures market price
for Treasury bonds might also increase, e.g., from 98 to 103. In that case, the
five-point increase in the price that the Fund would have to pay for the longer
term bond would be offset by the five-point gain realized by closing out the
futures contract purchase.
B-11
<PAGE>
If the Fund should be mistaken in its forecast of interest rates, and the
futures market price of the U.S. Treasury obligation should decline below 98,
the market price of the security being hedged would presumably decline. The
benefit of this price decrease, and thus the yield increase, would be offset by
the loss realized on closing out the futures contract purchase.
EXAMPLE OF SALE OF INTEREST RATE FUTURES CONTRACT. The Fund might sell an
interest rate futures contract in order to maintain the income derived from its
continued holding of a long-term security while endeavoring to avoid part or all
of the loss in market value that would otherwise accompany a decline in prices
of longer term securities because of an increase in prevailing interest rates.
For example, assume that the market price of a certain longer term security
held by the Fund tends to move in concert with the futures market prices of
long-term U.S. Treasury bonds. The security has a current market price of 100,
which the Fund believes will decline because of an anticipated rise in interest
rates. The Fund wishes to attempt to fix the current market value of this
security until some point in the future. The Fund might enter into a futures
contract sale of Treasury bonds at a price of 98. If the market value of the
security should decline from 100 to 95, the futures market price of Treasury
bonds might also decline, e.g., from 98 to 93. In that case, the five-point
loss in the market value of the security would be offset by the five-point gain
realized by closing out the futures contract sale. The futures market price of
Treasury bonds might decline to more or less than 93 because of the imperfect
correlation with the prices of the securities hedged.
If the Fund should be mistaken in its forecast of interest rates, and the
futures market price of the U.S. Treasury obligation should increase above 98,
the market price of the securities, including the security being hedged, would
increase. The benefit of this increase would be offset by the loss realized on
closing out the futures contract sale.
RISKS. Financial futures prices are volatile and difficult to forecast.
Stock index futures prices reflect the market values of the stocks included in
the index, while interest rate futures contracts are influenced, among other
things, by changes in prevailing interest rates and anticipation of future
interest rate changes. The factors influencing interest rate futures prices are
in turn affected by government fiscal and monetary policies and actions, and
national and international political and economic events, while stock market
values are also influenced by corporate management policies, consumer demand,
competition, sources of raw materials and supplies and government regulation.
At best, the correlation between changes in prices of futures contracts and
the securities being hedged can be only approximate. The degree of imperfection
of correlation depends upon circumstances, such as: variations in speculative
market demand for futures and for equity or debt securities, including technical
influences in futures trading, and differences between the securities being
hedged and the instruments underlying the standard futures contracts available
for trading. A decision of whether, when and how to hedge involves the exercise
of skill and judgment, and even a well-conceived hedge may be unsuccessful to
some degree because of market behavior or unexpected stock market or interest
rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss,
B-12
<PAGE>
as well as gain, to the investor. For example, if at the time of purchase, 10%
of the value of the futures contract is deposited as initial margin, a 10%
decrease in the value of the futures contract would result in a total loss of
the initial margin deposit before any deduction for the transaction costs, if
the account were then closed out, and a 15% decrease would result in a loss
equal to 150% of the initial margin deposit. Thus, a purchase or sale of a
futures contract may result in losses in excess of the amount invested in the
futures contract. However, the Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in the underlying
security. Furthermore, in order to be certain that the Fund has sufficient
assets to satisfy its obligations when it purchases a futures contract, the Fund
deposits cash or cash equivalents equal in value to the market value of the
futures contract in a segregated account for the Fund with the Fund's custodian.
Most United States interest rate futures exchanges and the Chicago
Mercantile Exchange limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
FOREIGN CURRENCY FUTURES. The International Equity, Asset Allocation,
Select Bond, Aggressive Growth Stock, Growth Stock and High Yield Bond Funds
have the authority to deal in forward foreign exchange between currencies of the
different countries in which the Fund may invest as a hedge against possible
variations in the foreign exchange rate between these currencies. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
The Funds' dealings in forward foreign exchange will be limited to hedging
involving either specific transactions or Fund positions. Transaction hedging
is the purchase or sale of forward foreign currency with respect to specific
receivables or payables of the Fund arising from the purchase and sale of Fund
securities, the sale and redemption of shares of the Fund, or the payment of
dividends and distributions by the Fund. Position hedging is the sale of
forward foreign currency with respect to Fund security positions denominated or
quoted in such foreign currency. The International Equity, Asset Allocation,
Select Bond, Aggressive Growth Stock, Growth Stock and High Yield Bond Funds
will not speculate in forward foreign exchange.
FEDERAL INCOME TAX TREATMENT. For Federal income tax purposes, each Fund
is required to recognize as income for each taxable year its net unrealized
gains and losses on futures contracts as of the end of the year as well as those
actually realized during the year. Any gain or loss recognized with respect to
a futures contract is considered to be 60% long-term and 40% short-term, without
regard to the holding period of the contract. In the case of a futures
transaction classified as a "mixed straddle," the recognition of losses may be
deferred to a later taxable year.
In order for each Fund to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
B-13
<PAGE>
for a taxable year must be derived from qualifying income, i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities. Any net gain realized from the closing out of futures contracts,
for purposes of the 90% requirement, is considered gain from the sale of
securities and therefore is qualifying income. In addition, gains realized on
the sale or other disposition of securities held for less than three months must
be limited to less than 30% of the Fund's annual gross income including gross
capital gains. Consequently, in order for the Fund to avoid realizing a gain
within a three-month period, the Fund may be required to defer the closing out
of a contract beyond the time when it would otherwise be advantageous to do so.
OPTIONS -- IN GENERAL
The Funds may purchase call or put options and write covered call or put
options with respect to specific securities. Any option written or purchased by
a Fund must be listed on a domestic exchange. A call option gives the purchaser
of the option the right to buy, and obligates the writer to sell, the underlying
security or securities at the exercise price at any time during the option
period, or at a specific date. Conversely, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
security or securities at the exercise price at any time during the option
period.
A covered call option written by a Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other securities. A put option written by the Fund is
covered when, among other things, cash or liquid securities having a value equal
to or greater than the exercise price of the option are placed in a segregated
account with the Fund's custodian to fulfill the obligation undertaken. The
principal reason for writing covered call and put options is to realize, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. The Fund receives a premium from writing covered
call or put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Option transactions may increase a Fund's transaction costs and turnover
rate and will be initiated only where appropriate to achieve a Fund's investment
objectives.
B-14
<PAGE>
FUTURE DEVELOPMENTS The Funds may take advantage of opportunities in the area
of options and futures contracts and options on futures contracts and any other
derivatives which are not presently contemplated for use by the Funds or which
are not currently available but which may be developed, to the extent such
opportunities are both consistent with the Fund's investment objective and
legally permissible for the Fund. Before entering into such transactions or
making any such investment, a Fund will provide appropriate disclosure in its
Prospectus or Statement of Additional Information.
REVERSE REPURCHASE AGREEMENTS
The Municipal Bond Fund may enter into reverse repurchase agreements
with banks and broker-dealers. Such agreements involve the sale of money
market securities held by the Fund pursuant to an agreement to repurchase the
securities at an agreed upon price, date and interest payment. The Fund will
use the proceeds of reverse repurchase agreements to purchase other money
market securities which either mature, or can be sold under an agreement to
resell, at or prior to the expiration of the reverse repurchase agreement.
The Fund will utilize reverse repurchase agreements when the interest income
to be earned from the investment of proceeds from the transaction is greater
than the interest expense of the reverse repurchase transaction. When
effecting reverse repurchase transactions, the Fund will hold securities of a
dollar amount equal in value to the securities subject to the reverse
repurchase agreement in a segregated account. Amounts subject to reverse
repurchase agreements are also subject to a 300% asset coverage requirement.
If such amounts in the aggregate exceed this asset coverage requirement, the
Fund would be obligated within three days to reduce such amounts to meet the
requirement. Under no circumstances will the Fund enter into a reverse
repurchase agreement with Northwestern Mutual Life.
WARRANTS
The Index 500 Stock, Asset Allocation, Growth and Income Stock, Growth
Stock, Aggressive Growth Stock and High Yield Bond Funds may invest in warrants.
No Fund intends to invest more than 2% of its net assets in warrants that are
not listed on a national securities exchange. In no event will a Fund's
investment in warrants exceed 5% of its net assets. (A warrant is a right to
buy a certain security at a set price during a certain time period.)
ASSET-BACKED AND VARIABLE RATE SECURITIES
Consistent with their investment objectives and policies, the Select Bond
Fund and Municipal Bond Fund may invest in asset-backed and variable rate
securities.
Asset-backed securities represent fractional interests in pools of retail
installment loans or revolving credit receivables. These assets are generally
held by a special purpose trust and payments of principal and interest, or
interest only, are passed through or paid through monthly or quarterly to
certificate holders. Payments may be guaranteed up to certain amounts by
letters of credit issued by a financial institution affiliated or unaffiliated
with the trustee or originator of the trust. Underlying receivables are
generally subject to prepayment, which may reduce the overall return to
certificate holders. Nevertheless, for asset-backed securities, principal
repayment rates tend not to vary much with interest rates and the short-term
nature of the underlying loans or other receivables tends to dampen the impact
of any change in the prepayment level. Certificate holders may also experience
delays in payment on the certificates if the full amounts due
B-15
<PAGE>
on underlying sales contracts or other receivables are not realized by the trust
because of unanticipated legal or administrative costs of enforcing the
contracts, or because of depreciation or damage to the collateral securing
certain contracts, or other factors.
Variable rate securities bear rates of interest that are adjusted
periodically or which "float" continuously according to formulae intended to
minimize fluctuations in values of the instruments. For the Select Bond Fund
and Municipal Bond Fund, the Fund determines the maturity of variable rate
securities in accordance with Securities and Exchange Commission rules that
allow the Fund to consider certain of such instruments as having maturities less
than the maturity date on the instrument.
SHORT-TERM TRADING
Each Fund will generally not engage in short-term trading (purchases and
sales within seven days).
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES
Each Fund may enter into firm commitment agreements for the purchase of
securities at an agreed upon price on a specified future date. A Fund may
purchase new issues of securities on a "when-issued" basis, whereby the payment
obligation and interest rate on the instruments are fixed at the time of the
transaction. Such transactions might be entered into, for example, when the
advisor of a Fund anticipates a decline in the yield of securities of a given
issuer and is able to obtain a more advantageous yield by committing currently
to purchase securities to be issued or delivered later.
A Fund will not enter into such a transaction for the purpose of
investment leverage. Liability for the purchase price - and all the rights and
risks of ownership of the securities - accrue to the Fund at the time it becomes
obligated to purchase such securities, although delivery and payment occur at a
later date. Accordingly, if the market price of the security should decline,
the effect of the agreement would be to obligate the Fund to purchase the
security at a price above the current market price on the date of delivery and
payment. During the time the Fund is obligated to purchase such securities it
will maintain in a segregated account U.S. Government securities, high-grade
debt obligations, or cash or cash equivalents of an aggregate current value
sufficient to make payment for the securities.
PRIVATE PLACEMENT TRANSACTIONS AND ILLIQUID ASSETS
Each Fund may invest up to 15% of its net assets in securities acquired
in private placement transactions and other illiquid assets. For the purpose of
determining each Fund's net asset value, these assets will be valued at their
fair value as determined in good faith by MSF's Directors or under procedures
established by the Directors. If a Fund should have occasion to sell an
investment in restricted securities at a time when the market for such
investments is unfavorable, a considerable period may elapse between the time
when the decision to sell it is made and the time when the Fund will be able to
sell the investment, with a possible adverse effect upon the amount to be
realized from the sale.
Notwithstanding these limitations a Fund may purchase securities which,
though not registered under the Securities Act of 1933 (the "1933 Act"), are
eligible for purchase and sale pursuant to Rule 144A under the 1933 Act. Rule
144A permits unregistered securities to be traded among qualified
B-16
<PAGE>
institutional investors, including the Funds. Rule 144A securities that are
determined to be liquid are not subject to the limitations on illiquid assets.
The Fund's investment adviser, Northwestern Mutual Investment Services, Inc.,
determines and monitors the liquidity status of each Rule 144A security in which
a Fund invests, subject to supervision and oversight by the Board of Directors
of MSF. The investment adviser takes into account all of the factors which may
have a material bearing on the ability of the Fund to dispose of the security in
seven days or less, at a price reasonably consistent with the value used to
determine the Fund's net asset value per share, including the following factors:
(1) the frequency and volume of trades, (2) the number and sources of price
quotes, (3) the number, and identity, of dealers willing to purchase or sell the
issue, and the number and identity of other potential purchasers, (4) any dealer
undertakings to make a market in the security, (5) the nature of the security,
and (6) the nature of the market in which the issue is traded, including the
time typically required to make trades, the methods of soliciting offers and the
mechanics of transfer.
RISK FACTORS FOR THE INTERNATIONAL EQUITY FUND AND INTERNATIONAL INVESTMENTS OF
THE OTHER FUNDS
The International Equity Fund has an unlimited right to purchase securities
in any foreign country, developed or developing, if they are listed on an
exchange, as well as a limited right to purchase such securities if they are
unlisted. The Asset Allocation Fund, High Yield Bond Fund, Select Bond Fund,
Aggressive Growth Stock Fund and Growth Stock Fund also have the limited right
to purchase securities in foreign countries. Investors should consider
carefully the risks involved in securities of companies and governments of
foreign nations, which are in addition to the usual risks inherent in domestic
investments.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. These
risks include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the absence,
until recently in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
may involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
a large amount of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, no or developing accounting standards may exist in certain Eastern
European countries. Finally, even
B-17
<PAGE>
though certain Eastern European currencies may be convertible into U.S. dollars,
the conversion rates may be artificial to the actual market values and may be
adverse to the Fund's shareholders.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the United
States. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to United States
companies. Foreign markets have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Commission
rates in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the United States.
The Fund endeavors to buy and sell foreign currencies on as favorable a
basis as practicable. Some price spread on currency exchange (to cover service
charges) may be incurred, particularly when the Fund changes investment from one
country to another or when proceeds of the sale of shares in U.S. dollars are
used for the purchase of securities in foreign countries. Also, some countries
may adopt policies which would prevent the Fund from transferring cash out of
the country or withhold portions of interest and dividends at the source, or
impose other taxes with respect to the Fund's investments in securities of
issuers of that country. There is the possibility of expropriation,
nationalization or confiscatory taxation, foreign exchange controls (which may
include suspension of the ability to transfer currency from a given country),
default in foreign government securities, political or social instability or
diplomatic developments which could affect investments in securities of issuers
in those nations.
The Fund may be affected either unfavorably or favorably by fluctuations in
the relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Through the Fund's flexible policy, the Fund's advisor endeavors
to avoid unfavorable consequences and to take advantage of favorable
developments in particular nations where from time to time it places the Fund's
investments. The exercise of this flexible policy may include decisions to
purchase securities with substantial risk characteristics and other decisions
such as changing the emphasis on investments from one nation to another and from
one type of security to another. Some of these decisions may later prove
profitable and others may not. No assurance can be given that profits, if any,
will exceed losses.
The Directors of MSF consider at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions which
would affect the liquidity of the Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. They also consider the degree
of risk involved through the holding of Fund securities in domestic and foreign
securities depositories. However, in the absence of willful misfeasance, bad
faith or gross negligence on the part of the Fund's investment adviser, or
reckless disregard of its obligations and duties under the Investment Advisory
Agreement, any losses resulting from the holding of the Fund's securities in
foreign countries and/or with securities depositories will be at risk of the
shareholders. No assurance can be given that the
B-18
<PAGE>
Directors' appraisal of the risks will always be correct or that such exchange
control restrictions or political acts of foreign governments might not occur.
The Fund may enter into a contract for the purchase or sale of a
security denominated in a foreign currency and may enter into a forward foreign
currency contract ("forward contract") in order to "lock in" the U.S. dollar
price of the security. In addition, when the Fund's advisor believes that the
currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to sell
or buy the amount of the former foreign currency, approximating the value of
some or all of the Fund's securities denominated in such foreign currency. The
projection of short-term currency market movement is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
It is impossible to forecast with absolute precision the market value of
Fund securities at the expiration of the contract. Accordingly, it may be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the Fund security if its
market value exceeds the amount of foreign currency the Fund is obligated to
deliver.
If the Fund retains the security and engages in an offsetting transaction,
the Fund will incur a gain or a loss to the extent that there has been movement
in forward contract prices. If the Fund engages in an offsetting transaction,
it may subsequently enter into a new forward contract to sell the foreign
currency. Should forward prices decline during the period between the Fund
entering into a forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the foreign currency,
the Fund will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
PORTFOLIO TURNOVER
Portfolio turnover may vary from year to year or within a year depending
upon economic, market and business conditions. The annual portfolio turnover
rates of the Funds cannot be accurately predicted. It is anticipated that the
annual portfolio turnover rate for the Index 500 Stock Fund will not exceed
10% and that the rate for the High Yield Bond Fund will not exceed 140%. For
the other Funds, it is anticipated that the rate will not exceed 100%.
Short-term debt securities are excluded in the calculation of portfolio
turnover rates. U.S. Government securities are included in the calculation of
portfolio turnover rates.
The annual portfolio turnover rate of each Fund is the lesser of
purchases or sales of the Fund's securities for the year stated as a
percentage of the average value of the Fund's assets.
B-19
<PAGE>
MANAGEMENT OF MSF
The following is a list of the Directors and Officers of MSF together with
a brief description of their principal occupations during the past five years.
James D. Ericson (61), President and Director*
720 East Wisconsin Avenue
Milwaukee, WI 53202
Trustee of Northwestern Mutual Life; President and Chief Executive
Officer of Northwestern Mutual Life since 1993; President and Chief
Operating Officer from 1991 to 1993; prior thereto, President
Stephen N. Graff (62), Director*
805 Lone Tree Road
Elm Grove, WI 53212
Retired Partner, Arthur Andersen LLP (Public Accountants) since 1994;
Senior Partner, 1993-1994; prior thereto, Managing Partner -
Milwaukee, WI office; Trustee of Northwestern Mutual Life since 1996
Martin F. Stein (59), Director
1800 East Capitol Drive
Milwaukee, WI 53211
Chairman of the Board of EyeCare One Corporation (retail sales of
eyewear)
John K. MacIver (65), Director
100 East Wisconsin Avenue
Milwaukee, WI 53202
Partner, Michael Best & Friedrich, Attorneys at Law
William J. Blake (64), Director
1105 North Waverly Place
Milwaukee, WI 53202
Chairman, Blake Financial Corporation (real estate investments and
venture capital)
Mark G. Doll (47), Vice President and Treasurer
720 East Wisconsin Avenue
Milwaukee, WI 53202
Senior Vice President of Northwestern Mutual Life since 1996; Senior
Vice President and Treasurer, 1995; prior thereto, Vice President and
Treasurer; Executive Vice President, Investment Advisory Services of
Northwestern Mutual Investment Services, Inc. since 1996; prior
thereto, President
B-20
<PAGE>
Meridee J. Maynard (41), Vice President - Marketing and Operations
720 East Wisconsin Avenue
Milwaukee, WI 53202
Vice President-Annuity and Accumulation Products of Northwestern
Mutual Life since 1996; Vice President-Compliance and Sales Standards
from 1994 to 1996; Managing Director-Sales Standards/Compliance from
1993 to 1994; Director-New Business from 1992 to 1993; prior thereto,
Director-Annuity Marketing; Vice President, Variable Annuity
Administration and Marketing of Northwestern Mutual Investment
Services, Inc. since 1996; Superintendent-Sales Standards/Compliance
from 1994 to 1996; Superintendent-Underwriting Standards and New
Business from 1993 to 1994.
Patricia L. Van Kampen (45), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Vice President-Common Stocks of Northwestern Mutual Life; Vice
President-Common Stocks of Northwestern Mutual Investment Services,
Inc.
William R. Walker (39), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Director of Common Stocks of Northwestern Mutual Life since 1993;
Associate Director of Common Stocks from 1992 to 1993; prior thereto,
Investment Officer; Vice President of Northwestern Mutual Investment
Services, Inc.
Julie M. Van Cleave (37), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Director of Common Stocks of Northwestern Mutual Life since 1993;
Associate Director of Common Stocks from 1992 to 1993; prior thereto,
Investment Officer; Vice President-Common Stocks of Northwestern
Mutual Investment Services, Inc. since 1993
Steven P. Swanson (42), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Vice President-Securities of Northwestern Mutual Life since 1994;
prior thereto, Director-Securities; Vice President of Northwestern
Mutual Investment Services, Inc. since 1994
Jefferson V. DeAngelis (38), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Vice President - Fixed Income Securities of Northwestern Mutual Life
since 1993; prior thereto, Director - Public Fixed Income; Vice
President-Fixed Income Securities of Northwestern Mutual Investment
Services, Inc. since 1993
B-21
<PAGE>
Ronald C. Alberts (33), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Associate Director - Fixed Income of Northwestern Mutual Life
Merrill C. Lundberg (56), Secretary
720 East Wisconsin Avenue
Milwaukee, WI 53202
Assistant General Counsel of Northwestern Mutual Life; Secretary of
Northwestern Mutual Investment Services, Inc.
Barbara E. Courtney (39), Controller
720 East Wisconsin Avenue
Milwaukee, WI 53202
Associate Director of Mutual Fund Accounting of Northwestern Mutual
Life since 1996; prior thereto, Assistant Director of Investment
Accounting; Assistant Treasurer of Northwestern Mutual Investment
Services, Inc.
* Directors identified with an asterisk are "interested persons" as defined
in Section 2(a)(19) of the Investment Company Act of 1940.
Each of the Directors has served as a Director of MSF since October 24, 1996.
An Audit Committee and Nominating Committee have been established for MSF.
Each Committee is made up of those Directors who are not "interested persons" of
MSF within the meaning of the Investment Company Act.
All Board members and officers of the Fund, except Meridee J. Maynard and
Ronald C. Alberts, are also board members or officers of Northwestern Mutual
Series Fund, Inc. (the "Series Fund"), a registered investment company. Shares
of the Series Fund are offered to and may only be purchased by Northwestern
Mutual Life in connection with variable annuity and variable life insurance
contracts issued by Northwestern Mutual Life. Each of the Directors and
principal officers of MSF who is also an affiliated person of Northwestern
Mutual Investment Services, Inc. ("NMIS") or Northwestern Mutual Life is named
above, together with the capacity in which such person is affiliated with NMIS
or Northwestern Mutual Life.
COMPENSATION OF OFFICERS AND DIRECTORS. MSF pays no salaries or compensation to
any of its officers or Directors employed by Northwestern Mutual Life. MSF pays
other Directors fees totaling $9,000 per year, consisting of a $5,000 retainer
paid in April and $1,000 per meeting of the Board of Directors of MSF attended.
MSF neither pays nor accrues any pension or retirement benefits to any of the
Directors. Northwestern Mutual Investment Services, Inc., the investment
advisor to Northwestern Mutual Series Fund, Inc., pays each of the directors of
the Series Fund a total of up to $15,000 per year, consisting of a $5,000
retainer paid in January and $2,500 per meeting of the board of the Series Fund
attended.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Total
Person, Compensation Retirement Annual Compensation
Position From Benefits Benefits Upon From
Registrant* Accrued as Retirement Registrant and
Part of Fund Fund Complex
Expenses Paid to
Directors*
<S> <C> <C> <C> <C>
James D. None None None None
Ericson,
Director
William Blake, $9,000 None None $24,000
Director
Stephen N. $9,000 None None $24,000
Graff,
Director
John K. $9,000 None None None
MacIver,
Director
Martin F. $9,000 None None $24,000
Stein,
Director
</TABLE>
* Estimated compensation for the first fiscal year of operations of
Registrant, April 1, 1997 through March 31, 1998.
OTHER INFORMATION ABOUT MSF
MSF was incorporated in Maryland on August 30, 1996. The authorized capital
stock of MSF consists of 2,700,000,000 shares of common stock, par value $.001
B-22
<PAGE>
per share (Common Stock). The shares of Common Stock are divided into nine
series, each with 300 million authorized shares in the series: Aggressive Growth
Stock Fund; International Equity Fund; Growth Stock Fund; Growth and Income
Stock Fund; Index 500 Stock Fund; Asset Allocation Fund; High Yield Bond Fund;
Municipal Bond Fund; and Select Bond Fund. The Board of Directors may
reclassify authorized shares to increase or decrease the allocation of shares
among the series described above or to add any new series to MSF. Each series
of Common Stock has two classes of shares, designated Class A and Class B. The
Board of Directors is authorized, from time to time and without further
shareholder approval, to authorize additional shares and to classify and
reclassify existing and new series into one or more classes.
As of March 31, 1997, no person owns of record or beneficially 5% or more
of the shares outstanding of MSF or any Fund, except Northwestern Mutual Life,
which owned 100% of the Funds' outstanding shares as of the date of this
prospectus.
The shares of the Funds are entitled to vote separately to approve
investment advisory agreements or changes in investment restrictions, but
shareholders of all series vote together in the election and selection of
directors and accountants. Shares of a Fund vote together as a class on matters
that affect the Fund in substantially the same manner. Matters pertaining only
to one or more Funds will be voted upon only by those Funds. As to matters
affecting a single class, shares of such class will vote separately. Shares of
the Funds do not have cumulative voting rights. MSF and the Funds do not intend
to hold annual meetings of shareholders unless required to do so by the 1940 Act
or the Maryland statutes under which MSF is organized. Although Directors are
not elected annually by the shareholders, shareholders have under certain
circumstances the right to remove one or more Directors. If required by
applicable law, a meeting will be held to vote on the removal of a Director or
Directors of MSF if requested in writing by the holders of not less than 10% of
MSF's outstanding shares. Each Fund's shares are fully paid, and nonassessable,
and, when issued, have no preference, preemptive, conversion or similar rights
and are freely transferable.
MSF's By-Laws provide that MSF shall indemnify each of its Directors,
officers and employees against liabilities and expenses reasonably incurred by
them, in connection with the defense of any action, suit or proceeding or threat
thereof, by reason of being or having been a director, officer or employee of
MSF. MSF provides no indemnification in relation to such matters as to which
such person is adjudged in such action, suit or proceeding to be liable for
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
INVESTMENT ADVISORY SERVICES
The Funds' investment adviser, Northwestern Mutual Investment
Services, Inc. ("NMIS"), is a wholly-owned subsidiary of Northwestern Mutual
Life. The adviser provides investment advice and recommendations regarding the
purchase and sale of securities for the Funds and the selection of brokers
pursuant to an Investment Advisory Agreement (the "Agreement").
For acting as investment adviser and for providing such services and
paying such expenses the adviser is paid a monthly fee at the annual rates set
forth in the prospectus for MSF. The Fund also pays all interest charges,
brokerage commissions, taxes and extraordinary expenses incurred in connection
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<PAGE>
with the operation of the Fund. Expenses paid by MSF are charged to the Funds
to which the expenses relate.
Because MSF commenced operations on March 31, 1997, no Fund has paid any
advisory fees to date.
Northwestern Mutual Life employs a full staff of investment personnel to
manage its investment assets. Northwestern Mutual Life's personnel and related
facilities are utilized by NMIS in performing its obligations under the
Investment Advisory Agreement.
"Northwestern Mutual Life" is the name and service mark of The Northwestern
Mutual Life Insurance Company and the right of MSF to use the name and mark is
subject to the consent of Northwestern Mutual Life. Under the Agreement
providing such consent, MSF recognizes the prior rights of Northwestern Mutual
Life in the name and mark, agrees that use of the name and mark by MSF will
inure to the benefit of Northwestern Mutual Life and agrees that its right to
use the name and mark can be terminated by Northwestern Mutual Life and will
automatically be terminated if at any time NMIS ceases to be the investment
adviser to the Funds or if NMIS ceases to be a subsidiary of Northwestern Mutual
Life.
Templeton Investment Counsel, Inc. ("Templeton Counsel"), a Florida
corporation with principal offices at 500 East Broward Boulevard, Ft.
Lauderdale, Florida 33394 has been retained under an investment sub-advisory
agreement to provide investment advice and, in general, to conduct the
management investment program of the International Equity Fund, subject to the
general control of the Board of Directors of MSF. Templeton Counsel is a
wholly-owned indirect subsidiary of Franklin Resources, Inc. Certain clients of
Templeton Counsel may have investment objectives and policies similar to those
of the International Equity Fund. Templeton Counsel may, from time to time,
make recommendations which result in the purchase or sale of a particular
security by its other clients simultaneously with the International Equity Fund.
If transactions on behalf of more than one client during the same period
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price. It is the policy of
Templeton Counsel to allocate advisory recommendations and the placing of orders
in a manner which is deemed equitable by Templeton Counsel to the accounts
involved, including the International Equity Fund. When two or more of the
clients of Templeton Counsel (including the International Equity Fund) are
purchasing the same security on a given day from the same broker-dealer, such
transactions may be averaged as to price. For its services pursuant to the sub-
advisory agreement, Templeton Counsel is paid, by NMIS, compensation at the
annual rate of .50% of the average net assets of the International Equity Fund,
reduced to .40% on assets in excess of $100 million. The $100 million break
point for fees paid to Templeton Counsel is based on the aggregate assets of
the International Equity Fund and the International Equity Portfolio of the
Series Fund.
J.P. Morgan Investment Management Inc. ("J.P. Morgan Investment"), 522
Fifth Avenue, New York, New York 10036, provides investment advisory services to
the Growth and Income Stock Fund, pursuant to an investment sub-advisory
agreement. For the services provided, NMIS pays J.P. Morgan Investment a fee at
the annual rate of .45% on the first $100 million of the Fund's assets, .40% on
the next $100 million, .35% on the next $200 million and .30% on assets in
excess of $400 million. The break points for fees paid to J.P. Morgan
Investment are based on the aggregate assets of the Growth and Income Stock Fund
and the Growth and Income Stock Portfolio of the Series Fund.
B-24
<PAGE>
J.P. Morgan Investment is an investment manager for corporate, public, and
union employee benefit funds, foundations, endowments, insurance companies,
government agencies and the accounts of other institutional investors. A wholly
owned subsidiary of J.P. Morgan & Co. Inc., J.P. Morgan Investment was
incorporated in the state of Delaware on February 7, 1984 and commenced
operations on July 2, 1984. It was formed from the Institutional Investment
Group of Morgan Guaranty Trust Company of New York, also a subsidiary of J.P.
Morgan & Co. Inc.
Morgan acquired its first tax-exempt client in 1913 and its first pension
account in 1940. Assets under management have grown to over $180 billion. With
offices in London and Singapore, J.P. Morgan Investment draws from a worldwide
resources base to provide comprehensive service to an international group of
clients. Investment management activities in Japan, Australia, and Germany are
carried out by affiliates, Morgan Trust Bank in Tokyo, J.P. Morgan Investment
Management Australia Limited in Melbourne, and J.P. Morgan Investment GmbH in
Frankfurt.
J.P. Morgan Investment currently provides investment advisory services to
the following investment companies: the Growth and Income Portfolio of the
Series Fund, Global Money Fund, International Growth Fund, and Growth and Income
Fund of Sierra Trust Funds, Global Money Fund and International Growth Fund of
The Sierra Variable Trust, Frank Russell Equity Q Fund and Frank Russell
Quantitative Equity Fund of Frank Russell Investment Co., Preferred Fixed Income
Fund and Preferred Money Market Fund of Caterpillar Investment Management Ltd.,
AST Money Market Fund of American Skandia Life Investment Management Inc.,
Benham European Government Bond Fund, and Equity Income Series and Multi-
Strategy Series of Pacific Select Fund.
Northwestern Mutual Life is the licensee under a License Agreement with
Standard & Poor's Corporation, dated as of November 30, 1990, as amended,
relating to MSF as well as certain other mutual funds sponsored by Northwestern
Mutual Life. The following disclaimers and limitations are included in
accordance with the requirements of the License Agreement:
MSF is not sponsored, endorsed, sold or promoted by Standard & Poor's
("S&P"), a division of McGraw-Hill, Inc. Corporation, and none of the
Funds of MSF is so sponsored, endorsed, sold or promoted. S&P makes no
representation or warranty, express or implied, to the owners of MSF or any
of its Funds or any member of the public regarding the advisability of
investing in securities generally or in MSF or any of its Funds
particularly or the ability of the S&P 500 Index to track general stock
market performance. S&P's only relationship to the Licensee is the
licensing of certain trademarks and trade names of S&P and of the S&P 500
Index which is determined, composed and calculated by S&P without regard to
the Licensee or MSF. S&P has no obligation to take the needs of the
Licensee or the owners of MSF or any of its Funds into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not
responsible for and has not participated in the determination of the timing
of, prices of, or quantities of securities of MSF or any of its Funds to
be issued or in the determination or calculation of the equation by which
MSF or any of its Funds is to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of MSF.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO
B-25
<PAGE>
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
OWNERS OF MSF, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF
THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN
IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
FUND EXPENSES
EXPENSES OF THE FUNDS. Each Fund pays its own expenses including, without
limitation: (i) expenses of maintaining the Fund and continuing its existence,
(ii) registration of the Fund under the Investment Company Act, (iii) auditing
and outside professional expenses, (iv) taxes and interest, (v) governmental
fees, (vi) expenses of issue, sale, repurchase and redemption of Fund shares,
(vii) expenses of registering and qualifying the Fund and its shares under
federal and state securities laws and of preparing and printing prospectuses for
such purposes and for distributing the same to shareholders and investors,
(viii) expenses of reports and notices to shareholders and of meetings of
shareholders and proxy solicitations therefor (ix) expenses of reports to
governmental officers and commissions, (x) insurance expenses, (xi)
association membership dues, (xii) fees, expenses and disbursements of
custodians for all services to the Fund, (xiii) expenses for servicing
shareholder accounts, including transfer agent fees (xiv) fees paid to pricing
services for the pricing of Fund securities, (xv) fees paid to the Funds'
administrator under an administrative services agreement, (xvi) fees paid for
accounting services, (xvii) fees paid to S&P under the License Agreement,
(xviii) fees paid to the directors of MSF for their services to MSF and the
Funds, (xix) broker's commissions and issue and transfer taxes chargeable to the
Fund in connection with securities transactions to which the Fund is a party,
(xx) organizational expenses of MSF and the Funds, (xxi) any direct charges to
shareholders approved by the Directors of MSF who are not "interested persons"
of MSF, and (xxii) such nonrecurring items as may arise, including expenses
incurred in connection with litigation, proceedings and claims and the
obligation of MSF to indemnify its Directors and officers with respect thereto.
DISTRIBUTION ARRANGEMENTS
Robert W. Baird & Co., Inc. ("RWB") serves as the principal underwriter for
each Fund pursuant to an Underwriting Agreement initially approved by the
Board of Directors of MSF. RWB is a registered broker-dealer, a member of
the National Association of Securities Dealers, Inc. (NASD) and a member of
the New York Stock Exchange and other principal stock exchanges. Shares of
each Fund will be continuously offered and will be sold by registered
representatives of RWB. RWB receives sales charges and distribution plan
fees of each Fund under the Underwriting Agreement. RWB bears all the
expenses of providing services pursuant to the Underwriting Agreement
including the payment of the expenses relating to the distribution of
Prospectuses for sales purposes as well as any advertising or sales
literature. The Fund bears the expenses of registering its shares with the
SEC and paying the fees required to be paid by state regulatory authorities.
The Underwriting Agreement continues in effect for two years from initial
approval and for successive one-year periods thereafter, provided that each
such continuance is specifically approved (i) by vote of a majority of the
Directors of MSF, including a majority of the
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<PAGE>
Directors who are not parties to the Underwriting Agreement or interested
persons of any such party, (as the term interested person is defined in the 1940
Act); or (ii) by the vote of a majority of the outstanding voting securities of
a Fund. RWB Is not obligated to sell any specific amount of shares of any Fund.
Because MSF commenced operations on March 31, 1997, no compensation has
been paid to RWB to date in connection with the Funds.
RWB's principal business address and mailing address is at 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202. RWB was organized as a Wisconsin
corporation on December 27, 1919, and is an indirect majority-owned subsidiary
of The Northwestern Mutual Life Insurance Company.
DISTRIBUTION FINANCING PLANS AND SHAREHOLDER SERVICES AGREEMENT
MSF has adopted separate distribution plans (the "Plans") for Class A and
Class B shares of each Fund pursuant to appropriate resolutions of MSF's Board
of Directors in accordance with the requirements of Rule 12b-1 under the 1940
Act and the requirements of the applicable rule of the NASD regarding asset
based sales charges. MSF has also entered into a shareholder services agreement
with RWB for both Class A and Class B shares of each Fund.
CLASS A PLAN AND AGREEMENT
Pursuant to the Class A Plan, a Fund may compensate RWB for its
expenditures in financing any activity primarily intended to result in the sale
of Fund shares. The expenses of a Fund pursuant to the Class A Plan are accrued
on a fiscal year basis and may not exceed, with respect to the Class A shares of
each Fund, the annual rate of 0.10% of the Fund's average daily net assets
attributable to Class A shares. All or any portion of this fee may be remitted
to brokers who provide distribution services.
The Funds will also compensate RWB under the Shareholder Services
Agreement for maintenance and personal service provided to existing Class A
shareholders. The expenses of a Fund under the Shareholder Services Agreement
are accrued on a fiscal year basis and will equal 0.25% of the Fund's average
daily net assets attributable to Class A shares. All or any portion of this
fee may be remitted to brokers who provide shareholder account services.
CLASS B PLAN AND AGREEMENT
Pursuant to the Class B Plan, a Fund may pay RWB a fee of up to 0.75% of
the average daily net assets attributable to Class B shares for distribution
financing activities. All or any portion of such fees may be remitted to
brokers who assist in the distribution of Class B shares.
The purpose of the 0.75% fee representing distribution payments to RWB
under the Class B Plan is to compensate RWB for its distribution services to the
Funds. RWB pays commissions to registered representatives as well as
reimbursement of expenses of printing prospectuses and reports used for sales
purposes, expenses with respect to the preparation and printing of sales
literature and other distribution related expenses, including without
limitation, the cost necessary to provide distribution-related services, or
personnel, travel, office expenses and equipment.
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<PAGE>
The Funds will compensate RWB under the Shareholder Services Agreement
for shareholder account services at the rate of .25% of the average daily net
assets of the Fund attributable to Class B shares. All or any portion of such
fees may be remitted to brokers who provide maintenance and personal services
to existing Class B shareholders.
GENERAL
In accordance with the terms of the Plans, RWB provides to each Fund, for
review by MSF's Board of Directors, a quarterly written report of the amounts
expended under the respective Plans and the purpose for which such expenditures
were made. In the Board of Directors' quarterly review of the Plans, they will
review the level of compensation the Plans provide in considering the continued
appropriateness of the Plans.
The Plans were adopted by a majority vote of the Board of Directors,
including at least a majority of Directors who are not, and were not at the time
they voted, interested persons of the Fund as defined in the 1940 Act and do not
and did not have any direct or indirect financial interest in the operation of
the Plans, cast in person at a meeting called for the purpose of voting on the
Plans. In approving the Plans, the Directors identified and considered a number
of potential benefits which the Plans may provide. The Board of Directors
believes that there is a reasonable likelihood that the Plans will benefit each
Fund and its current and future shareholders. Under their terms, the Plans
remain in effect from year to year provided such continuance is approved
annually by vote of the Directors in the manner described above. The Plans may
not be amended to increase materially the amount to be spent for distribution
without approval of the sharholders of the Fund affected thereby, and material
amendments to the Plans must also be approved by the Board of Directors in the
manner described above. A Plan may be terminated at any time, without payment
of any penalty, by vote of the majority of the Directors who are not interested
persons of the Fund and have no direct or indirect financial interst in the
operations of the Plan, or by a vote of a "majority of the outstanding voting
securities" ( as defined in the 1940 Act) of the Fund affected thereby. A Plan
will automatically terminate in the event of its assignment (as defined in the
1940 Act).
During the fiscal year ended March 31, 1997, neither the Class A Plan nor
the Class B Plans were in effect as neither Class had shares outstanding.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION AND OTHER PRACTICES
There is generally no stated commission in the case of fixed-income
securities, which are traded in the over-the-counter markets, but the price paid
by the Funds usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Funds includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transactions on
U.S. stock exchanges and other agency transactions involve the payment by the
Funds of negotiated brokerage commissions. Such commissions vary among
different brokers. Also, a particular broker may charge different commissions
according to such factors as the difficulty and size of the transaction. In the
case of securities traded on some foreign stock exchanges, brokerage commissions
may be fixed and the investment adviser or sub-adviser may be unable to
negotiate commission rates for these transactions.
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The investment adviser, or sub-adviser in the case of the Growth and Income
Stock and International Equity Funds, places all orders for the purchase and
sale of Fund securities, options, and futures contracts for each Fund through a
substantial number of brokers and dealers or futures commission merchants. In
executing transactions, the investment adviser or sub-adviser will attempt to
obtain the best net results for the Funds, taking into account such factors as
price (including the applicable brokerage commission or dollar spread), size of
order, the nature of the market for the security, the timing of the transaction,
the reputation, experience and financial stability of the broker-dealer
involved, the quality of the service, the difficulty of execution and
operational facilities of the firms involved, and the firm's risk in positioning
a block of securities. In transactions on stock exchanges in the United States,
payments of brokerage commissions are negotiated. In effecting purchases and
sales of portfolio securities in transactions on United States stock exchanges
for the account of the Funds, the investment adviser or sub-adviser may pay
higher commission rates than the lowest available when the investment adviser or
sub-adviser believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction, as described below. In the case of securities traded on some
foreign stock exchanges, brokerage commissions may be fixed and the investment
adviser or sub-adviser may be unable to negotiate commission rates for these
transactions. In the case of securities traded on the over-the-counter markets,
there is generally no stated commission, but the price includes an undisclosed
commission or markup.
Some securities considered for investment by the Funds may also be
appropriate for other clients served by the investment adviser or sub-adviser.
If a purchase or sale of securities consistent with the investment policies of a
Fund and one or more of these clients served by the investment adviser or sub-
adviser is considered at or about the same time, transactions in such securities
will be allocated among the Funds and clients in a manner deemed fair and
reasonable by the investment adviser or sub-adviser. Although there is no
specified formula for allocating such transactions, the various allocation
methods used by the investment adviser or sub-adviser, and the results of such
allocations, are subject to periodic review by the Funds' investment adviser and
directors.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute transactions for
the clients of such advisers. Consistent with this practice, the investment
adviser or sub-adviser may receive research services from many broker-dealers
with which the investment adviser or sub-adviser places Fund transactions.
These services, which in some cases may also be purchased for cash, include such
matters as general economic and security market reviews, industry and company
reviews, evaluations of securities and recommendations as to the purchase and
sale of securities. Some of these services may be of value to the investment
adviser or sub-adviser in advising its various clients (including the Funds),
although not all of these services are necessarily useful and of value in
managing a Fund.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
investment adviser or sub-adviser may cause a Fund to pay a broker-dealer, which
provides "brokerage and research services" (as defined in the Act) to the
investment adviser or sub-adviser, an amount of disclosed commission for
effecting a securities transaction for the Fund in excess of the commission
which another broker-dealer would have charged for effecting that transaction.
B-29
<PAGE>
There are no arrangements whatsoever, written or oral, relating to the
allocation to specific brokers of orders for Fund transactions. Consideration
is given to those firms providing statistical and research services to the
investment adviser or sub-adviser. Statistical and research services furnished
by brokers typically include: analysts' reports on companies and industries,
market forecasts, economic analyses and the like. Such services may tend to
reduce the expenses of the adviser or sub-adviser and this has been considered
in setting the advisory fee paid by each Fund.
Because MSF commenced operations in 1997, no brokerage commissions were
paid over the last three fiscal years.
DETERMINATION OF NET ASSET VALUE
Shares of each Fund are offered and redeemed at their net asset value as
next determined following receipt of a purchase order or tender for redemption.
The redemption price may be more or less than the shareholder's cost. The net
asset value of the shares of each Fund, except the International Equity Fund, is
determined by The Northwestern Mutual Life Insurance Company ("NML"), the Funds'
Administrator, in the manner described in the Funds' Prospectus. The net asset
value of the shares of the International Equity Fund is determined by Brown
Brothers Harriman & Co., the Fund's custodian. The Funds will be closed for
business and will not price their shares on the following business holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
The net asset value of each share of each Fund is the net asset value of
the entire Fund divided by the number of shares of the Fund outstanding. The
net asset value of an entire Fund is determined by computing the value of all
assets of the Fund and deducting all liabilities, including reserves and accrued
liabilities of the Fund. Fund securities for which market quotations are
readily available are valued at current market value.
Equity securities listed on a stock exchange and all call options are
valued at the closing sale price on the stock or options exchange or, if there
has been no such sale, at the closing bid price; stock index futures contracts
and interest rate futures contracts are valued at the closing settlement price
on the commodities exchange; unlisted equity securities are valued at the
closing bid price on the over-the-counter market.
Debt securities with maturities generally exceeding one year, other than
municipal obligations, are valued on the basis of valuations furnished by
Interactive Data Corporation, a facility which utilizes electronic data
processing techniques to report valuations for normal institutional size trading
units of debt securities, without regard to exchange or over-the-counter prices,
unless the Directors of MSF determine that in the case of a particular security
some other value is fair. Mueller Data furnishes the valuations for the
municipal obligations held by the Municipal Bond Fund.
Money market instruments and debt securities with maturities exceeding
sixty days but generally not exceeding one year are valued by marking to market.
Marking to market is based on valuations furnished by a pricing service. The
marking to market method takes into account unrealized appreciation or
depreciation due to changes in interest rates or other factors which would
influence the current fair values of such securities.
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<PAGE>
Securities with remaining maturities of sixty days or less are valued on an
amortized cost basis or, if the current market value differs substantially from
the amortized cost, by marking to market. Under the amortized cost method of
valuation, the security will initially be valued at the cost on the date of
purchase (or, in the case of securities purchased with more than 60 days
remaining to maturity the market value on the 61st day prior to maturity); and
thereafter the Fund will assume a constant proportionate amortization in value
until maturity of any discount or premium.
The value of a foreign security held by a Fund is determined in its
national currency as of the close of trading on the foreign exchange on which
it is traded, or as of 4:00 p.m., New York time, if that is earlier, and that
value is then converted into its U.S. dollar equivalent at foreign exchange
rates in effect at 11:00 A.M., New York time, on the day the value of the
foreign security is determined. If no sale is reported at that time, the
mean between the current bid and asked price is used. Occasionally, events
which affect the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the New York
Stock Exchange, and will therefore not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
fair value as determined by the management and approved in good faith by the
Directors of MSF. Trading in securities on European and Far Eastern
securities exchanges and over-the-counter markets is normally completed well
before the close of business in New York on each day on which the New York
Stock Exchange is open. Trading in European or Far Eastern securities
generally, or in a particular country or countries, may not take place on
every New York business day. Furthermore, trading takes place in various
foreign markets on days which are not business days in New york and on which
the Fund's net asset value is not calculated. Each Fund calculates net asset
value per share, and therefore effects sales and redemptions of its shares,
as of the close of the New York Stock Exchange once on each day on which that
Exchange is open. Such calculation does not take place contemporaneously
with the determination of the prices of many of the Fund securities used in
such calculation and if events occur which materially affect the value of
these foreign securities, they will be valued at fair market value as
determined by the management and approved in good faith by the Directors of
MSF.
All other assets, including any securities for which market quotations are
not readily available, will be valued at their fair value as determined in good
faith by the Directors of MSF or under procedures or guidelines established by
the Directors of MSF. The net asset value is determined as of the close of
trading on the New York Stock Exchange on each day during which the Exchange is
open for trading. In accordance with the requirements of the Investment Company
Act of 1940 the Funds will also determine the net asset value of their shares on
any other day on which there is sufficient trading to materially affect the
value of their securities.
A Fund's maximum offering price per Class A share is determined by adding
the maximum sales charge to the net asset value per share. Class B shares are
offered at net asset value without the imposition of an initial sales charge.
Payment for the shares redeemed must be made within seven days after the
evidence of ownership of such shares is tendered to MSF; however, the right to
redeem Fund shares may be suspended, or payment of the redemption value
postponed, during any period in which the New York Stock Exchange is closed or
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<PAGE>
trading thereon is restricted, or any period during which an emergency exists,
or as otherwise permitted by the Investment Company Act of 1940.
PURCHASE AND REDEMPTION OF SHARES
For information regarding the purchase of Fund shares, see "Shareholders
Guide--How to Buy Shares" in the Funds' Prospectus.
For a description of how a shareholder may have a Fund redeem his/her
shares, or how he/she may sell shares, see "Shareholders Guide--How to Sell
Shares" in the Funds' Prospectus.
CUMULATIVE DISCOUNT. Each Fund offers to all qualifying investors a cumulative
discount under which investors are permitted to purchase Class A shares of
any Fund of MSF at the price applicable to the total of (a) the dollar
amount then being purchased plus (b) an amount equal to the then current net
asset value of the purchaser's holdings of shares of any Funds of MSF and the
SSGA Money Market Fund. Acceptance of the purchase order is subject to
confirmation of qualification. The cumulative discount may be amended or
terminated at any time as to subsequent purchases.
LETTER OF INTENT. Any person may qualify for a reduced sales charge on
purchases of Class A shares made within a thirteen-month period pursuant to a
Letter of Intent (LOI). A Class A shareholder may include, as an
accumulation credit towards the completion of such LOI, the value of all
shares of all Funds of MSF owned by the shareholder. Such value is
determined based on the public offering price on the date of the LOI. During
the term of an LOI, National Financial Data Services, Inc. ("NFDS"), MSF's
transfer agent, will hold shares in escrow to secure payment of the higher
sales charge applicable for shares actually purchased if the indicated amount
on the LOI is not purchased. Dividends and capital gains will be paid on all
escrowed shares and these shares will be released when the amount indicated
on the LOI has been purchased. An LOI does not obligate the investor to buy
or the Fund to sell the indicated amount in the LOI. If a Class A
shareholder exceeds the specified amount of the LOI and reaches an amount
which would qualify for a further quantity discount, a retroactive price
adjustment will be made at the time of the expiration of the LOI. The
resulting difference in offering price will purchase additional Class A
shares for the shareholder's account at the applicable offering price. If
the specified amount of the LOI is not purchased, the shareholder shall remit
to NFDS an amount equal to the difference between the sales charge paid and
the sales charge that would have been paid had the aggregate purchases been
made at a single time. If the Class A shareholder does not within twenty
days after a written request by NFDS pay such difference in sales charge,
NFDS will redeem an appropriate number of escrowed shares in order to realize
such difference. Additional information about the terms of the Letter of
Intent are available from your registered representative or from NFDS at
1-888- 626-6678.
SYSTEMATIC WITHDRAWAL PLAN. The Systematic Withdrawal Plan ("SWP") is
designed to provide a convenient method of receiving fixed payments at regular
intervals from shares deposited by the applicant under the SWP. The applicant
must deposit or purchase for deposit shares of the Fund having a total value of
not less than $10,000. Periodic checks of $100 or more will be sent to the
applicant, or any person designated by him, monthly or quarterly. SWP's
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<PAGE>
without a surrender charge for Class B shares of a Fund are permitted only for
redemptions limited to no more than 10% of the original value of the account per
year.
Any income dividends or capital gains distributions on shares under the SWP
will be credited to the SWP account on the payment date in full and fractional
shares at the net asset value per share in effect on the record date.
SWP payments are made from the proceeds of the redemption of shares
deposited in a SWP account. Redemptions are potentially taxable transactions to
shareholders. To the extent that such redemptions for periodic withdrawals
exceed dividend income reinvested in the SWP account, such redemptions will
reduce and may ultimately exhaust the number of shares deposited in the SWP
account. In addition, the amounts received by a shareholder cannot be
considered as an actual yield or income on his or her investment because part of
such payments may be a return of his or her capital.
The SWP may be terminated at any time (1) by written notice to the Fund or
from the Fund to the shareholder; (2) upon receipt by the Fund of appropriate
evidence of the shareholder's death; or (3) when all shares under the SWP have
been redeemed. The fees of the Fund for maintaining SWPs are paid by the Fund.
SPECIAL REDEMPTIONS. Although it would not normally do so, each Fund has the
right to pay the redemption price of shares of the Fund in whole or in part in
portfolio securities as prescribed by the Directors. When the shareholder sells
portfolio securities received in this fashion, he would incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Funds
have elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which
each Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the applicable Fund during any 90 day
period for any one account.
SUSPENSION OF REDEMPTIONS. A Fund may not suspend a shareholder's right of
redemption, or postpone payment for a redemption for more than seven days,
unless the New York Stock Exchange (NYSE) is closed for other than customary
weekends or holidays, or trading on the NYSE is restricted, or for any period
during which an emergency exists as a result of which (1) disposal by a Fund of
securities owned by it is not reasonably practicable, or (2) it is not
reasonably practicable for a Fund to fairly determine the value of its assets,
or for such other periods as the Securities and Exchange Commission may permit
for the protection of investors.
INVESTMENT PERFORMANCE
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS. Average annual total
return quotations for Class A and Class B shares are computed by finding the
average annual compounded rates of return that would cause a hypothetical
investment made on the first day of a designated period to equal the ending
redeemable value of such hypothetical investment on the last day of the
designated period in accordance with the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000, less the
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maximum sales load applicable to a Fund
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 initial
payment made at the beginning of the designated period (or
fractional portion thereof)
The computation above assumes that all dividends and distributions made by a
Fund are reinvested at net asset value during the designated period. The
average annual total return quotation is determined to the nearest 1/100 of 1%.
One of the primary methods used to measure performance is "total return."
"Total return" will normally represent the percentage change in value of a class
of a Fund, or of a hypothetical investment in a class of a Fund, over any period
up to the lifetime of the class. Unless otherwise indicated, total return
calculations will assume the deduction of the maximum sales charge and usually
assume the reinvestment of all dividends and capital gains distributions and
will be expressed as a percentage increase or decrease from an initial value,
for the entire period or for one or more specified periods within the entire
period. Total return calculations that do not reflect the deduction of sales
charges will be higher than those that do reflect such charges.
Total return percentages for periods longer than one year will usually be
accompanied by total return percentages for each year within the period and/or
by the average annual compounded total return for the period. The income and
capital components of a given return may be separated and portrayed in a variety
of ways in order to illustrate their relative significance. Performance may
also be portrayed in terms of cash or investment values, without percentages.
Past performance cannot guarantee any particular future result. In determining
the average annual total return (calculated as provided above), recurring fees,
if any, that are charged to all shareholder accounts are taken into
consideration. For any account fees that vary with the size of the account, the
account fee used for purposes of the above computation is assumed to be the fee
that would be charged to the mean account size of a class of the Fund.
Each Fund's average annual total return quotations and yield quotations as
they may appear in the Prospectus, this SAI or in advertising are calculated by
standard methods prescribed by the SEC.
Each Fund may also publish its distribution rate and/or its effective
distribution rate. A Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current net asset value
per share. A Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
A Fund's yield is calculated using a standardized formula, the income component
of which is computed from the yields to maturity of all debt obligations held by
the Fund based on prescribed methods (with all purchases and sales of securities
during such period included in the income calculation
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on a settlement date basis), whereas the distribution rate is based on a Fund's
last monthly distribution.
Other data that may be advertised or published about each Fund include the
average portfolio quality, the average portfolio maturity and the average
portfolio duration.
STANDARDIZED YIELD QUOTATIONS. The yield of a class is computed by
dividing the class's net investment income per share during a base period of 30
days, or one month, by the maximum offering price per share of the class on the
last day of such base period in accordance with the following formula:
6
2[(a-b +1) -1]
---
(cd)
Where: a = net investment income earned during the period
attributable to the subject class
b = net expenses accrued for the period attributable to the
subject class
c = the average daily number of shares of the subject class
outstanding during the period that were entitled to receive
dividends
d = the maximum offering price per share of the subject class
Net investment income will be determined in accordance with rules established by
the SEC. The price per share of Class A shares will include the maximum sales
charge imposed on purchases of Class A shares which decreases with the amount of
shares purchased.
NON-STANDARDIZED PERFORMANCE. In addition, in order to more completely
represent a Fund's performance or more accurately compare such performance to
other measures of investment return, a Fund also may include in advertisements,
sales literature and shareholder reports other total return performance data
("Non-Standardized Return"). Non-Standardized Return may be quoted for the same
or different periods as those for which Standardized Return is quoted; it may
consist of an aggregate or average annual percentage rate of return, actual
year-by-year rates or any combination thereof. Non-Standardized Return may or
may not take sales charges into account; performance data calculated without
taking the effect of sales charges into account will be higher than data
including the effect of such charges. All non-standardized performance will be
advertised only if the standard performance data for the same period, as well as
for the required periods, is also presented.
GENERAL INFORMATION. From time to time, the Funds may advertise their
performance compared to similar funds using certain unmanaged indices, reporting
services and publications. Descriptions of some of the indices which may be
used are listed below.
The Standard & Poor's 500 Composite Stock Price Index is a well diversified list
of 500 companies representing the U.S. Stock Market.
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The Standard and Poor's Small Cap 600 index is designed to represent price
movements in the small cap U.S. equity market. It contains companies chosen by
the Standard & Poor's Index Committee for their size, industry characteristics,
and liquidity. None of the companies in the S&P 600 overlap with the S&P 500 or
the S&P 400 (MidCap Index). The S&P 600 is weighted by market capitalization.
REITs are not eligible for inclusion.
The NASDAQ Composite OTC Price Index is a market value-weighted and unmanaged
index showing the changes in the aggregate market value of approximately 3,500
stocks.
The Wilshire Next 1750 is an unmanaged, equally weighted index. Included in
this index are those stocks which are ranked 750 to 2500 by market
capitalization in the Wilshire 5000.
The Wilshire Small Cap Index is a subset of the Wilshire Next 1750 and includes
250 stocks chosen based upon their size, sector and liquidity characteristics.
Each stock is equally weighted in this unmanaged index.
The Merrill Lynch Domestic Master Index is an unmanaged market value weighted
index comprised of U.S. Government, mortgage and investment-grade corporate
bonds. The index measures the income provided by, and the price changes of, the
underlying securities.
The Lehman Government Bond Index is a measure of the market value of all public
obligations of the U.S. Treasury; all publicly issued debt of all agencies of
the U.S. Government and all quasi-federal corporations; and all corporate debt
guaranteed by the U.S. Government. Mortgage backed securities, bonds and
foreign targeted issues are not included in the Lehman Government Index.
The Lehman Government/Corporate Bond Index is a measure of the market value of
approximately 5,300 bonds with a face value currently in excess of $1.3
trillion. To be included in the Lehman Government/Corporate Index, an issue
must have amounts outstanding in excess of $1 million, have at least one year to
maturity and be rated "Baa" or higher ("investment grade") by a nationally
recognized rating agency.
The Russell 2000 Index represents the bottom two thirds of the largest 3000
publicly traded companies domiciled in the U.S. Russell uses total market
capitalization to sort its universe to determine the companies that are included
in the Index. Only common stocks are included in the Index. REITs are eligible
for inclusion.
The Russell 2500 Index is a market value-weighted, unmanaged index showing total
return (i.e., principal changes with income) in the aggregate market value of
2,500 stocks of publicly traded companies domiciled in the United States. The
Index includes stocks traded on the New York Stock Exchange and the American
Stock Exchange as well as in the over-the-counter market.
The Morgan Stanley Capital International EAFE Index (the "EAFE Index") is an
unmanaged index, which includes over 1,000 companies representing the stock
markets of Europe, Australia, New Zealand and the Far East. The EAFE Index is
typically shown weighted by market capitalization. However, EAFE is also
available weighted by Gross Domestic Product (GDP). These weights are modified
on July lst of each year to reflect the prior year's GDP. Indices with
dividends reinvested constitute an estimate of total return arrived at by
reinvesting one twelfth of the month-end yield at every month end. The series
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<PAGE>
with net dividends reinvested take into account those dividends net of
withholding taxes retained at the source of payment.
The Salomon Brothers High Yield Market Index includes cash-pay and
deferred-interest corporate bonds with remaining maturities of at least one
year. All bonds in the index are publicly placed, have a fixed coupon and are
non-convertible. The index is an unmanaged market value weighted index and
measures the income provided by, and the price changes of, the underlying
securities.
The Lehman Brothers High Yield Intermediate Market Index is made up of
dollar denominated, nonconvertible, SEC publicly registered fixed rate
noninvestment grade issues. The bonds have remaining maturities of between one
and ten years and have an outstanding par value of at least $100 million. The
index is an unmanaged market value weighted index and measures the income
provided by, and the price changes of, the underlying securities.
The Lehman Brothers Municipal Bond Index includes municipal bonds that
have: a minimum credit rating of Baa; been issued as part of an issuance of at
least $50 million; a maturity value of at least $3 million; a maturity of at
least 1 year; and been issued after December 31, 1990. Recently the index
included 31,098 issues totaling $440 billion par amount. The index represents
approximately 30% of the municipal bond market capitalization.
Each Fund's investment performance may be advertised in various
financial publications, newspapers and magazines.
From time to time MSF may publish the sales of shares of one or more of the
Funds on a gross or net basis and for various periods of time, and compare such
sales with sales similarly reported by other investment companies.
TAXES
Each Fund is treated as a separate entity for accounting and tax purposes.
Each Fund has qualified and elected or intends to qualify and elect to be
treated as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to continue to so
qualify in the future. As such and by complying with the applicable provisions
of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, each Fund will not be
subject to federal income tax on taxable income (including net short-term and
long-term capital gains) which is distributed to shareholders at least annually
in accordance with the timing requirements of the Code.
Each Fund will be subject to a 4% non-deductible federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Funds intend under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
If a Fund acquires stock in certain non-U.S. corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), that Fund could be subject to federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income
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<PAGE>
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the applicable
Fund to recognize taxable income or gain without the concurrent receipt of cash.
Any Fund that is permitted to acquire stock in foreign corporations may limit
and/or manage its holdings in passive foreign investment companies to minimize
its tax liability or maximize its return from these investments.
Foreign exchange gains and losses realized by a Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency futures and options, foreign currency forward
contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Any such
transactions that are not directly related to a Fund's investment in stock or
securities, possibly including speculative currency positions or currency
derivatives not used for hedging purposes, may increase the amount of gain it is
deemed to recognize from the sale of certain investments held for less than
three months, which gain is limited under the Code to less than 30% of its
annual gross income, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its annual gross income.
Some Funds may be subject to withholding and other taxes imposed by
foreign countries with respect to their investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. The Funds, other than the International Equity Fund, anticipate that
they generally will not qualify to pass such foreign taxes and any associated
tax deductions or credits through to their shareholders, who therefore generally
will not report such amounts on their tax returns.
For Federal income tax purposes, each Fund is permitted to carry forward a
net capital loss in any year to offset its own capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent capital
gains are offset by such losses, they would not result in federal income tax
liability to the applicable Fund and would not be distributed as such to
shareholders.
Each Fund that invests in certain PIKs, zero coupon securities or certain
deferred interest securities (and, in general, any other securities with
original issue discount or with market discount if the Fund elects to include
market discount in income currently) must accrue income on such investments
prior to the receipt of the corresponding cash payments. However each Fund must
distribute, at least annually, all or substantially all of its net income,
including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid federal income and excise taxes.
Therefore, a Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy distribution requirements.
Investment in debt obligations that are at risk of or in default presents
special tax issues for any Fund that may hold such obligations. Tax rules are
not entirely clear about issues such as when the Fund may cease to accrue
interest, original issue discount, or market discount, when and to what extent
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<PAGE>
deductions may be taken for bad debts or worthless securities, how payments
received on obligations in default should be allocated between principal and
income, and whether exchanges of debt obligations in a workout context are
taxable. These and other issues will be addressed by any Fund that may hold
such obligations in order to reduce the risk of distributing insufficient income
to preserve its status as a regulated investment company and seek to avoid
becoming subject to federal income or excise tax.
Limitations imposed by the Code on regulated investment companies like the
Funds may restrict a Fund's ability to enter into futures, options, and forward
transactions.
Certain options, futures and forward foreign currency transactions
undertaken by a Fund may cause the Fund to recognize gains or losses from
marking to market even though its positions have not been sold or terminated and
affect the character as long-term or short-term (or, in the case of certain
currency forwards, options and futures, as ordinary income or loss) and timing
of some capital gains and losses realized by the Fund. Also, certain of a
Fund's losses on its transactions involving options, futures or forward
contracts and/or offsetting portfolio positions may be deferred rather than
being taken into account currently in calculating the Fund's taxable income.
Certain of the applicable tax rules may be modified if a Fund is eligible and
chooses to make one or more of certain tax elections that may be available.
These transactions may therefore affect the amount, timing and character of a
Fund's distributions to shareholders. The Funds will take into account the
special tax rules (including consideration of available elections) applicable to
options, futures or forward contracts in order to minimize any potential adverse
tax consequences.
The federal income tax rules applicable to interest rate swaps, caps and
floors are unclear in certain respects, and a Fund may be required to account
for these transactions in a manner that, in certain circumstances, may limit the
degree to which it may utilize these transactions.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for federal income tax purposes, will be taxable as
described in the Funds' prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in a Fund's shares and
thereafter (after such basis is reduced to zero) will generally give rise to
capital gains. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the amount of cash they would have received had they
elected to receive the distributions in cash, divided by the number of shares
received.
At the time of an investor's purchase of shares of a Fund, a portion of the
purchase price is often attributable to realized or unrealized appreciation in
the Fund's portfolio or undistributed taxable income of the Fund. Consequently,
subsequent distributions from such appreciation or income may be taxable to such
investor even if the net asset value of the investor's shares is, as a result of
the distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption of shares of a Fund, (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares. Such gain or loss will be treated as capital
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<PAGE>
gain or loss if the shares are capital assets in the shareholder's hands and
will be long-term or short-term, depending upon shareholder's tax holding period
for the shares. A sales charge paid in purchasing shares of a Fund cannot be
taken into account for purposes of determining gain or loss on the redemption or
exchange of such shares within 90 days after their purchase to the extent shares
of the Fund are subsequently acquired without payment of a sales charge pursuant
to the reinvestment or exchange privilege. Such disregarded load will result in
an increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange will be disallowed to the
extent the shares disposed of are replaced with shares of the same Fund within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to an election to reinvest dividends or
capital gain distributions automatically. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized upon redemption of shares with a tax holding period of six months or
less will be treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gain with respect to such shares.
For purposes of the dividends received deduction available to corporations,
dividends received by a Fund, if any, from U.S. domestic corporations in respect
of the stock of such corporations held by the Fund, for federal income tax
purposes, for at least 46 days (91 days in the case of certain preferred stock)
and distributed and designated by the Fund may be treated as qualifying
dividends. Corporate shareholders must meet the minimum holding period
requirement stated above (46 or 91 days) with respect to their shares of the
applicable Fund in order to qualify for the deduction and, if they borrow to
acquire such shares, may be denied a portion of the dividends received
deduction. The entire qualifying dividend, including the otherwise deductible
amount, will be included in determining the excess (if any) of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its alternative minimum tax liability. Additionally,
any corporate shareholder should consult its tax adviser regarding the
possibility that its basis in its shares may be reduced, for federal income tax
purposes, by reason of "extraordinary dividends" received with respect to the
shares, for the purpose of computing its gain or loss on redemption or other
disposition of the shares.
For the International Equity Fund, if more than 50% of the Fund's assets at
year-end consists of the debt and equity securities of foreign corporations, the
Fund may elect to permit shareholders to claim a credit or deduction on their
income tax returns for their pro rata portion of qualified taxes paid by the
Fund to foreign countries. In such a case, shareholders will include in gross
income from foreign sources their pro rata shares of such taxes. A
shareholder's ability to claim a foreign tax credit or deduction in respect of
foreign taxes paid by the Fund may be subject to certain limitations imposed by
the Code, as a result of which a shareholder may not get a full credit or
deduction for the amount of such taxes. Shareholders who do not itemize on
their federal income tax returns may claim a credit (but no deduction) for such
foreign taxes.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to shareholder
accounts maintained as qualified retirement plans. Shareholders should consult
their tax advisers for more information.
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The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of the shares of a Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Funds in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in a Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from a Fund and, unless an effective IRS Form W-8 or
authorized substitute is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in any Fund.
MUNICIPAL BOND FUND. The Municipal Bond Fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of each
quarter of the Fund's taxable year, at least 50% of the total value of the
Fund's assets consists of obligations the interest on which is exempt from
federal income tax. Distributions that the Fund properly designates as exempt-
interest dividends are treated by shareholders as interest excludable from their
gross income for federal income tax purposes but may be taxable for federal
alternative minimum tax purposes and for state and local purposes. Because the
Fund intends to be qualified to pay exempt-interest dividends, the Fund may be
limited in its ability to enter into taxable transactions involving forward
commitments, repurchase agreements, financial futures, and options contracts on
financial futures, tax-exempt bond indices, and other assets.
Part or all of the interest on indebtedness, if any, incurred or continued
by a shareholder to purchase or carry shares of the Municipal Bond Fund is not
deductible. The portion of interest that is not deductible is equal to the
total interest paid or accrued on the indebtedness, multiplied by the percentage
of the Fund's total distributions (not including distributions from net long-
term capital gains) paid to the shareholder that are exempt-interest dividends.
Under rules used by the Internal Revenue Service for determining when borrowed
funds are considered used for the purpose of purchasing or carrying particular
assets, the purchase of shares may be considered to have been made with borrowed
funds even though such funds are not directly traceable to the purchase of the
shares.
In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any shareholders who are
"substantial users" of the facilities financed by such obligations or bonds or
who are "related persons" of such substantial users.
If a shareholder sells shares at a loss within six months of purchase, any
loss will be disallowed for Federal income tax purposes to the extent of any
exempt-interest dividends received on such shares.
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STATE AND LOCAL. Each Fund may be subject to state or local taxes in
jurisdictions in which such Fund may be deemed to be doing business. In
addition, in those states or localities which have income tax laws, the
treatment of such Fund and its shareholders under such laws may differ from
their treatment under federal income tax laws, and investment in such Fund may
have different tax consequences for shareholders than would direct investment in
such Fund's portfolio securities. Shareholders should consult their own tax
advisers concerning these matters.
CUSTODIANS
Portfolio securities of each Fund are held pursuant to a Custodian
Agreement between MSF and the Fund's custodian. The custodian for the domestic
securities of the Growth and Income Stock Fund, High Yield Bond Fund and
Municipal Bond Fund is Bankers Trust Company, 16 Wall Street, New York, New York
10015. The custodian for the domestic securities of the Aggressive Growth Stock
Fund, the Growth Stock Fund, the Index 500 Stock Fund, the Asset Allocation Fund
and the Select Bond Fund is the Chase Manhattan Bank, N.A., One Chase Manhattan
Plaza, New York, New York 10081. The custodian for the International Equity
Fund and any foreign assets of the Asset Allocation Fund, High Yield Bond Fund,
Select Bond Fund, Aggressive Growth Stock Fund and Growth Stock Fund is Brown
Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109. The
custodians maintain custody of securities and other assets of the respective
Funds and perform certain services in connection with the purchase, sale,
exchange and pledge of securities of the Funds.
TRANSFER AGENT SERVICES
National Financial Data Services, 1004 Baltimore, Kansas City,
Missouri 64105, is the transfer agent for each Fund.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Price Waterhouse LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202, is the independent public accountant of MSF and
performs auditing services for MSF.
FINANCIAL STATEMENTS
MSF's and each Fund's audited financial statements as of March 3,
1997, together with the notes thereto and the report of Price Waterhouse LLP,
are attached to this SAI.
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APPENDIX A
Description of Ratings as Provided by the Rating Services
CORPORATE BONDS
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they compromise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and, thereby, not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this series.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such securities may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
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C--Bonds which are rated C are the lowest rated series of bonds and are
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Absence of Rating: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
ratings classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORPORATION
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C--Debt is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of this obligation. "BB" indicates the least degree
of speculation and "C" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are
B-44
<PAGE>
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B--Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC--Debt rated "CCC" has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC--The rating "CC" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C--The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI--The rating "CI" is reserved for income bonds on which no interest is
being paid.
D--Debt rated "D" is in payment default. The "D" rating is used when
interest payments or principal are not made on the date due even if the
applicable grace period has not expired, unless S&P believe that such payments
will be made during such grace period. The "D" rating also will be used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-)--The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
PREFERRED STOCKS
MOODY'S INVESTORS SERVICE, INC.
aaa--considered to be a top-quality preferred stock. This rating indicates
good asset protection and the least risk of dividend impairment within the
universe of preferred stocks.
B-45
<PAGE>
aa--considered a high-grade preferred stock. This rating indicates that
there is a reasonable assurance that earnings and asset protection will remain
relatively well maintained in the foreseeable future.
a--considered to be an upper-medium-grade preferred stock. While risks are
judged to be somewhat greater than in the aaa and aa classifications, earnings
and asset protection are, nevertheless, expected to be maintained at adequate
levels.
baa--considered to be medium-grade, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present but may be
questionable over any great length of time.
ba--considered to have speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very moderate and
not well safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this series.
b--generally lacks the characteristics of a desirable investment.
Assurance of dividend payments and maintenance of other terms of the issue over
any long period of time may be small.
caa--likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payments.
ca--speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payments.
c--lowest rated series of preferred or preference stock. Issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
STANDARD & POOR'S CORPORATION
"AAA"--This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
"AA"--A preferred stock issue rated "AA" also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA".
"A"--An issued rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
"BBB"--An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for preferred stock
in this category than for issues in the "A" category.
B-46
<PAGE>
"BB", "B", "CCC"--Preferred stock rated "BB", "B", and "CCC" are regarded,
on balance, as predominantly speculative with respect to the issuer's capacity
to pay preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
"CC"--The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
"C"--The preferred stock rated "C" is a non-paying issue.
"D"--A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
Plus(+) or Minus(-)--To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of one year.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Issuers rated PRIME-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. PRIME-1 repayment ability
will often be evidenced by the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
B-47
<PAGE>
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
STANDARD & POOR'S CORPORATION
S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 Commercial paper rated "A-1" is regarded as having a very strong
degree of safety regarding timely payment. A "+" designation is
applied to those issues which possess extremely strong safety
characteristics.
A-2 Commercial paper rated "A-2" is regarded as having a satisfactory
capacity for timely payment. However, the relative degree of safety
is not as high as for issues designated "A-1"
A-3 Commercial paper rated "A-3" is regarded as having an adequate
capacity for timely payment. They are, however, more vulnerable to
the adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Commercial paper rated "B" is regarded as having only speculative
capacity for timely payment.
C Commercial paper rated "C" is regarded as having a doubtful capacity
for repayment.
D Commercial paper rated "D" is in payment default. The "D" rating is
used when interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired, unless
S&P believes that such payments will be made during such grace period.
MUNICIPAL OBLIGATIONS
MOODY'S INVESTORS SERVICE MUNICIPAL BOND RATINGS
Aaa--judged to be of the "best quality" and are referred to as "gilt edge";
interest payments are protected by a large or by an exceptionally stable margin
and principal is secure
Aa--judged to be of "high quality by all standards" but as to which
margins of protection or other elements make long-term risks appear somewhat
B-48
<PAGE>
larger than Aaa-rated municipal bonds; together with Aaa group they comprise
what are generally known as "high grade bonds"
A--possess many favorable investment attributes and are considered "upper
medium grade obligations." Factors giving security to principal and interest of
A-rated municipal bonds are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future
Baa--considered as medium grade obligations; i.e., they are neither highly
protected nor poorly secured; interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time
Ba--protection of principal and interest payments may be very moderate;
judged to have speculative elements; their future cannot be considered as well-
assured
B--lack characteristics of a desirable investment; assurance of interest
and principal payments over any long period of time may be small
Caa--poor standing; may be in default or there may be present elements of
danger with respect to principal and interest
Ca--speculative in a high degree; often in default
C--lowest rated class of bonds; issues so rated can be regarded as having
extremely poor prospects for ever attaining any real investment standing.
MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES:
Moody's ratings for state and municipal notes and other short-term
obligations are designated Moody's Investment Grade ("MIG"). Symbols used will
be as follows:
MIG-1--Best quality, enjoying strong protection from established cash flows
of funds for their servicing or from established and broad-based access to the
market for refinancing, or both;
MIG-2--High quality with margins of protection ample although not so large
as in the preceding group.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING:
Prime-1 ("P-1")--Judged to be of the best quality. Their short-term debt
obligations carry the smallest degree of investment risk.
STANDARD & POOR'S CORPORATION'S MUNICIPAL BOND RATINGS
AAA--has the highest rating assigned by S&P; extremely strong capacity to
pay principal and interest
AA--has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in a small degree
A--has a strong capacity to pay principal and interest, although somewhat
more susceptible to the adverse changes in circumstances and economic conditions
B-49
<PAGE>
BBB--regarded as having an adequate capacity to pay principal and interest;
normally exhibit adequate protection parameters but adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
principal and interest than for bonds in A category
BB--B--CCC--CC--predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with terms of obligations; BB is
being paid
D--in default, and payment of principal and/or interest is in arrears.
The ratings from "AA" to "B" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
STANDARD & POOR'S CORPORATION'S RATINGS OF MUNICIPAL NOTES:
SP-1 + --very strong capacity to pay principal and interest
SP-1--strong capacity to pay principal and interest.
DESCRIPTIONS OF S&P'S HIGHEST COMMERCIAL PAPER RATINGS:
A-1+ -- This designation indicates the degree of safety regarding timely
payment is overwhelming
A-1 -- This designation indicates the degree of safety regarding timely
payment is very strong
B-50
<PAGE>
APPENDIX B
Glossary of Terms
CERTIFICATE OF DEPOSIT
A certificate of deposit is a short term obligation of a commercial bank.
EURODOLLAR CERTIFICATE OF DEPOSIT
A Eurodollar certificate of deposit is a short term obligation of a foreign
subsidiary of a U.S. bank payable in U.S. dollars.
TIME DEPOSIT
A time deposit is a deposit in a commercial bank for a specified period of
time at a fixed interest rate for which a negotiable certificate is not
received.
BANKERS' ACCEPTANCE
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with international commercial transactions.
VARIABLE AMOUNT MASTER NOTE
A variable amount master note is a note which fixes a minimum and maximum
amount of credit and provides for lending and repayment within those limits at
the discretion of the lender.
COMMERCIAL PAPER
Commercial paper is a short term promissory note issued by a corporation
primarily to finance short term credit needs.
B-51
<PAGE>
MASON STREET FUNDS, INC. - INDEX 500 STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
March 3, 1997
Assets
Cash $ 12,000
Prepaid initial registration expenses 26,851
Unamortized organizational costs 11,058
-----------
Total Assets $ 49,909
Liabilities
Payable to Advisor $ 37,909
-----------
Net Assets $ 12,000
-----------
-----------
Aggregate Paid In Capital
($0.001 par value; 300,000,000 shares authorized;
1,200 shares outstanding) $ 12,000
-----------
-----------
Per Share of Class A (based on 600 shares issued and outstanding):
Offering Price $ 10.50
-----------
-----------
Net Asset Value and Redemption Price $ 10.00
-----------
-----------
Per Share of Class B (based on 600 shares issued and outstanding):
Net Asset Value, Offering and Redemption Price $ 10.00
-----------
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
B-52
<PAGE>
MASON STREET FUNDS, INC. - AGGRESSIVE GROWTH STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
March 3, 1997
Assets
Cash $ 12,000
Prepaid initial registration expenses 26,851
Unamortized organizational costs 11,058
-----------
Total Assets $ 49,909
Liabilities
Payable to Advisor $ 37,909
-----------
Net Assets $ 12,000
-----------
-----------
Aggregate Paid In Capital
($0.001 par value; 300,000,000 shares authorized;
1,200 shares outstanding) $ 12,000
-----------
-----------
Per Share of Class A (based on 600 shares issued and outstanding):
Offering Price $ 10.50
-----------
-----------
Net Asset Value and Redemption Price $ 10.00
-----------
-----------
Per Share of Class B (based on 600 shares issued and outstanding):
Net Asset Value, Offering and Redemption Price $ 10.00
-----------
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
B-53
<PAGE>
MASON STREET FUNDS, INC. - INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 3, 1997
Assets
Cash $ 12,000
Prepaid initial registration expenses 26,851
Unamortized organizational costs 11,058
-----------
Total Assets $ 49,909
Liabilities
Payable to Advisor $ 37,909
-----------
Net Assets $ 12,000
-----------
-----------
Aggregate Paid In Capital
($0.001 par value; 300,000,000 shares authorized;
1,200 shares outstanding) $ 12,000
-----------
-----------
Per Share of Class A (based on 600 shares issued and outstanding):
Offering Price $ 10.50
-----------
-----------
Net Asset Value and Redemption Price $ 10.00
-----------
-----------
Per Share of Class B (based on 600 shares issued and outstanding):
Net Asset Value, Offering and Redemption Price $ 10.00
-----------
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
B-54
<PAGE>
MASON STREET FUNDS, INC. - GROWTH STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
March 3, 1997
Assets
Cash $ 12,000
Prepaid initial registration expenses 26,851
Unamortized organizational costs 11,058
-----------
Total Assets $ 49,909
Liabilities
Payable to Advisor $ 37,909
-----------
Net Assets $ 12,000
-----------
-----------
Aggregate Paid In Capital
($0.001 par value; 300,000,000 shares authorized;
1,200 shares outstanding) $ 12,000
-----------
-----------
Per Share of Class A (based on 600 shares issued and outstanding):
Offering Price $ 10.50
-----------
-----------
Net Asset Value and Redemption Price $ 10.00
-----------
-----------
Per Share of Class B (based on 600 shares issued and outstanding):
Net Asset Value, Offering and Redemption Price $ 10.00
-----------
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
B-55
<PAGE>
MASON STREET FUNDS, INC. - GROWTH AND INCOME STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
March 3, 1997
Assets
Cash $ 12,000
Prepaid initial registration expenses 26,851
Unamortized organizational costs 11,058
-----------
Total Assets $ 49,909
Liabilities
Payable to Advisor $ 37,909
-----------
Net Assets $ 12,000
-----------
-----------
Aggregate Paid In Capital
($0.001 par value; 300,000,000 shares authorized;
1,200 shares outstanding) $ 12,000
-----------
-----------
Per Share of Class A (based on 600 shares issued and outstanding):
Offering Price $ 10.50
-----------
-----------
Net Asset Value and Redemption Price $ 10.00
-----------
-----------
Per Share of Class B (based on 600 shares issued and outstanding):
Net Asset Value, Offering and Redemption Price $ 10.00
-----------
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
B-56
<PAGE>
MASON STREET FUNDS, INC. - ASSET ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES
March 3, 1997
Assets
Cash $ 12,000
Prepaid initial registration expenses 26,851
Unamortized organizational costs 11,058
-----------
Total Assets $ 49,909
Liabilities
Payable to Advisor $ 37,909
-----------
Net Assets $ 12,000
-----------
-----------
Aggregate Paid In Capital
($0.001 par value; 300,000,000 shares authorized;
1,200 shares outstanding) $ 12,000
-----------
-----------
Per Share of Class A (based on 600 shares issued and outstanding):
Offering Price $ 10.50
-----------
-----------
Net Asset Value and Redemption Price $ 10.00
-----------
-----------
Per Share of Class B (based on 600 shares issued and outstanding):
Net Asset Value, Offering and Redemption Price $ 10.00
-----------
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
B-57
<PAGE>
MASON STREET FUNDS, INC. - HIGH YIELD BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
March 3, 1997
Assets
Cash $ 12,000
Prepaid initial registration expenses 26,851
Unamortized organizational costs 11,058
-----------
Total Assets $ 49,909
Liabilities
Payable to Advisor $ 37,909
-----------
Net Assets $ 12,000
-----------
-----------
Aggregate Paid In Capital
($0.001 par value; 300,000,000 shares authorized;
1,200 shares outstanding) $ 12,000
-----------
-----------
Per Share of Class A (based on 600 shares issued and outstanding):
Offering Price $ 10.50
-----------
-----------
Net Asset Value and Redemption Price $ 10.00
-----------
-----------
Per Share of Class B (based on 600 shares issued and outstanding):
Net Asset Value, Offering and Redemption Price $ 10.00
-----------
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
B-58
<PAGE>
MASON STREET FUNDS, INC. - MUNICIPAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
March 3, 1997
Assets
Cash $ 12,000
Prepaid initial registration expenses 26,851
Unamortized organizational costs 11,058
-----------
Total Assets $ 49,909
Liabilities
Payable to Advisor $ 37,909
-----------
Net Assets $ 12,000
-----------
-----------
Aggregate Paid In Capital
($0.001 par value; 300,000,000 shares authorized;
1,200 shares outstanding) $ 12,000
-----------
-----------
Per Share of Class A (based on 600 shares issued and outstanding):
Offering Price $ 10.50
-----------
-----------
Net Asset Value and Redemption Price $ 10.00
-----------
-----------
Per Share of Class B (based on 600 shares issued and outstanding):
Net Asset Value, Offering and Redemption Price $ 10.00
-----------
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
B-59
<PAGE>
MASON STREET FUNDS, INC. - SELECT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
March 3, 1997
Assets
Cash $ 12,000
Prepaid initial registration expenses 26,851
Unamortized organizational costs 11,058
-----------
Total Assets $ 49,909
Liabilities
Payable to Advisor $ 37,909
-----------
Net Assets $ 12,000
-----------
-----------
Aggregate Paid In Capital
($0.001 par value; 300,000,000 shares authorized;
1,200 shares outstanding) $ 12,000
-----------
-----------
Per Share of Class A (based on 600 shares issued and outstanding):
Offering Price $ 10.50
-----------
-----------
Net Asset Value and Redemption Price $ 10.00
-----------
-----------
Per Share of Class B (based on 600 shares issued and outstanding):
Net Asset Value, Offering and Redemption Price $ 10.00
-----------
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
B-60
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1: The Mason Street Funds, Inc. ("MSF") was incorporated under the laws
of the state of Maryland on August 30, 1996 as an open-end investment
company. MSF consists of the Aggressive Growth Fund, International
Equity Fund, Growth Stock Fund, Growth and Income Stock Fund, Index
500 Stock Fund, Asset Allocation Fund, High Yield Bond Fund, Municipal
Bond Fund and Select Bond Fund, collectively known as "the Funds". The
Funds have had no operations other than those relating to
organizational matters and for the sale of 1,200 shares of Common
Stock in the Aggressive Growth Stock Fund, International Equity Fund,
Growth Stock Fund, Index 500 Fund, Asset Allocation Fund and Select
Bond Fund at $10.00 per share on February 28, 1997 to The Northwestern
Mutual Life Insurance Company and the sale of 1,200 shares of Common
Stock in the Growth and Income Stock Fund, High Yield Bond Fund and
Municipal Bond Fund at $10.00 per share on March 3, 1997 to The
Northwestern Mutual Life Insurance Company. Each Fund offers two
classes of shares: Class A shares with an initial sales charge up to
4.75% and Class B shares with a surrender charge of 0-5% over a period
of up to six years.
Note 2: Northwestern Mutual Investment Services, Inc, ("NMIS") serves as
investment advisor to each of the Funds, with certain of the Funds
also being served by a subadvisor. Each Fund pays NMIS an annual fee
for investment advisory services based on average daily net assets of
the Fund according to the following schedule:
Fund Fee
---- ---
Aggressive Growth Stock Fund 0.75%
International Equity Fund 0.85%
Growth Stock Fund 0.75%
Growth and Income Stock Fund 0.65%
Index 500 Stock Fund 0.30%
Asset Allocation Fund 0.70%
High Yield Bond Fund 0.75%
Municipal Bond Fund 0.30%
Select Bond Fund 0.30%
Of the amounts received from the Fund, NMIS pays the sub-advisor for
the Growth and Income Stock Fund at an annual rate of .45% on the
first $100 million of assets, .40% on the next $100 million, .35% on
the next $200 million and .30% on assets over $400 million. For the
International Equity Fund, NMIS pays the sub-advisor at an annual rate
of .50% of assets, reduced to .40% on assets over $100 million.
Each Fund pays the Distributor certain fees for shareholder servicing
and distribution expenses, which vary based on the class of shares.
Each Fund also pays the administrator, Northwestern Mutual Life, a
monthly fee at an annual rate of .10% plus costs for pricing
securities. This administration fee is for services including
recordkeeping, preparation of reports, filing tax returns and for fund
accounting (for the International Equity Fund). For the International
Equity Fund, Northwestern Mutual Life wavies a portion of its fee
equal to the fund accounting fee paid to Brown Brothers Harriman & Co.
In addition, each Fund pays transfer agent and custodian fees, outside
professional and auditing fees, registration fees, trademark fees,
organizational costs, insurance premiums, Director's fees and
expenses, and the printing and mailing costs of sending reports and
other information to existing shareholders.
NMIS and affiliates have agreed to waive their fees and absorb certain
other operating expenses during the first year of operations to the
extent necessary so that Total Operating Expenses will not exceed the
following amounts:
Fund Class A Class B
---- ------- -------
Aggressive Growth Stock Fund 1.30% 1.95%
International Equity Fund 1.65% 2.30%
Growth Stock Fund 1.30% 1.95%
Growth and Income Stock Fund 1.20% 1.85%
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<PAGE>
Index 500 Stock Fund 0.85% 1.50%
Asset Allocation Fund 1.35% 2.00%
High Yield Bond Fund 1.30% 1.95%
Municipal Bond Fund 0.85% 1.50%
Select Bond Fund 0.85% 1.50%
Note 3: Organizational costs and initial registration expenses are being
deferred and amortized over the period of benefit, but not to exceed
sixty months from the Fund's commencement of operations. These costs
were advanced by the Advisor and will be reimbursed by the Funds.
Note 4: MSF intends to comply with the requirements of the Internal Revenue
Code necessary to qualify as a regulated investment company and to
make the requisite distributions of income and capital gains to their
shareholders sufficient to relieve it from all or substantially all
Federal income taxes.
B-62
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board
of Directors of Mason Street Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities present
fairly, in all material respects, the financial position of Aggressive Growth
Stock Fund, International Equity Fund, Growth Stock Fund, Growth and Income
Stock Fund, Index 500 Stock Fund, Asset Allocation Fund, High Yield Bond Fund,
Municipal Bond Fund and Select Bond Fund (constituting Mason Street Funds, Inc.,
hereafter referred to as the "Funds") at March 3, 1997, in conformity with
generally accepted accounting principles. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinions expressed above.
Price Waterhouse LLP
Milwaukee, Wisconsin
March 4, 1997
B-63
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements for Mason Street Funds, Inc. Included in the
Statement of Additional Information:
Statement of Assets and Liabilities at March 3, 1997.
(b) Exhibits
(7) Not Applicable
EX-99.B8(a) Form of Custodian Agreement With Chase Manhattan Bank
EX-99.B8(b) Form of Custodian Agreement With Bankers Trust Co.
EX-99.B8(c) Form of Custodian Agreement With Brown Brothers
Harriman & Co.
C-1
<PAGE>
EX-99.B10 Opinion and Consent of Counsel
EX-99.B11 Consent of Independent Public Accountants
(12) Not Applicable
EX-99.B14 Model Retirement Plans
EX-99.B14(a) Prototype Non-Standard 401(k) Profit Sharing Plan
Adoption Agreement
EX-99.B14(b) Prototype Non-Standard 401(k) Profit Sharing Plan
Adoption Agreement
EX-99.B14(c) Prototype Money Purchase Pension Plan Adoption
Agreement
EX-99.B14(d) Prototype Non-Standard Profit Sharing Plan
Adoption Agreement
EX-99.B14(e) Prototype Standard 401(k) Profit Sharing Plan
Adoption Agreement
EX-99.B14(f) Prototype 401(k) Profit Sharing Plan Adoption
Agreement
EX-99.B14(g) Prototype Money Purchase Pension Plan Adoption
Agreement
EX-99.B14(h) Prototype Standard Profit Sharing Plan Adoption
Agreement
EX-99.B14(i) Prototype Standard Simple 401(k) Profit Sharing Plan
Adoption Agreement
(16) Not Applicable
(17) Not Applicable
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Shares of the Registrant have been offered and sold only to The
Northwestern Mutual Life Insurance Company ("Northwestern Mutual
Life"), a mutual insurance company organized by a special act of the
Wisconsin Legislature. Northwestern Mutual Life directly controls the
Registrant. Subsidiaries of Northwestern Mutual Life when considered
in the aggregate as a single subsidiary would not constitute a
significant subsidiary.
Item 26. NUMBER OF HOLDERS OF SECURITIES
All of the outstanding shares of the Registrant are owned by
Northwestern Mutual Life.
Item 27. INDEMNIFICATION
Reference is made to Article IX of Registrant's By-laws filed herein
as Exhibit 99.B2. The By-laws of Northwestern Mutual Life permit
indemnification by Northwestern Mutual Life of persons who are serving
as directors of another corporation at the request of Northwestern
Mutual Life. Pursuant to the By-law provision, the Trustees of
Northwestern Mutual Life have adopted a resolution extending to all of
the directors of the Registrant the benefits of the indemnification
arrangements for employees, officers and Trustees of Northwestern
Mutual Life. Directors' and officers' liability insurance which
covers the directors and officers of the Registrant as well as
Trustees and officers of Northwestern Mutual Life is also in force.
The amount of coverage is $30 million. There is no deductible, except
that the deductible amount is $1,000,000 ($1 million) for claims
covered by corporate indemnification. The cost of this insurance is
allocated among Northwestern Mutual Life and its subsidiaries and no
part of the premium has been paid by the Registrant.
C-2
<PAGE>
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
In addition to its investment advisory function, Northwestern Mutual
Investment Services, Inc. ("NMIS"), the Registrant's investment
adviser, is responsible for the selection, training and supervision of
life insurance agents of Northwestern Mutual Life who engage in the
distribution of variable annuities and variable life insurance issued
by Northwestern Mutual Life. The directors and officers of NMIS also
serve as officers of Northwestern Mutual Life.
Item 29. PRINCIPAL UNDERWRITER
Robert W. Baird & Co., Inc. ("RWB") serves as the principal
underwriter for each Fund. RWB is an indirect majority-owned
subsidiary of Northwestern Mutual Life. RWB also serves as the
principal underwriter for the Baird Adjustable Rate Income Fund,
a portfolio of The Baird Funds, Inc.
The directors and principal officers of RWB are as follows:
G. Frederick Kasten, Jr. President and CEO
James D. Bell Managing Director
Bryce P. Edwards Managing Director
Glen F. Hackmann Managing Director and Sec'y.
Steven P. Kent Managing Director
Keith A. Kolb Managing Director
Ronald J. Kruszewski Managing Director
Patrick S. Lawton Managing Director
William W. Mahler Managing Director
Terry Maxwell Managing Director
John Mayer Managing Director
Scott B. McCuaig Managing Director
Paul E. Purcell Managing Director
Paul S. Shain Managing Director
J. Camp Van Dyke Managing Director
Officer but not Director:
James M. Zemlyak Chief Financial Officer
All of the above are located at 777 East Wisconsin Avenue,
Milwaukee, WI 53202.
None of the above has a position with Registrant.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Books and other documents required to be maintained by the Registrant
by section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are maintained by the Registrant's transfer
agent, National Financial Data Services, 1004 Baltimore, Kansas City,
Missouri 64105 and the Funds' custodians as follows: the custodian for
the domestic securities of the Growth and Income Stock Fund, High
Yield Bond Fund and Municipal Bond Fund is Bankers Trust Company, 16
Wall Street, New
C-3
<PAGE>
York, New York 10015. The custodian for the domestic securities of
the Aggressive Growth Stock Fund, the Growth Stock Fund, the Index 500
Stock Fund, the Asset Allocation Fund and the Select Bond Fund is the
Chase Manhattan Bank, N.A., One Chase Manhattan Plaza, New York, New
York 10081. The custodian for the International Equity Fund and any
foreign assets of the Asset Allocation Fund, High Yield Bond Fund,
Select Bond Fund, Aggressive Growth Stock Fund and Growth Stock Fund
is Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109. Registrant's financial ledgers and other
corporate records are maintained at its offices at The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202.
Item 31. MANAGEMENT SERVICES
Not applicable.
Item 32. UNDERTAKINGS
(a) Not applicable
(b) The Registrant undertakes to file a post-effective amendment to
the Registration Statement within four to six months from the
effective date of this Registration Statement.
(c) MSF will furnish each person to whom a prospectus is delivered
with a copy of MSF's latest annual report to shareholders, upon
request and without charge.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Milwaukee, and State of Wisconsin, on
the 4th day of March, 1997.
MASON STREET FUNDS, INC.
(Registrant)
By: JAMES D. ERICSON
---------------------------
James D. Ericson, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title
--------- -----
JAMES D. ERICSON President, Director
- ---------------------------- and Principal Execu-
James D. Ericson tive Officer
MARK G. DOLL Vice President,
- ---------------------------- Treasurer and Principal
Mark G. Doll Financial Officer
BARBARA E. COURTNEY Controller and
- ---------------------------- Principal Accounting
Barbara E. Courtney Officer Dated
March 4,
1997
WILLIAM J. BLAKE* Director
- ----------------------------
William J. Blake
STEPHEN N. GRAFF* Director
- ----------------------------
Stephen N. Graff
MARTIN F. STEIN* Director
- ----------------------------
Martin F. Stein
JOHN K. MACIVER* Director
- ----------------------------
John K. MacIver*
* By JAMES D. ERICSON
----------------------
James D. Ericson, Attorney
in fact, pursuant to the Power
of Attorney previously filed
C-5
<PAGE>
EXHIBIT INDEX
EXHIBITS FILED WITH FORM N-1A
PRE-EFFECTIVE AMENDMENT NO. 2
REGISTRATION STATEMENT UNDER SECTION 6 OF
THE SECURITIES ACT OF 1933
AND SECTION 8(b) OF THE INVESTMENT COMPANY ACT OF 1940
FOR
MASON STREET FUNDS, INC.
Exhibit Number Exhibit Name
- -------------- ------------
<PAGE>
EX-99.B8(a) Form of Custodian Agreement with Chase Manhattan Bank.
EX-99.B8(b) Form of Custodian Agreement with Bankers Trust Co.
EX-99.B8(c) Form of Custodian Agreement With Brown Brothers Harriman &
Co.
EX-99.B10 Opinion and Consent of Counsel.
EX-99.B11 Consent of Price Waterhouse LLP.
(12) Not Applicable.
EX-99.B14 Model Retirement Plans
(16) Not Applicable.
(17) Not Applicable.
<PAGE>
EX-99.B8(a)
DOMESTIC CUSTODY AGREEMENT
To: THE CHASE MANHATTAN BANK
Institutional Client Services
4 New York Plaza, 4th Floor
New York, New York 10004
Gentlemen:
We hereby request you to open and to maintain a Custody Account in our name
and to hold therein as our custodian, upon the following terms and conditions,
all stocks, bonds, rights, warrants and other negotiable and non-negotiable
paper issued in certificated or book-entry form and commonly treated or dealt
with on securities exchanges or securities markets as shall be received by and
acceptable to you for the Custody Account (hereinafter referred to as
"securities"). As used herein, the term Custody Account shall include all such
Custody Accounts opened pursuant to this Domestic Custody Agreement (the
"Agreement").
Securities held by you for the Custody Account shall be segregated at all
times from your proprietary assets.
1. TRANSACTIONS. Unless you receive contrary written instructions from
us, and subject to the provisions of this Agreement, you are authorized:
(a) to receive all interest and dividends payable on the securities
and (except as hereinafter set forth in the section entitled
"Miscellaneous") to credit such interest and dividends to the demand
deposit cash account of ours with you designated by us to receive all sums
collected in respect of transactions in the Custody Account (each such
account a "Cash Account");
(b) to credit all proceeds received from sales and redemptions of
securities to the Cash Account;
(c) to debit the Cash Account for the cost of acquiring securities
for the Custody Account;
(d) to present obligations (including coupons) for payment upon
maturity, when called for redemption and when income payments are due;
<PAGE>
(e) to exchange securities for other securities where the exchange is
purely ministerial as, for example, the exchange of securities in temporary
form for securities in definitive form or the mandatory exchange of
certificates;
(f) to sell fractional interests resulting from a stock split or a
stock dividend and to credit the Cash Account with the proceeds thereof;
(g) to execute in our name, whenever you deem it appropriate, such
ownership and other certificates as may be required to obtain payments with
respect to, or to effect the sale, transfer or other disposition of,
securities in the Custody Account and to guarantee as our signature the
signature so affixed;
(h) to receive and hold in the Custody Account securities which have
transfer limitations imposed upon them by the Securities Act of 1933, as
amended; and
(i) to convert moneys received with respect to securities of foreign
issue into United States dollars whenever it is practical to do so through
customary banking channels. In effecting such conversion you may use any
method or agency available to you, including the facilities of your own
divisions, subsidiaries or affiliates. You shall incur no liability on
account of any loss suffered or expense incurred as a result of such
conversion, including, without limitation, losses arising from fluctuations
in exchange rates affecting any such conversion.
2. INSTRUCTIONS. You are authorized to rely and act upon all further
written instructions given or purported to be given by one or more officers,
employees or agents of ours (i) authorized by or in accordance with a corporate
resolution of ours delivered to you or (ii) described as authorized in a
certificate delivered to you by our Secretary or an Assistant Secretary or
similar officer of ours (each such officer, employee or agent or combination of
officers, employees and agents authorized pursuant to clause (i) or described
pursuant to clause (ii) of this paragraph is hereinafter referred to as an
"Authorized Officer"). (The term "instructions" includes, without limitation,
instructions to sell, assign, transfer, deliver, purchase or receive for the
Custody Account, any and all stocks, bonds and other securities or to transfer
funds in the Cash Account.) You may also rely and act upon instructions when
bearing or purporting to bear the facsimile signature of any of the individuals
designated by an Authorized Officer regardless of by whom or by what means the
actual or purported facsimile signature or signatures thereon may have been
affixed thereto if such facsimile signature or signatures resemble the facsimile
specimen or specimens from time to time furnished to you by any of such
Authorized Officers, our Secretary or an Assistant Secretary or similar officer
of ours. In addition, you may rely and act upon instructions received by
telephone,
2
<PAGE>
telex, TWX, facsimile transmission, bank wire or other teleprocess or electronic
instruction or trade information system acceptable to you which you believe in
good faith to have been given by an Authorized Officer or which are transmitted
with proper testing or authentication pursuant to terms and conditions which you
may specify. You may also rely and act upon instructions transmitted
electronically through your TITAN Data Entry System or any similar electronic
instruction system acceptable to you. You shall incur no liability to us or
otherwise as a result of any act or omission by you in accordance with
instructions on which you are authorized to rely pursuant to the provisions of
this paragraph. Any instructions delivered to you by telephone shall promptly
thereafter be confirmed in writing by an Authorized Officer, but you shall incur
no liability for our failure to send such confirmation in writing, the failure
of any such written confirmation to conform to the telephone instructions which
you received, the failure of any such written confirmation to be signed or
properly signed, or your failure to produce such confirmation at any subsequent
time. You shall incur no liability for refraining from acting upon any
instructions which for any reason you, in good faith, are unable to verify to
your own satisfaction. With respect to instructions received hereunder to
transfer funds from the Cash Account to any other account or party, we agree to
implement any callback or other authentication method or procedure or security
device required by you at any time or from time to time. Unless otherwise
expressly provided, all authorizations and instructions shall continue in full
force and effect until canceled or superseded by subsequent authorizations or
instructions received by your safekeeping account administrator with reasonable
opportunity to act thereon. Your authorization to rely and act upon
instructions pursuant to this paragraph shall be in addition to, and shall not
limit, any other authorization which we may give you regarding our accounts with
you.
We agree that, if you require test arrangements, authentication methods or
procedures or other security devices to be used with respect to instructions
which we may give hereunder, thereafter instructions given by us shall be given
and processed in accordance with terms and conditions for the use of such
arrangements, methods or procedures or devices as you may put into effect and
modify from time to time. We shall safeguard any testkeys, identification codes
or other security devices which you make available to us and agree that we shall
be responsible for any loss, liability or damage incurred by you or by us as a
result of your acting in accordance with instructions from any unauthorized
person using the proper security device. You may electronically record any
instructions given by telephone, and any other telephone discussions with
respect to the Custody Account or transactions pursuant to this Agreement.
If you are instructioned by us to purchase or sell securities for the
Custody Account you may enter purchase and sale orders and confirmations, and
perform any other acts incidental or necessary to the performance thereof with
brokers or dealers or similar agents selected by you, including any broker or
dealer or similar
3
<PAGE>
agent affiliated with you, for our account and risk in accordance with accepted
industry practices in the relevant market.
Except as may be provided otherwise herein, you are authorized to execute
our instructions and take other actions pursuant to this Agreement in accordance
with your customary processing practices for customers similar to us and, in
accordance with such practices, you may retain agents, including subsidiaries or
affiliates of yours, to perform certain of such functions.
In acting upon instructions to deliver securities against payment, you are
authorized, in accordance with customary securities processing practices, to
deliver such securities to the purchaser thereof or dealer therefor (including
to an agent for any such purchaser or dealer) against a receipt, with the
expectation of collecting payment from the purchaser, dealer or agent to whom
the securities were so delivered before the close of business on the same day.
3. REGISTRATION. Unless you receive contrary instructions from us, you
are authorized to keep securities in your own vaults or in book entry form
registered in your name or in the name of your nominee or nominees or, where
securities are eligible for deposit in a Depository (hereinafter defined), such
as The Depository Trust Company, the Federal Reserve Bank of New York or
Participants Trust Company, you may use any such Depository and permit the
registration of registered securities in the name of its nominee or nominees,
and we agree to hold you and the nominees harmless from any liability as holders
of record. We shall accept the return or delivery of securities of the same
class and denomination as those deposited with you by us or otherwise received
by you for the Custody Account, and you need not retain the particular
certificates so deposited or received.
If any of our securities registered in your name or the name of your
nominee or held in a Depository and registered in the name of the Depository's
nominee are called for partial redemption by the issuer of such securities, you
are authorized to allot the called portion to the respective beneficial holders
of the securities in any manner deemed to be fair and equitable by you in your
sole discretion.
4. STATEMENTS. You shall notify us of each securities transaction
effected for the Custody Account and of income on and redemptions of the
securities in the Custody Account, as well as furnish us a listing of such
securities, at such times upon which you and we mutually agree. Periodic
statements shall be rendered to us as we may reasonably require, but not less
frequently than monthly. You shall at all times maintain proper books and
records that shall identify the securities as ours. To assist us in complying
with the requirements of the Investment Company Act of 1940 and the rules and
regulations thereunder, you shall, upon receipt of instructions, establish and
maintain a segregated account or accounts on your books for and on behalf of the
Fund.
4
<PAGE>
Your books and records relating to the Custody Account shall be available for
inspection upon reasonable notice to you during your regular business hours by
duly authorized officers, employees, or agents of ours, or by legally authorized
regulatory officials who are then in the process of reviewing our financial
affairs upon proof to you of such official status.
Unless we shall send to you a written exception or objection to any
statement of account within 60 days of our receipt of such statement from you,
we shall be deemed to have approved such statement. In such event, or where we
have otherwise approved such statement, you shall, to the extent permitted by
law, be released, relieved and discharged with respect to all matters set forth
in such statement or reasonably implied therefrom as though it had been settled
by the decree of a court of competent jurisdiction in an action where we and all
persons having or claiming an interest in the Custody Account or Cash Account
were parties.
5. CORPORATE ACTIONS. You shall send us such proxies (signed in blank,
if issued in your name or the name of your nominee or a nominee of a Depository)
and communications with respect to securities in the Custody Account as call for
voting or relate to legal proceedings within a reasonable time after sufficient
copies are received by you for forwarding to customers. In addition, you shall
follow coupon payments, redemptions, exchanges or similar matters with respect
to securities in the Custody Account and advise us of rights issued, tender
offers or any other discretionary rights with respect to such securities, in
each case, of which you receive notice at your central corporate actions
department from the issuer or from the Depository in which such securities are
held or notice published in publications and reported in reporting services
routinely used by you for this purpose.
6. CUSTODIAN RESPONSIBILITY. Except as provided in the next following
paragraph, you shall be obligated to indemnify us for any loss of securities
credited to the Custody Account resulting from (i) the negligence or willful
misconduct of you or your officers, employees or agents retained by you to hold
such securities or (ii) the burglary, robbery, hold-up, theft or mysterious
disappearance, including loss by damage or destruction. In the event of a loss
of securities in the Custody Account for which you are required to indemnify us
pursuant to the immediately preceding sentence, at your option, you shall
promptly replace such securities (by among other means posting appropriate
security or bond with the issuer(s) of such securities and obtaining their
reissue) or the value thereof (determined based upon the market value of the
securities which are the subject of such loss as of the date of the discovery of
such loss) and the value of any loss of rights or privileges resulting from the
loss of such securities. The foregoing indemnity shall be your exclusive
liability to us for your loss of securities from the Custody Account. In
respect of all your other duties and obligations pursuant to the terms of this
5
<PAGE>
Agreement, you shall be liable to us only to the extent of our general damages
suffered or incurred as a result of any act or omission of you or your officers,
employees or agents which constitutes negligence or willful misconduct. General
damages shall mean only those damages as directly and necessarily result from
such act or omission without reference to any special conditions or
circumstances of ours or of any transaction, whether or not you have been
advised of any such special conditions or circumstances. Anything in this
Agreement to the contrary notwithstanding, in no event shall you be liable to
us under this Agreement for special, indirect or consequential loss or damage of
any kind whatsoever, whether or not you are advised as to the possibility of
such loss or damage and regardless of the form of action any such loss or damage
may be claimed.
You shall not be liable for the acts or omissions of (or the bankruptcy or
insolvency of) any Depository. If, however, as a result of any act or omission
of, or the bankruptcy or insolvency of, any Depository we suffer any loss or
liability, you will take such steps with respect thereto in order to effect a
recovery as you shall reasonably deem appropriate under the circumstances
(including the bringing and settling of legal proceedings), provided that unless
you shall be liable as set forth in the immediately preceding paragraph of this
Agreement, for such loss or liability by virtue of the negligence or misconduct
of you or your officers, employees or agents, the amount of any cost or expense
in effecting, or attempting to effect, such recovery shall be for our account,
and you shall have the right to charge such cost or expense to the Cash Account.
We further agree to be bound by the Depository rules and procedures applicable
to you as a participant in respect of any securities held by you in your account
with such Depository. "Depository" shall mean a federal reserve bank and any
"clearing corporation" as defined under Article 8 of the New York Uniform
Commercial Code, as amended from time to time.
All collection and receipt of funds or securities and all payment and
delivery of funds or securities under this Agreement shall be made by you as our
agent, at our risk with respect to our actions or omissions and those of persons
other than you, including, without limitation, the risk associated with the
securities processing practice of delivering securities against a receipt and
the risk that the counterparty in any transaction into which we enter will not
transfer funds or securities or otherwise perform in accordance with our
expectation of its obligations thereunder (including, without limitation, where,
as a result of such nonperformance, a Depository reverses, or requires repayment
of, any credit given in connection with the transfer of securities).
In no event shall you be responsible or liable for any loss due to forces
beyond your control, including, but not limited to, acts of God, flood, fire,
nuclear fusion, fission or radiation, war (declared or undeclared), terrorism,
insurrection, revolution, riot, strikes or work stoppages for any reason,
embargo, closure or disruption of any market, government action, including any
laws, ordinances, regulations or the like which restrict or prohibit the
providing of the services contemplated by this
6
<PAGE>
Agreement, and other causes whether or not of the same class or kind as
specifically named above. In the event that you are unable substantially to
perform for any of the reasons described in the immediately preceding sentence,
you shall so notify us as soon as reasonably practicable.
You shall be responsible for only those duties expressly stated in this
Agreement or expressly contained in instructions to perform the services
described herein given to you pursuant to the provisions of this Agreement and
accepted by you and, without limiting the foregoing, you shall have no duty or
responsibility:
(a) to supervise the investment of, or make recommendations with
respect to the purchase, retention or sale of, securities relating to the
Custody Account, or to maintain any insurance on securities in the Custody
Account for our benefit;
(b) with regard to any security in the Custody Account as to which a
default in the payment of principal or interest has occurred, to give
notice of default, make demand for payment or take any other action with
respect to such default;
(c) except as otherwise specifically provided in this section under
the heading "Custodian Responsibility", for any act or omission, or for the
solvency or insolvency, or notice to us of the solvency or insolvency, of
any broker or agent which is selected by you with reasonable care or by us
or any other person to effect any transaction for the Custody Account or to
perform any service under this Agreement;
(d) to report to us regarding the financial condition of any person,
firm or corporation to which you deliver securities or funds pursuant to
this Agreement;
(e) for any loss occasioned by delay in the actual receipt of notice
by you of any payment, redemption or other transaction in respect to which
you are authorized to take some action pursuant to this Agreement; or
(f) for any errors or omissions made by any securities pricing
service used by you to value securities credited to the Custody Account as
part of any service subscribed to by us from you.
7. SETTLEMENTS. We agree with you that all credits of securities and
proceeds by you to the Custody Account and the Cash Account, respectively, on
the settlement or payable date shall be provisional when made and you shall be
entitled to reverse any such credits subject to actual receipt or collection of
immediately available funds.
7
<PAGE>
We shall have sufficient immediately available funds each day in the Cash
Account to pay for the settlement of all securities delivered against payment to
you and credited to the Custody Account. Should we fail to have sufficient
immediately available funds in the Cash Account to settle these deliveries of
securities pursuant to the preceding sentence (a "Deficit"), you, in your sole
discretion, may elect (i) to reject the settlement of any or all of the
securities delivered to you that day to the Custody Account, (ii) to settle the
deliveries on our behalf and debit the Cash Account (A) for the amount of such
Deficit and (B) for the amount of the funding or other cost or expense incurred
or sustained by you for our failure to have sufficient immediately available
funds in the Cash Account by the applicable settlement deadline for you, or
(iii) to reverse the posting of the securities credited to the Custody Account.
You shall have the right to reverse any erroneous or provisional credit
entries to the Cash Account retroactively to the date upon which the correct
entry, or no entry, should have been made.
The foregoing rights are in addition to and not in limitation of any other
rights or remedies available to you under this Agreement or otherwise. Any
advances made by you to us in connection with the purchase, sale, redemption,
transfer or other designation of securities or in connection with disbursements
of funds to any party, which create or result in an overdraft in the Cash
Account shall be deemed a loan by you to us, payable on demand, and bear
interest on the amount of the loan each day that the loan remains unpaid at your
prime rate in effect as announced by you from time to time, plus the cost to you
of any required reserves. We shall also bear the cost of any Federal Reserve
Bank daylight overdraft charge incurred by you and allocated to transactions
effected for the Custody Account or the Cash Account.
No prior action or course of dealing on your part with respect to the
settlement of securities transactions on our behalf shall be used by or give
rise to any claim or action by us against you for your refusal to pay or settle
for a securities transaction we have not timely funded as required herein.
8. RESPONSIBLE AS PRINCIPAL. We agree that we shall be responsible to
you as a principal for all of our obligations to you arising under or in
connection with this Agreement, notwithstanding that we may be acting on behalf
of other persons, and we warrant our authority to deposit in the Custody Account
and Cash Account, respectively, any securities and funds which you or your
agents receive therefor and to give instructions relative thereto. We further
agree that you shall not be subject to, nor shall your rights and obligations
with respect to this Agreement and the Custody Account or the Cash Account be
affected by, any agreement between us and any such person.
8
<PAGE>
9. CREDITING AND DEBITING PROCEDURES. With respect to all transactions
for the Custody Account and the Cash Account, including, without limitation,
dividend and interest payments and sales and redemptions of securities,
availability of funds credited to the Custody Account and Cash Account shall be
based on the type of funds used in the trade settlement or payment, including,
but not limited to, same day availability for federal or same day funds and next
business day availability for clearing house or next day funds. Furthermore,
with respect to all purchases and sales of securities for the Custody Account,
the proceeds from the sale of securities shall be credited to the Cash Account
on the date proceeds are received by you and the cost of securities purchased
shall be debited to the Cash Account on the date securities are received by you,
unless we request your contractual settlement service for the Custody Account in
which case the following provisions shall apply with respect to the delivery and
receipt of securities for the Custody Account for those securities and
transactions as to which you customarily offer this service.
(a) When we instruct you to deliver or receive securities, on the
contractual settlement date you shall credit the Cash Account with the
expected proceeds of the transaction and debit the Custody Account for the
securities which we have instructed you to deliver, in the case of
deliveries, and debit the Cash Account for the cost of the securities which
we have instructed you to receive and credit the Custody Account with such
securities, in the case of receives. These credits and debits are
provisional accounting entries which you shall reverse on our instructions
and which you may reverse, even in the absence of instructions from us, if
the transaction with respect to which they were made fails to settle within
a reasonable period, determined by you in your discretion, after the
contractual settlement date, except that if you deliver securities which
are returned by the recipient thereof, you may reverse such credits and
debits at any time. You have no obligation to use this crediting and
debiting procedure with respect to a delivery of securities if we do not
have actually in our account sufficient securities to make the delivery.
(b) As with other transactions processed by you, your responsibility
with respect to transactions for which you use this crediting and debiting
procedure shall be governed by the provisions of this Custody Agreement,
including the section headed "Custodian Responsibility". We agree that
your using this procedure is not an assurance by you that the transaction
will actually settle on the contractual settlement date and does not impose
any additional responsibility on you with respect to the transaction.
Without limiting your right to reverse credits and debits described above,
the account statements which you furnish to us shall reflect transactions
as to which you use this procedure as if they had actually settled on the
contractual settlement date, unless prior to the date to which the
statement relates, you have reversed such credits and debits.
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(c) We agree that you may terminate this contractual settlement
service to us at any time and for any reason.
With respect to securities or transactions as to which you do not
customarily offer this service, you shall (i) in the case of deliveries of
securities, credit the proceeds of the transaction to the Cash Account on the
date they are received by you and debit the securities from the Custody Account
on the date they are delivered by you, and (ii) in the case of securities
received, debit the Cash Account for the cost of such securities and credit the
Custody Account with such securities on the date the securities are received by
you.
10. SWEEP OF CASH BALANCES. Unless you receive contrary instructions from
us, you are directed automatically to arrange for the investment of cash in the
Cash Account in mutual funds (including, without limitation, the VISTA Money
Market Funds and any other mutual fund with respect to which you or an
affiliate or subsidiary of yours serves as an investment adviser, administrator,
shareholder servicing agent, and/or custodian or subcustodian and regardless of
whether or not you or an affiliate or subsidiary of yours receives any fees for
services rendered to any such mutual fund in addition to the fees received by
you pursuant to this Agreement, all of which such fees you are specifically
authorized to retain) or money market accounts (including, without limitation,
accounts of yours or an affiliate or subsidiary of yours) which you make
available for such purposes and which we shall select through instructions to
you. Further, in this regard, you are directed automatically to arrange for
the redemption of such mutual fund shares or for the withdrawal of amounts from
such money market accounts as may be necessary to avoid any potential overdraft
hereunder that you perceive based upon the information available to you at the
time of such redemption or withdrawal. We agree that we shall read the
prospectus for any mutual fund prior to investing and acknowledge that
investments in mutual fund shares are not insured by the Federal Deposit
Insurance Corporation and are not obligations of or guaranteed by you.
11. TAXES. (a) You are authorized and directed, unless otherwise
instructed in particular transactions, to claim exemption from transfer taxes on
all transfers and deliveries of securities held for the Custody Account; and
(b) Unless we have already done so, we shall deliver promptly to you with
respect to each Custody Account established under this Agreement, two duly
completed and executed copies of the proper United States Internal Revenue
Service forms: (i) Form W-9, if we are a U.S. citizen or resident person; and
(ii) Form 1001, Form 4224, Form W-8 or Form 8709 (as applicable), if we are a
nonresident person, certifying our status as a nonresident person, and that we
are entitled to receive United States source payments under or in connection
with this Agreement without deduction as withholding or at a reduced rate of
withholding for United States federal income taxes. We agree to provide duly
executed and
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completed updates of such form(s) (or successor applicable forms), on or before
the date that such form(s) expire or become obsolete or after the occurrence of
an event requiring a change in the most recent form previously delivered by us
to you. We further agree to pay, indemnify, and hold you harmless from and
against any and all liabilities, penalties, interest or additions to tax with
respect to, or resulting from, any delay in, or failure by, you (i) to pay,
withhold or report any Federal, state or foreign taxes imposed on, or in respect
of, the property held in the Custody Account(s), or this Agreement, or (ii) to
report interest, dividend or other income paid or credited to the Cash Account,
whether such failure or delay by you to pay, withhold or report tax or income is
a result of (x) our failure to comply with the terms of this sub-paragraph, or
(y) your own acts or omissions; provided, however, we shall not be liable to you
for any penalty or additions to tax due as a result of your failure to pay or
withhold tax or to report to us interest, dividend or other income paid or
credited to the Cash Account solely as a result of your negligent acts or
omissions.
12. OTHER ACCOUNTS. From time to time we may instruct you to open and
maintain more than one Custody Account for us. Unless we and you otherwise
expressly agree, such accounts will be governed by the provisions of this
Agreement.
13. FEES, INDEMNIFICATION. We agree to pay you compensation for your
services pursuant to this Agreement at the fees of which you shall notify us
from time to time. We also agree to hold you and your officers, employees and
agents harmless from, and to indemnify and reimburse you and them for, all
claims, liabilities, losses, damages and expenses (including out-of-pocket and
incidental expenses and legal fees) incurred by you or them in connection with
or relating to the Custody Account or your acting under this Agreement, provided
that you or they, as the case may be, have not acted with negligence or willful
misconduct with respect to the events resulting in such claims, liabilities,
losses, damages or expenses.
14. LIEN. We hereby pledge, assign and grant to you a continuing security
interest in, and a lien on the securities in the Custody Account and any
securities in your possession or under your control for credit to the Custody
Account, and you shall have all of the rights and remedies of a secured party
under the New York Uniform Commercial Code, as amended, as security for any and
all obligations, matured or not matured, direct or indirect, absolute or
contingent, now due or hereafter to become due of us to you pursuant to this
Agreement; provided,however, if the Custody Account in which such securities are
credited is clearly designated on your records as an account in which our
interest is that of an agent or fiduciary for others, your security interest in
a particular security in such account will terminate at the time we pay to you
the settlement amount for such security in immediately available funds.
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15. SET-OFF. You may, without notice to us, setoff any sums held for us
or standing to the credit of any of our cash accounts with you in or towards the
satisfaction of any obligation of us to you under this Agreement, whether or not
any such sums or credits or obligations are matured or unmatured, direct or
indirect, absolute or contingent, and may do so notwithstanding that the
accounts may be maintained at different branches of yours and may not be
expressed in the same currency.
16. TERMINATION. Either party may terminate this Agreement at any time
upon thirty days written notice. Notice by us shall specify the names of the
persons to whom you shall deliver the securities in the Custody Account and to
whom the cash in the Cash Account shall be paid. If notice of termination is
given by the you, we shall, within thirty (30) days following the giving of such
notice, deliver to you a written notice specifying the names of the persons to
whom you shall deliver the securities in the Custody Account and to whom the
Cash in the Cash Account shall be paid. In either case, you will deliver such
securities and cash to the persons so specified. You may in your discretion
withhold from such delivery such cash and securities as may be necessary to
settle transactions pending at the time of such delivery. If within thirty (30)
days following the giving of a notice of termination by you, you do not receive
from us a written notice specifying the names of the persons to whom you shall
deliver the securities in the Custody Account and to whom the cash in the Cash
Account shall be paid, you may, at your election, deliver such securities and
pay such cash to a bank or trust company doing business in the State of New York
to be held and disposed of pursuant to the provisions of this Agreement, or may
continue to hold such securities and cash until a written notice as aforesaid is
delivered to you, provided that your obligations shall be limited to
safekeeping. Our obligations pursuant to the paragraphs under the headings
"Registration", "Settlements" and "Fees, Indemnification" shall survive the
termination of this Agreement.
17. NOTICES. Notices with respect to termination, specification of
Authorized Officers and terms and conditions for instructions required hereunder
shall be in writing, and shall be deemed to have been duly given if delivered
personally, by courier service or by mail, postage prepaid, to the following
addresses (or to such other address as either party hereto may from time to time
designate by notice duly given in accordance with this paragraph):
To us at:
Mason Street Funds, Inc.
c/o The Northwestern Mutual Life Ins. Co.
Public Markets/Investment Operations
720 East Wisconsin Avenue
Milwaukee, WI 53202
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To you, to the attention of the individual designated by you as the
safekeeping account administrator for our account, at:
The Chase Manhattan Bank
Institutional Client Services
4 New York Plaza, 4th Floor
New York, New York 10004
18. GOVERNING LAW, SUCCESSORS AND ASSIGNS, HEADINGS. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to laws as to conflicts of laws, and shall be binding
on our and your respective successors and assigns. The headings of the
paragraphs hereof are included for convenience of reference only and do not form
a part of this Agreement.
19. PRIOR PROPOSALS. This Agreement (including any Riders relating
to additional services in respect of the Custody Account we may request of you)
shall contain the complete agreement of the parties hereto with respect to the
Custody Account (except as may be expressly provided to the contrary herein)
and supersedes and replaces any previously made proposals, representations,
warranties or agreements with respect thereto by either or both of the parties
hereto. This Agreement shall become effective upon execution hereof by us and
acceptance by you.
20. SEPARABILITY. Any provisions of this Agreement which may be
determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
21. RESERVATION OF RIGHT. You shall have the right not to accept for
deposit to the Custody Account any securities which are in a form or condition
which you, in your sole discretion, determine not to be suitable for the
services you provide under this Agreement.
22. ADDITIONAL DUTIES. If we shall ask you to perform duties or
responsibilities not specifically set forth in this Agreement and you choose to
perform such additional duties or responsibilities, you shall be held to the
same standard of care and you shall be entitled to all the protective provisions
(including but not limited to limitation of liability and indemnification) set
forth herein.
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23. COUNTERPARTS. This Agreement may be executed in several
counterparts each of which shall be deemed to be an original and together shall
constitute one and the same agreement.
24. MISCELLANEOUS. We understand that we may request to have a
Custody Account established under this Agreement which is not linked to a Cash
Account. We understand further that with respect to any such Custody Account so
established any funds received by you in respect of transactions for such
Custody Account will be credited to the Custody Account and, further, funds
credited to the Custody Account must be transferred by us by means of
instruction (a "payment order") to one of your account administrators assigned
by you for the Custody Account, which you will identify to us. We agree that
payment orders and communications seeking to cancel or amend payment orders
which are issued by telephone, telecopier or in writing shall be subject to a
mutually agreed security procedure and you may execute or pay payment orders
issued in our name when verified by you in accordance with such procedure.
In executing or paying a payment order you may rely upon the
identifying number (e.g. Fedwire routing number or account) of any party as
instructed in the payment order. We assume full responsibility for any
inconsistency between the name and identifying number of any party in payment
orders issued to you in our name.
With respect to any Custody Account established under this Agreement
which is not linked to a Cash Account, all references to Cash Account shall be
read to mean Custody Account.
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25. REPRESENTATION. You represent and warrant that you are qualified
as a custodian under Section 26(a) of the Investment Company Act of 1940 and
warrant that you will remain so qualified or upon ceasing to be so qualified
shall promptly notify us in writing.
MASON STREET FUNDS, INC. (on behalf of
the _______________ Fund)
By:
-------------------------------------
Title:
------------------------------
Date:
------------------------------
Accepted by:
THE CHASE MANHATTAN BANK
By:
---------------------
Title:
------------------
Date:
-------------------
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EX-99.B8(b)
CUSTODIAN AGREEMENT
AGREEMENT dated as of March 3, 1997 between BANKERS TRUST COMPANY (the
"Custodian") and Mason Street Funds, Inc. (the "Customer").
WHEREAS, the Customer may be organized with one or more series of shares,
each of which shall represent an interest in a separate portfolio of Securities
and Cash (each as hereinafter defined) (all such existing and additional series
now or hereafter listed on Exhibit A being hereafter referred to individually as
a "Fund" and collectively, as the "Funds"); and
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Funds under the terms and conditions set forth in this Agreement,
and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN. The Customer hereby employs the Custodian as
custodian of all assets of each Fund which are delivered to and accepted by the
Custodian or any Subcustodian (as that term is defined in Section 4) (the
"Property") pursuant to the terms and conditions set forth herein. Without
limitation, such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments representing same or
rights or obligations to receive, purchase, deliver or sell same and other non-
cash investment property of a Fund which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash"). The
Custodian shall not be responsible for any property of a Fund held or received
by the Customer or others and not delivered to the Custodian or any
Subcustodian.
2. MAINTENANCE OF SECURITIES AND CASH AT CUSTODIAN AND SUBCUSTODIAN
LOCATIONS. Pursuant to Instructions, the Customer shall direct the Custodian to
(a) settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's transactions
in such Securities. Instructions to settle Securities transactions in any
country shall be deemed to authorize the holding of such Securities and Cash in
that country.
3. CUSTODY ACCOUNT. The Custodian agrees to establish and maintain one
or more custody accounts on its books each in the name of a Fund (each, an
"Account") for any and all Property from time to time received and accepted by
the Custodian or any Subcustodian for the account of such Fund. Upon delivery
by the Customer to the Custodian of any Property belonging to a Fund, the
Customer shall, by Instructions (as hereinafter defined in Section 14),
specifically indicate to which Fund such Property belongs or if such Property
belongs to more than one Fund shall allocate such Property to the appropriate
Fund. The Custodian shall allocate such Property to the Accounts in accordance
with the Instructions; PROVIDED THAT the Custodian shall have the right, in its
sole discretion, to refuse to accept any Property that is not in proper form for
deposit for any reason. The Customer on behalf of each Fund, acknowledges its
responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, warrants its authority to
deposit in the appropriate Account any Property received therefor
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by the Custodian or a Subcustodian and to give, and authorize others to give,
instructions relative thereto. The Custodian may deliver securities of the same
class in place of those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and payments,
whether paid in cash or in kind, on the Property, as the same become
payable and credit the same to the appropriate Account;
(b) present for payment all Securities held in an Account which are
called, redeemed or retired or otherwise become payable and all
coupons and other income items which call for payment upon
presentation to the extent that the Custodian or Subcustodian is
actually aware of such opportunities and hold the cash received in
such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely ministerial
(including, without limitation, the exchange of temporary securities
for those in definitive form and the exchange of warrants, or other
documents of entitlement to securities, for the Securities themselves)
and (ii) when notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for an
Account, endeavor to receive Instructions, provided that if such
Instructions are not received in time for the Custodian to take timely
action, no action shall be taken with respect thereto;
(d) whenever notification of a rights entitlement or a fractional interest
resulting from a rights issue, stock dividend or stock split is
received for an Account and such rights entitlement or fractional
interest bears an expiration date, if after endeavoring to obtain
Instructions such Instructions are not received in time for the
Custodian to take timely action or if actual notice of such actions
was received too late to seek Instructions, sell in the discretion of
the Custodian (which sale the Customer hereby authorizes the Custodian
to make) such rights entitlement or fractional interest and credit the
Account with the net proceeds of such sale;
(e) execute in the Customer's name for an Account, whenever the Custodian
deems it appropriate, such ownership and other certificates as may be
required to obtain the payment of income from the Property in such
Account;
(f) pay for each Account, any and all taxes and levies in the nature of
taxes imposed on interest, dividends or other similar income on the
Property in such Account by any governmental authority. In the event
there is insufficient Cash available in such Account to pay such taxes
and levies, the Custodian shall notify the Customer of the amount of
the shortfall and the Customer, at its option, may deposit additional
Cash in such Account or take steps to have sufficient Cash available.
The Customer agrees, when and if requested by the Custodian and
required in connection with the payment of any such taxes to
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cooperate with the Custodian in furnishing information, executing
documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial transactions
involving the Securities described in (a) - (f), including, without
limitation, affiliates of the Custodian or any Subcustodian.
4. SUBCUSTODIANS AND SECURITIES SYSTEMS. The Customer authorizes and
instructs the Custodian to hold the Property in each Account in custody accounts
which have been established by the Custodian with (a) one of its U.S. branches
or another U.S. bank or trust company or branch thereof located in the U.S.
which is itself qualified under the Investment Company Act of 1940, as amended
("1940 Act"), to act as custodian (individually, a "U.S. Subcustodian"), or a
U.S. securities depository or clearing agency or system in which the Custodian
or a U.S. Subcustodian participates (individually, a "U.S. Securities System")
or (b) one of its non-U.S. branches or majority-owned non-U.S. subsidiaries, a
non-U.S. branch or majority-owned subsidiary of a U.S. bank or a non-U.S. bank
or trust company, acting as custodian (individually, a "non-U.S. Subcustodian";
U.S. Subcustodians and non-U.S. Subcustodians, collectively, "Subcustodians"),
or a non-U.S. depository or clearing agency or system in which the Custodian or
any Subcustodian participates (individually, a "non-U.S. Securities System";
U.S. Securities System and non-U.S. Securities System, collectively, Securities
System"), PROVIDED that in each case in which a U.S. Subcustodian or U.S.
Securities System is employed, each such Subcustodian or Securities System shall
have been approved by Instructions; PROVIDED FURTHER that in each case in which
a non-U.S. Subcustodian or non-U.S. Securities System is employed, (a) such
Subcustodian or Securities System either is (i) a "qualified U.S. bank" as
defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5") or (ii) an "eligible
foreign custodian" within the meaning of Rule 17f-5 or such Subcustodian or
Securities System is the subject of an order granted by the U.S. Securities and
Exchange Commission ("SEC") exempting such agent or the subcustody arrangements
thereto from all or part of the provisions of Rule 17f-5 and (b) the agreement
between the Custodian and such non-U.S. Subcustodian has been approved by
Instructions; it being understood that the Custodian shall have no liability or
responsibility for determining whether the approval of any Subcustodian or
Securities System has been proper under the 1940 Act or any rule or regulation
thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the employment
of any Subcustodian or Securities System with respect to the Customer, and if
desirable and practicable, appoint a replacement subcustodian or securities
system in accordance with the provisions of this Section. In addition, the
Custodian may, at any time in its discretion, upon written notification to the
Customer, terminate the employment of any Subcustodian or Securities System.
Upon request of the Customer, the Custodian shall deliver to the Customer
annually a certificate stating: (a) the identity of each non-U.S. Subcustodian
and non-U.S. Securities System then acting on behalf of the Custodian and the
name and address of the governmental agency or other regulatory authority that
supervises or regulates such non-U.S Subcustodian and non-U.S. Securities
System; (b) the countries in which each non-U.S. Subcustodian or non-U.S.
Securities System is located; and (c) so long as Rule 17f-5 requires the
Customer's Board of Directors to directly approve its foreign custody
arrangements, such other information relating to such non-U.S. Subcustodians and
non-U.S. Securities Systems as may reasonably be requested by the Customer to
ensure compliance with Rule 17f-5. So long as Rule 17f-5 requires the
Customer's Board of Directors to directly approve its foreign custody
arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial
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approval of this Agreement. Custodian agrees to promptly notify the Customer
if, in the normal course of its custodial activities, the Custodian has reason
to believe that any non-U.S. Subcustodian or non-U.S. Securities System has
ceased to be a qualified U.S. bank or an eligible foreign custodian each within
the meaning of Rule 17f-5 or has ceased to be subject to an exemptive order from
the SEC.
5. USE OF SUBCUSTODIAN. With respect to Property in an Account which is
maintained by the Custodian in the custody of a Subcustodian employed pursuant
to Section 4:
(a) The Custodian will identify on its books as belonging to the Customer
on behalf of a Fund, any Property held by such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be subject
only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in an
account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall require
that (i) the Account will be adequately indemnified or its losses
adequately insured; (ii) the Securities are not subject to any right,
charge, security interest, lien or claim of any kind in favor of such
Subcustodian or its creditors except a claim for payment in accordance
with such agreement for their safe custody or administration and
expenses related thereto, (iii) beneficial ownership of such
Securities be freely transferable without the payment of money or
value other than for safe custody or administration and expenses
related thereto, (iv) adequate records will be maintained identifying
the Property held pursuant to such Agreement as belonging to the
Custodian, on behalf of its customers and (v) to the extent permitted
by applicable law, officers of or auditors employed by, or other
representatives of or designated by, the Custodian, including the
independent public accountants of or designated by, the Customer be
given access to the books and records of such Subcustodian relating to
its actions under its agreement pertaining to any Property held by it
thereunder or confirmation of or pertinent information contained in
such books and records be furnished to such persons designated by the
Custodian.
6. USE OF SECURITIES SYSTEM. With respect to Property in the Account(s)
which are maintained by the Custodian or any Subcustodian in the custody of a
Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by its
agreement with the Custodian to, identify on its books such Property
as being held for the account of the Custodian or Subcustodian for its
customers.
(b) Any Property held in a Securities System for the account of the
Custodian or a Subcustodian will be subject only to the instructions
of the Custodian or such Subcustodian, as the case may be.
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(c) Property deposited with a Securities System will be maintained in an
account holding only assets for customers of the Custodian or
Subcustodian, as the case may be, unless precluded by applicable law,
rule, or regulation.
(d) The Custodian shall provide the Customer with any report obtained by
the Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the Securities System.
7. AGENTS. The Custodian may at any time or times in its sole discretion
appoint (or remove) any other U.S. bank or trust company which is itself
qualified under the 1940 Act to act as custodian, as its agent to carry out such
of the provisions of this Agreement as the Custodian may from time to time
direct; PROVIDED, however, that the appointment of any agent shall not relieve
the Custodian of its responsibilities or liabilities hereunder.
8. RECORDS, OWNERSHIP OF PROPERTY, STATEMENTS, OPINIONS OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS.
(a) The ownership of the Property whether Securities, Cash and/or other
property, and whether held by the Custodian or a Subcustodian or in a Securities
System as authorized herein, shall be clearly recorded on the Custodian's books
as belonging to the appropriate Account and not for the Custodian's own
interest. The Custodian shall keep accurate and detailed accounts of all
investments, receipts, disbursements and other transactions for each Account.
All accounts, books and records of the Custodian relating thereto shall be open
to inspection and audit at all reasonable times during normal business hours by
any person designated by the Customer. All such accounts shall be maintained
and preserved in the form reasonably requested by the Customer. The Custodian
will supply to the Customer from time to time, as mutually agreed upon, a
statement in respect to any Property in an Account held by the Custodian or by a
Subcustodian. In the absence of the filing in writing with the Custodian by the
Customer of exceptions or objections to any such statement within sixty (60)
days of the mailing thereof, the Customer shall be deemed to have approved such
statement and in such case or upon written approval of the Customer of any such
statement, such statement shall be presumed to be for all purposes correct with
respect to all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer may
request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to the
Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Cash and
Securities, including Cash and Securities deposited and/or maintained in a
securities system or with a Subcustodian. Such report shall be of sufficient
scope and in sufficient detail as may reasonably be required by the Customer and
as may reasonably be obtained by the Custodian.
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(d) The Customer may elect to participate in any of the electronic on-line
service and communications systems offered by the Custodian which can provide
the Customer, on a daily basis, with the ability to view on-line or to print on
hard copy various reports of Account activity and of Securities and/or Cash
being held in any Account. To the extent that such service shall include market
values of Securities in an Account, the Customer hereby acknowledges that the
Custodian now obtains and may in the future obtain information on such values
from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii) shall
be without liability in selecting and utilizing such service or furnishing any
information derived therefrom.
9. HOLDING OF SECURITIES, NOMINEES, ETC. Securities in an Account which
are held by the Custodian or any Subcustodian may be held by such entity in the
name of the Customer, on behalf of a Fund, in the Custodian's or Subcustodian's
name, in the name of the Custodian's or Subcustodian's nominee, or in bearer
form. Securities that are held by a Subcustodian or which are eligible for
deposit in a Securities System as provided above may be maintained with the
Subcustodian or the Securities System in an account for the Custodian's or
Subcustodian's customers, unless prohibited by law, rule, or regulation. The
Custodian or Subcustodian, as the case may be, may combine certificates
representing Securities held in an Account with certificates of the same issue
held by it as fiduciary or as a custodian. In the event that any Securities in
the name of the Custodian or its nominee or held by a Subcustodian and
registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called portion of the respective beneficial holders of such class of security in
any manner the Custodian deems to be fair and equitable.
10. PROXIES, ETC. With respect to any proxies, notices, reports or other
communications relative to any of the Securities in any Account, the Custodian
shall perform such services and only such services relative thereto as are (i)
set forth in Section 3 of this Agreement, (ii) described in Exhibit B attached
hereto (as such service therein described may be in effect from time to time)
(the "Proxy Service") and (iii) as may otherwise be agreed upon between the
Custodian and the Customer. The liability and responsibility of the Custodian
in connection with the Proxy Service referred to in (ii) of the immediately
preceding sentence and in connection with any additional services which the
Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in an
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. SEGREGATED ACCOUNT. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of a Fund.
12. SETTLEMENT PROCEDURES. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian.
Settlement and payment for Securities received for an Account and delivery of
Securities out of such Account may be effected in accordance with the customary
or established securities
-6-
<PAGE>
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering Securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such Securities from such purchaser or dealer, as
such practices and procedures may be modified or supplemented in accordance with
the standard operating procedures of the Custodian in effect from time to time
for that jurisdiction or market. The Custodian shall not be liable for any loss
which results from effecting transactions in accordance with the customary or
established securities trading or securities processing practices and procedures
in the applicable jurisdiction or market.
Notwithstanding that the Custodian may settle purchases and sales against,
or credit income to, an Account, on a contractual basis, as outlined in the
Investment Manager User Guide provided to the Customer by the Custodian, the
Custodian may, at its sole option, reverse such credits or debits to the
appropriate Account in the event that the transaction does not settle, or the
income is not received in a timely manner, and the Customer agrees to hold the
Custodian harmless from any losses which may result therefrom.
Except as otherwise may be agreed upon by the parties hereto, the Custodian
shall not be required to comply with Instructions to settle the purchase of any
Securities for an Account unless there is sufficient Cash in such Account at the
time or to settle the sale of any Securities in such Account unless such
Securities are in deliverable form. Notwithstanding the foregoing, if the
purchase price of such securities exceeds the amount of Cash in an Account at
the time of settlement of such purchase, the Custodian may, in its sole
discretion, but in no way shall have any obligation to, permit an overdraft in
such Account in the amount of the difference solely for the purpose of
facilitating the settlement of such purchase of securities for prompt delivery
for such Account. The Customer agrees to immediately repay the amount of any
such overdraft in the ordinary course of business and further agrees to
indemnify and hold the Custodian harmless from and against any and all losses,
costs, including, without limitation the cost of funds, and expenses incurred in
connection with such overdraft. The Customer agrees that it will not use the
Account to facilitate the purchase of securities without sufficient funds in the
Account (which funds shall not include the proceeds of the sale of the purchased
securities).
13. PERMITTED TRANSACTIONS. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 14 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise become
payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses.
-7-
<PAGE>
(g) In connection with any borrowings by the Customer requiring a pledge
of Securities, but only against receipt of amounts borrowed.
(h) In connection with any loans, but only against receipt of collateral
as specified in Instructions which shall reflect any restrictions applicable to
the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer against
delivery of the shares to be redeemed to the Custodian, a Subcustodian or the
Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement among
the Customer, on behalf of a Fund, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc., relating to compliance with the rules
of The Options Clearing Corporation, the Commodities Futures Trading Commission
and of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited from
broker. The Custodian will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section 20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to verify
the purpose for which a transaction is being effected.
14. INSTRUCTIONS. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 21 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular class
of Instructions in question and whose name and (if applicable) signature and
office address have been filed with the Custodian, or (ii) which have been
transmitted electronically through an electronic on-line service and
communications system offered by the Custodian or other electronic instruction
system acceptable to the Custodian, or (iii) a telephonic or oral communication
by one or more persons as the Customer shall have from time to time authorized
to give the
-8-
<PAGE>
particular class of Instructions in question and whose name has been filed with
the Custodian; or (iv) upon receipt of such other form of instructions as the
Customer may from time to time authorize in writing and which the Custodian has
agreed in writing to accept. Instructions in the form of oral communications
shall be confirmed by the Customer by tested telex or writing in the manner set
forth in clause (i) above, but the lack of such confirmation shall in no way
affect any action taken by the Custodian in reliance upon such oral instructions
prior to the Custodian's receipt of such confirmation. Instructions may relate
to specific transactions or to types or classes of transactions, and may be in
the form of standing instructions.
The Custodian shall have the right to assume in the absence of notice to
the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
15. STANDARD OF CARE. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service and
communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
-9-
<PAGE>
All collections of funds or other property paid or distributed in respect
of Securities in an Account, including funds involved in third-party foreign
exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution; strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this Agreement.
16. INVESTMENT LIMITATIONS AND LEGAL OR CONTRACTUAL RESTRICTIONS OR
REGULATIONS. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer or any Fund pursuant to any contract or any law or
regulation. The provisions of this Section shall survive termination of this
Agreement.
17. FEES AND EXPENSES. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable out-of-
pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit C. The Customer hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expense related thereto, which may be imposed, or assessed with respect to
any Property in an Account and also agrees to hold the Custodian, its
Subcustodians, and their respective nominees harmless from any liability as a
record holder of Property in such Account. The Custodian is authorized to
charge the applicable Account for such items and the Custodian shall have a lien
on the Property in the applicable Account for any amount payable to the
Custodian under this Agreement, including but not limited to amounts payable
pursuant to the last paragraph of Section 12 and pursuant to indemnities granted
by the Customer under this Agreement. The provisions of this Section shall
survive the termination of this Agreement.
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<PAGE>
18. TAX RECLAIMS. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in an Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit D attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit D. Such standard of care shall not
be affected by any other term of this Agreement.
19. AMENDMENT, MODIFICATIONS, ETC. No provision of this Agreement may be
amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in
exercising any power or right under this Agreement operates as a waiver, nor
does any single or partial exercise of any power or right preclude any other or
further exercise thereof or the exercise of any other power or right.
20. TERMINATION. (a) TERMINATION OF ENTIRE AGREEMENT. This Agreement
may be terminated by the Customer or the Custodian by ninety (90) days' written
notice to the other; PROVIDED that notice by the Customer shall specify the
names of the persons to whom the Custodian shall deliver the Securities in each
Account and to whom the Cash in such Account shall be paid. If notice of
termination is given by the Custodian, the Customer shall, within ninety (90)
days following the giving of such notice, deliver to the Custodian a written
notice specifying the names of the persons to whom the Custodian shall deliver
the Securities in each Account and to whom the Cash in such Account shall be
paid. In either case, the Custodian will deliver such Securities and Cash to
the persons so specified, after deducting therefrom any amounts which the
Custodian determines to be owed to it under Sections 12, 17, and 23. In
addition, the Custodian may in its discretion withhold from such delivery such
Cash and Securities as may be necessary to settle transactions pending at the
time of such delivery. The Customer grants to the Custodian a lien and right of
setoff against the Account and all Property held therein from time to time in
the full amount of the foregoing obligations. If within ninety (90) days
following the giving of a notice of termination by the Custodian, the Custodian
does not receive from the Customer a written notice specifying the names of the
persons to whom the Custodian shall deliver the Securities in each Account and
to whom the Cash in such Account shall be paid, the Custodian, at its election,
may deliver such Securities and pay such Cash to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions of this Agreement, or may continue to hold such Securities and Cash
until a written notice as aforesaid is delivered to the Custodian, provided that
the Custodian's obligations shall be limited to safekeeping.
(b) TERMINATION AS TO ONE OR MORE FUNDS. This Agreement may be terminated
by the Customer or the Custodian as to one or more Funds (but less than all of
the Funds) by delivery of an amended Exhibit A deleting such Funds, in which
case termination as to such deleted Funds shall take effect ninety (90) days
after the date of such delivery, or such earlier time as mutually agreed. The
execution and delivery of an amended Exhibit A which deletes one or more Funds
shall constitute a termination of this Agreement only with respect to such
deleted Fund(s), shall be governed by the preceding provisions of Section 20 as
to the identification of a successor custodian and the delivery of Cash and
Securities of the Fund(s) so deleted to such successor custodian, and shall not
affect the obligations of the Custodian and the Customer hereunder with respect
to the other Funds set forth in Exhibit A, as amended from time to time.
21. NOTICES. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand
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<PAGE>
delivered or sent by telex, telegram, cable, facsimile or other means of
electronic communication agreed upon by the parties hereto addressed, if to the
Customer, to:
Mason Street Funds, Inc.
c/o The Northwestern Mutual Life Insurance Company
Public Markets/Investment Operations
720 East Wisconsin Avenue
Milwaukee, WI 53202
if to the Custodian, to:
Bankers Trust Company
14 Wall Street, 3rd Floor
New York, NY 10005
or in either case to such other address as shall have been furnished to the
receiving party pursuant to the provisions hereof and (b) shall be deemed
effective when received, or, in the case of a telex, when sent to the proper
number and acknowledged by a proper answerback.
22. SEVERAL OBLIGATIONS OF THE FUNDS. With respect to any obligations of
the Customer on behalf of each Fund and each of its related Accounts arising out
of this Agreement, the Custodian shall look for payment or satisfaction of any
obligation solely to the assets and property of the Fund and such Accounts to
which such obligation relates as though the Customer had separately contracted
with the Custodian by separate written instrument with respect to each Fund and
its related Accounts.
23. SECURITY FOR PAYMENT. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations; PROVIDED THAT,
if there is more than one Account and the obligations secured pursuant to this
Section can be allocated to a specific Account or the Fund related to such
Account, such security interest and right of setoff will be limited to Property
held for that Account only and its related Fund. Should the Customer fail to
pay promptly any amounts owed hereunder, Custodian shall be entitled to use
available Cash in the Account or applicable Account, as the case may be, and to
dispose of Securities in the Account or such applicable Account as is necessary.
In any such case and without limiting the foregoing, Custodian shall be entitled
to take such other action(s) or exercise such other options, powers and rights
as Custodian now or hereafter has as a secured creditor under the New York
Uniform Commercial Code or any other applicable law.
24. REPRESENTATIONS AND WARRANTIES.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the allocation of fees,
expenses and other charges to any Account as herein provided, is not prohibited
by law or any governing documents or contracts to which the Customer is subject;
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<PAGE>
(ii) the terms of this Agreement do not violate any obligation by
which the Customer is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate action
and when executed and delivered will be binding upon the Customer and each Fund
in accordance with its terms; and
(iv) the Customer will deliver to the Custodian such evidence of such
authorization as the Custodian may reasonably require, whether by way of a
certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any obligation by
which the Custodian is bound, whether arising by contract, operation of law or
otherwise;
(ii) this Agreement has been duly authorized by appropriate action
and when executed and delivered will be binding upon the Custodian in accordance
with its terms;
(iii) the Custodian will deliver to the Customer such evidence of
such authorization as the Customer may reasonably require, whether by way of a
certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a) of the
1940 Act and warrants that it will remain so qualified or upon ceasing to be so
qualified shall promptly notify the Customer in writing.
25. GOVERNING LAW AND SUCCESSORS AND ASSIGNS. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
26. PUBLICITY. Customer shall furnish to Custodian at its office referred
to in Section 21 above, prior to any distribution thereof, copies of any
material prepared for distribution to any persons who are not parties hereto
that refer in any way to the Custodian. Customer shall not distribute or permit
the distribution of such materials if Custodian reasonably objects in writing
within ten (10) business days of receipt thereof (or such other time as may be
mutually agreed) after receipt thereof. The provisions of this Section shall
survive the termination of this Agreement.
27. SUBMISSION TO JURISDICTION. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
28. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
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<PAGE>
29. CONFIDENTIALITY. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is
publicly available when provided or thereafter becomes publicly available other
than through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation.
30. SEVERABILITY. If any provision of this Agreement is determined to be
invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
31. HEADINGS. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
Dated as of: March 3, 1997 MASON STREET FUNDS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
BANKERS TRUST COMPANY
By:
--------------------------
Name:
------------------------
Title:
-----------------------
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<PAGE>
EXHIBIT A
To Custodian Agreement dated as of March 3, 1997 between Bankers Trust
Company and Mason Street Funds, Inc.
LIST OF PORTFOLIOS
The following is a list of Funds referred to in the first WHEREAS clause of
the above-referred to Custodian Agreement. Terms used herein as defined terms
unless otherwise defined shall have the meanings ascribed to them in the above-
referred to Custodian Agreement.
Growth and Income Stock Fund
High Yield Bond Fund
Municipal Bond Fund
Dated as of: March 3, 1997 MASON STREET FUNDS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
BANKERS TRUST COMPANY
By:
--------------------------
Name:
------------------------
Title:
-----------------------
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of March 3, 1997 between Bankers Trust
Company and Mason Street Funds, Inc.
PROXY SERVICE
The following is a description of the Proxy Service referred to in Section
10 of the above referred to Custodian Agreement. Terms used herein as defined
terms shall have the meanings ascribed to them therein unless otherwise defined
below.
The Custodian provides a service, described below, for the transmission of
corporate communications in connection with shareholder meetings relating to
Securities held in Argentina, Australia, Austria, Canada, Denmark, Finland,
France, Germany, Greece, Hong Kong, Indonesia, Ireland, Italy, Japan, Korea,
Malaysia, Mexico, Netherlands, New Zealand, Pakistan, Poland, Singapore, South
Africa, Spain, Sri Lanka, Sweden, United Kingdom, United States, and Venezuela.
For the United States and Canada, the term "corporate communications" means the
proxy statements or meeting agenda, proxy cards, annual reports and any other
meeting materials received by the Custodian. For countries other than the
United States and Canada, the term "corporate communications" means the meeting
agenda only and does not include any meeting circulars, proxy statements or any
other corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting agendas
will be as follows:
1) If the meeting agenda is not provided by the issuer in the English
language, and if the language of such agenda is in the official
language of the country in which the related security is held, the
Custodian will as soon as practicable after receipt of the original
meeting agenda by a Subcustodian provide an English translation
prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished, the
local language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor any
Subcustodian will be liable or held responsible for the accuracy thereof or any
direct or indirect consequences arising therefrom, including without limitation
arising out of any action taken or omitted to be taken based thereon.
If requested, the Custodian will, on a reasonable efforts basis, endeavor
to obtain any additional corporate communication such as annual or interim
reports, proxy statements, meeting circulars, or local language agendas, and
provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon receipt
by the Custodian of notice from a Subcustodian, the Custodian will provide a
notice to the Customer indicating the deadline for receipt of its instructions
to enable the voting process to take place effectively and efficiently. As
voting procedures will vary from market to market, attention to any required
procedures will be very important.
<PAGE>
Upon timely receipt of voting instructions, the Custodian will promptly forward
such instructions to the applicable Subcustodian. If voting instructions are
not timely received, the Custodian shall have no liability or obligation to take
any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to include
jurisdictions which are not currently included as set forth in the second
paragraph hereof. The Custodian will notify the Customer as to the inclusion of
additional countries or deletion of existing countries after their inclusion or
deletion and this Exhibit B will be deemed to be automatically amended to
include or delete such countries as the case may be.
Dated as of: March 3, 1997 MASON STREET FUNDS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
BANKERS TRUST COMPANY
By:
--------------------------
Name:
------------------------
Title:
-----------------------
-2-
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of March 3, 1997 between Bankers Trust
Company and Mason Street Funds, Inc.
CUSTODY FEE SCHEDULE
This Exhibit C shall be amended upon delivery by the Custodian of a new Exhibit
C to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
<PAGE>
EXHIBIT D
To Custodian Agreement dated as of March 3, 1997 between Bankers Trust
Company and Mason Street Funds, Inc.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement, the
Custodian shall perform the following services with respect to withholding taxes
imposed or which may be imposed on income from Property in any Account. Terms
used herein as defined terms shall unless otherwise defined have the meanings
ascribed to them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, PROVIDED THAT the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall be
entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may also
rely on professional tax services published by a major international accounting
firm and/or advice received from a Subcustodian in the jurisdictions in
question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian, counsel or other professional tax advisers and
shall be without liability to the Customer for any action reasonably taken or
omitted pursuant to information contained in such services or such advice.
<PAGE>
Dated as of: March 3, 1997 MASON STREET FUNDS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
BANKERS TRUST COMPANY
By:
--------------------------
Name:
------------------------
Title:
-----------------------
2
<PAGE>
EX-99.B8(c)
CUSTODIAN AGREEMENT
AGREEMENT made as of this ____ day of ___________ 1997 between
MASON STREET FUNDS, INC. ("MSF") on behalf of each of the
series of stock (the "Funds") listed on Appendix A hereto
(initially, International Equity Fund, Asset Allocation Fund,
Aggressive Growth Stock Fund, Growth Stock Fund, High Yield Bond
Fund and Select Bond Fund) as the same may be amended from time
to time, and BROWN BROTHERS HARRIMAN & CO. (the "Custodian").
WITNESSETH
WHEREAS MSF is organized as a Maryland corporation with one or
more series of shares, and is an open-end management investment
company registered with the Securities and Exchange Commission.
WHEREAS MSF wishes to employ the Custodian and the Custodian
has agreed to provide global custody, banking and related
services to each Fund in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, MSF and the Custodian agree as
follows:
1. Appointment of Custodian. Upon the terms and conditions set
forth in this Agreement, the Funds hereby appoint the Custodian
as a custodian, and the Custodian hereby accepts such
appointment. Each Fund shall deliver or shall cause to be
delivered to the Custodian foreign cash, securities and other
property ("Property") owned by the Fund from time to time during
the term of this Agreement. The Custodian shall be under no
<PAGE>
obligation to request or to require that any or all Property of
a Fund be delivered to it, but the Custodian shall have no
responsibility with respect to any Property not delivered to it.
Unless the context otherwise requires, all references in this
Agreement to MSF shall include each Fund.
2. Definitions.
In this Agreement, the following words shall, unless the
context otherwise requires, have the following meanings:
(i) "1940 Act" - the Investment Company Act of 1940 and the
rules and regulations thereunder.
(ii) "Advances" - shall have the meaning ascribed to it in
Section 11 hereof.
(iii) "Agency Accounts" - shall have the meaning ascribed to it
in Section 5 hereof.
(iv) "BBH Accounts" - shall have the meaning ascribed to it in
Section 5 hereof.
(v) "Book-Entry agent" - shall have the meaning ascribed to it
in Section 4.1(b) hereof.
(vi) "Derivative Instruments and Commodities" - any form of risk
transfer contract in which a gain or loss is recognized from
fluctuations in market price levels which include without
limitation futures, forwards, options, swaps, swaptions, forward
rate and forward exchange contracts, leverage or commodity
related similar contracts and any other contract whether traded
on or off an exchange.
(vii) "Electronic Instructions" - shall have the meaning
ascribed to it in Section 8.3 hereof.
(viii) "Electronic Reports" - shall have the meaning ascribed to
it in Section 8.3 hereof.
(ix) "Force Majeure" - shall have the meaning ascribed to it in
Section 10.4 hereof.
(x) "Investments" - assets of a Fund other than Property which
the Custodian may note on its records including without
limitation Derivative Instruments and Commodities.
(xi) "Liability" - shall have the meaning ascribed to it in
Section 11 hereof.
<PAGE>
(xii) "Margin Account" - shall have the meaning ascribed to it
in Section 4.2(d) hereof.
(xiii) "Margin Agreement" - shall have the meaning ascribed to
it in Section 4.2(d) hereof.
(xiv) "Omnibus Accounts" - accounts established in the name of
the Custodian on behalf of its customers in which assets on
deposit with the Custodian by one or several customers may be
deposited. Omnibus Accounts may be established for the purpose
of holding cash or securities.
(xv) "Proper Instructions" - any direction to take or not to
take action in respect of Property or Investments (including
cash) which the Custodian reasonably believes to be sent by an
authorized person and to be genuine. Proper Instructions may be
sent via the media set forth in Section 6 hereof or as otherwise
agreed between the Custodian and the Fund.
(xvi) "Property" - shall have the meaning ascribed to it in
Section 1 hereof.
(xvii) "Securities Accounts" - shall have the meaning ascribed
to it in Section 4 hereof.
(xviii) "Securities Depository" - a generally recognized
book-entry system or clearing agency which acts as a securities
depository in any country in which securities are maintained
under this Agreement and with which the Custodian or
Subcustodian may maintain securities or other investments owned
by or held on behalf of the Funds as trustee for the Funds,
pursuant to the provisions hereof. Securities Depository shall
also include Euroclear and Cedel.
(xix) "Segregated Accounts" - shall have the meaning ascribed to
it in Section 4.2(d) hereof.
(xx) "Subcustodian" - shall mean any subcustodian appointed
pursuant to Section 7 of this Agreement.
(xxi) "Voluntary Corporate Actions" - corporate actions which
require an investment decision.
3. Representations, Warranties and Covenants of each Fund.
Each Fund represents and warrants that the execution, delivery
and performance by the Fund of this Agreement are within the
Fund's corporate, trust or other constitutive powers, have been
duly authorized by all necessary corporate, trust or appropriate
action under its constitutive documents, and do not contravene
<PAGE>
or constitute a default under any provision of applicable law or
regulation or of the constitutive documents of the Fund or of
any agreement, judgment, injunction, order, decree or other
instrument binding upon the Fund. Each Fund agrees to inform the
Custodian reasonably promptly if any statement set forth in this
Section 3 or elsewhere in this Agreement ceases to be true and
correct. Each Fund shall safeguard and shall solely be
responsible for the safekeeping of any testkeys, identification
codes, other security devices or statements of account with
which the Custodian provides it. If and when applicable, each
Fund shall execute a license agreement governing its use of any
electronic instruction system proprietary to the Custodian or an
affiliate of the Custodian.
Each Fund hereby represents and warrants that it has disclosed,
or will fully and adequately disclose, all investments risks,
including without limitation those relating to the custody or
servicing of foreign securities in the markets in which the Fund
invests or intends to invests, to any participants, related
parties, beneficial owners, shareholders or other persons who
have property or contractual rights to or interests in the
Property or other Investments which are the subject of this
Custodian Agreement.
4. Securities Account. Each Fund hereby authorizes the
Custodian to open and maintain, with itself or with
Subcustodians, securities accounts in the name of each Fund (the
"Securities Accounts") and authorizes the Custodian to deposit
or record, as the case may be, in such Securities Account each
Fund's Property delivered to and accepted by the Custodian, or
such other Investments as the Fund requests the Custodian to
record by notation only, in all cases to be managed by the
Investment Adviser. The Custodian shall keep safely all property
delivered to it. In the event of a loss of a Security due to the
Custodian's negligence, bad faith or willful malfeasance, the
Custodian shall be responsible for either replacing the
securities or for reimbursing the Fund the value of the
securities. The Securities Account shall be maintained in the
manner and on the terms set forth below. (All references in this
Section to the Custodian shall include a Subcustodian,
Securities Depository or any agent of the Custodian.)
4.1 Manner of Holding or Recording Securities and Other
Investments -
(a) Securities Represented by Physical Certificates -
Securities represented by share certificates or other
instruments may be held in registered or bearer form (i) in the
Custodian's vault, (ii) in the vault of a Subcustodian or other
agent of the Custodian, (iii) in an account maintained by the
<PAGE>
Custodian or a Subcustodian at a Securities Depository as herein
defined, or (iv) as is customary market practice in the
Custodian's discretion in the country in which settlement is to
occur or for the particular security in respect of which
settlement is instructed.
Securities held at a Subcustodian will be held subject to the
terms of the Subcustodian Agreement in effect between the
Custodian and the Subcustodian. Such securities shall be held in
an account which does not contain assets of the Custodian but
may be held in Omnibus Accounts.
Securities held in a Securities Depository will be held subject
to the agreement, rules, statement of terms and conditions or
other document or conditions effective between the Custodian and
the Securities Depository or the Subcustodian and the Securities
Depository. Such securities shall be held (i) in an account
which contains only assets of the Custodian held as custodian if
such account is maintained by the Custodian with the Securities
Depository, or (ii) in an account which contains assets of the
Subcustodian or other agent held as custodian if such account is
maintained by the Subcustodian or other agent with the
Securities Depository.
Registered securities of each Fund may be registered in the name
of the Custodian, the Fund or a nominee of either of them and
may be held in any manner set forth above, with or without any
indication of fiduciary capacity, provided that securities are
held in an account of the Custodian or a Subcustodian containing
only assets of the Fund or only assets held by the Custodian as
custodian for its customers.
(b) Securities Represented by Book-Entry - Securities
represented by book-entry on the books of the issuer, a
registrar, a clearing agency or other agent of the issuer
("Book-Entry Agent") may be so held in an account of the
Custodian or a Subcustodian or other Agent maintained with such
Book-Entry Agent provided such account contains only assets of
the Fund or only assets held as custodian for customers.
(c) Investments not Represented by Securities - At the specific
request of a Fund, the Custodian may note on its records
Investments owned by the Fund that are not represented by
physical securities or by book-entry on the shareholder register
of the issuer, including without limitation Derivative
Instruments and Commodities. Each Fund acknowledges that such
notation is for recordkeeping purposes only, that the Custodian
may not be able to exercise control over such instruments and
that such instruments may represent contractual rights of the
Fund which the Custodian cannot enforce. The Fund shall be
responsible for requesting that any statements applicable to
such Investments, including brokerage statements, be sent to the
Custodian.
<PAGE>
4.2 Powers and Duties of the Custodian with Respect to the
Securities Account - The Custodian shall have the following
powers and duties with respect to the Securities Account:
(a) Purchases - Upon receipt of Proper Instructions, insofar as
funds are available or as funds are otherwise provided by the
Custodian at its discretion pursuant to Section 11 hereof for
the purpose, to pay for and receive securities purchased for
the account of a Fund, payment being made (i) upon receipt of
the securities by the Custodian, by a clearing corporation of a
national securities exchange of which the Custodian or a
Subcustodian is a member, or by a Securities Depository, or (ii)
otherwise in accordance with (A) governmental regulations, (B)
rules of Securities Depositories or other U.S. or foreign
clearing agencies, (C) generally accepted trade practice in the
applicable local market, (D) the terms of the instrument
representing the security, or (E) the terms of Proper
Instructions.
(b) Sales - Upon receipt of Proper Instructions, to make
delivery of securities which have been sold for the account of a
Fund (i) against payment therefor in cash, by check or by bank
wire transfer; (ii) by credit to the account of the Custodian
or Subcustodian with a clearing corporation of a securities
exchange of which the Custodian or a Subcustodian is a member;
(iii) by credit to the account of the Custodian or Subcustodian
with a Securities Depository; or (iv) otherwise in accordance
with (A) governmental regulations, (B) rules of Securities
Depositories or other U.S. or foreign clearing agencies, (C)
generally accepted trade practice in the applicable local
market, (D) the terms of the instrument representing the
security, or (E) the terms of Proper Instructions.
(c) Other transfers - To deliver Property of a Fund to a
Subcustodian, another custodian or another third party as
necessary to effect transactions authorized by Proper
Instructions, and upon receipt of Proper Instructions, to make
such other disposition of Property of the Fund in a manner other
than or for purposes other than as enumerated elsewhere in this
Agreement, provided that the instructions relating to such
disposition shall state the amount of Property to be delivered
and the name of the person or persons to whom delivery is to be
made.
(d) Futures; Options; Segregated Accounts - Upon the receipt of
Proper Instructions and the execution of any agreements relating
to margin in respect of a Derivative Instrument or Commodity
("Margin Agreements"), to establish and maintain on its books a
segregated account or accounts for and on behalf of any Fund,
into which account or accounts may be transferred cash and/or
securities of the Fund in accordance with the terms of such
Margin Agreements and any Proper Instructions ("Segregated
<PAGE>
Accounts").
Upon receipt of Proper Instructions or upon receipt of
instructions given pursuant to any Margin Agreement, or pursuant
to the terms of such Agreement, the Custodian shall (i) receive
and retain, to the extent the same are provided to the
Custodian, confirmations or other documents evidencing the
purchase or sale of such Derivative Instruments or Commodities
by the Fund; (ii) deposit and maintain, pursuant to a Margin
Agreement, in a segregated account, either physically or by
book-entry in a Securities Depository, for the benefit of any
futures commission merchant ("Margin Account"), or pay pursuant
to Proper Instructions to such futures commission merchant,
securities, cash or other assets designated by the Fund as
initial, maintenance or variation "margin" deposits or other
collateral intended to secure the Fund's performance of its
obligations under the terms of any Derivative Instruments and
Commodities, in accordance with the provisions of any Margin
Agreement relating thereto; and (iii) pay, release and/or
transfer securities, cash or other assets into or out of such
Margin Accounts only in accordance with any such agreement. The
Custodian shall not be responsible for the sufficiency of assets
held in any segregated account established in compliance with
applicable margin maintenance requirements or for the
performance of the other terms of any agreement relating to a
Derivative Instrument or Commodity.
Notwithstanding anything in this Agreement to the contrary, the
Fund agrees that the Custodian's responsibility for any
Derivative Instruments and Commodities shall be limited to the
exercise of reasonable care with respect to any confirmations or
other documents evidencing the purchase or sale of such
Derivative Instrument by the Fund which the Custodian receives.
(e) Stock Lending - Upon receipt of Proper Instructions, to
deliver securities of a Fund, in connection with loans of
securities by the Fund, to the borrower thereof prior to receipt
of the collateral, if any, for such borrowing.
(f) Non-discretionary details - Without the necessity of express
authorization from a Fund, (1) to attend to all nondiscretionary
details in connection with the sale, exchange, substitution,
purchase, transfer or other dealings with securities, funds or
other property of the Fund held by the Custodian except as
otherwise directed from time to time by the Directors or
Trustees of the Fund, and (2) to make payments to itself or
others for minor expenses of handling securities or other
similar items relating to the Custodian's duties under this
Agreement, provided that all such payments shall be accounted
for to the Fund.
4.4 Corporate Actions - Unless the Custodian receives timely
<PAGE>
Proper Instructions to the contrary, the Custodian will perform
or will cause the Subcustodian to perform the following:
(i) exchange securities held by it for the account of a Fund for
other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value,
conversion or other event relating to the securities or the
issuer of such securities, and shall deposit any such securities
in accordance with the terms of any reorganization or protective
plan;
(ii) surrender securities in temporary form for definitive
securities; surrender securities for transfer into the name of
the Custodian, the Fund or a nominee of either of them, as
permitted by Section 4.1(a); and surrender securities for a
different number of certificates or instruments representing the
same number of shares or same principal amount of indebtedness;
(iii) deliver warrants, puts, calls, rights or similar
securities to the issuer or trustee thereof, or to the agent of
such issuer or trustee, for the purpose of exercise or sale, and
deposit securities upon invitations for tenders thereof;
(iv) take all necessary action, unless otherwise directed to the
contrary in Proper Instructions, to comply with the terms of all
mandatory or compulsory exchanges, calls, tenders, redemptions,
or similar rights of security ownership, and shall promptly
notify the Fund of such action, and collect all stock
dividends, rights and other items of like nature;
(v) collect amounts due and payable to a Fund with respect to
portfolio securities of the Fund, and promptly credit to the
account of the Fund all income and other payments relating to
portfolio securities and other assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or
as otherwise agreed in writing by the Custodian and the Fund,
provided that the Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio
securities that are in default;
(vi) endorse and deliver any instruments required to effect
collection of any amount due and payable to a Fund with respect
to securities; execute ownership and other certificates and
affidavits on the Fund's behalf for all federal, state and
foreign tax purposes in connection with receipt of income,
capital gains or other payments with respect to portfolio
securities and other assets of the Fund, or in connection with
the purchase, sale or transfer of such securities or other
assets; and file any certificates or other affidavits for the
refund or reclaim of foreign taxes paid;
(vii) deliver to a Fund all forms of proxies, all notices of
meetings, and any other notices or announcements affecting or
relating to securities owned by the Fund that are received by
<PAGE>
the Custodian, any Subcustodian, or any nominee of either of
them, and, upon receipt of Proper Instructions, the Custodian
shall execute and deliver, or cause such Subcustodian or nominee
to execute and deliver, such proxies or other authorizations as
may be required. Except as directed pursuant to Proper
Instructions, neither the Custodian nor any Subcustodian or
nominee shall vote upon any such securities, or execute any
proxy to vote thereon, or give any consent or take any other
action with respect thereto.
It is agreed that, in the fulfillment of its duties set forth
above, (i) the Custodian shall be responsible for sending to the
Fund all information pertaining to the relevant terms of a
corporate action which it in fact receives, and (ii) the
Custodian shall not be responsible for incorrect information it
receives, or information it has not received, from
industry-accepted third-party securities information vendors.
Notwithstanding any provision of this Agreement to the
contrary, with respect to portfolio securities registered in
so-called street name, the Custodian shall use reasonable
efforts to collect cash or share entitlements due and payable to
the Fund but shall not be responsible for its inability to
collect such cash or share entitlements.
The Custodian shall only be responsible for acting on the
instructions of a Fund in respect of any Voluntary Corporate
Action provided the Custodian has received a Proper Instruction
requesting such action in reasonable time prior to expiration of
such action to ensure that Custodian has sufficient time to take
such action. The deadline for the acceptance of such instruction
may be set forth by the Custodian in its communication of the
terms of such action to the Fund and shall take into
consideration delays which occur due to (i) the involvement of a
Subcustodian, Agent, Securities Depository or other
intermediary; (ii) differences in time zones; or (iii) other
factors particular to a given market, exchange or issuer.
Any advance credit of cash or shares expected to be received as
a result of any corporate event shall be subject to actual
collection and may, when the Custodian deems such collection
unlikely, be reversed by the Custodian upon written notice to a
Fund. As used herein, an "advance credit of cash or shares"
shall mean any credit of cash or shares to any account
maintained hereunder prior to actual receipt and collection of
such cash or shares in anticipation of a distribution expected
to be received in the future.
5. Cash Accounts. Subject to the terms and conditions set forth
in this Section 5, each Fund hereby authorizes the Custodian to
<PAGE>
open and maintain, with itself or with Subcustodians, cash
accounts in the name of each Fund in United States Dollars and
in such other currencies as the Fund shall from time to time
request or as are in the Custodian's discretion required in
order for the Custodian to carry out the terms of this
Agreement. The Custodian shall make payments from or deposits to
any of said accounts upon its receipt of Proper Instructions
from a Fund providing sufficient details to effect such
transaction.
Cash accounts opened on the books of the Custodian ("BBH
Accounts") shall be opened in the name of each Fund. Subject
always to the provisions of Section 10 hereof, the Custodian
shall be principally liable for repayment of any and all
deposits carried on its books as principal, whether denominated
in United States Dollars or in other currencies.
Cash accounts opened on the books of Subcustodians appointed
pursuant to Section 7 hereof may be opened in the name of a Fund
or the Custodian or in the name of the Custodian for its
customers generally ("Agency Accounts"). Such deposits shall be
treated as portfolio securities, and accordingly the Custodian
shall be responsible for the exercise of reasonable care in
respect of the administration of such Agency Accounts but shall
not be liable for their repayment in the event the Subcustodian
fails to make repayment (including in the event of the
Subcustodian's bankruptcy or insolvency.) Both BBH Accounts and
Agency Accounts shall have the benefit of the provisions of
Section 10 of this Agreement.
Each Fund bears all risks of holding or transacting in any
currency. Any credit made to any Agency or BBH Account shall
be provisional and may be reversed by the Custodian in the event
such payment is not actually collected.
The Custodian shall not be liable for any loss or damage
arising from the applicability of any law or regulation now or
hereafter in effect, or from the occurrence of any event, which
may delay or affect the transferability, convertibility, or
availability of any currency in the country (i) in which such
BBH or Agency Accounts are maintained or (ii) in which such
currency is issued, and in no event shall the Custodian be
obligated to make payment of a deposit denominated in a currency
during the period during which its transferability,
convertibility or availability has been affected by any such
law, regulation or event. Without limiting the generality of the
foregoing, neither the Custodian nor any Subcustodian shall be
required to repay any deposit made at a foreign branch of either
the Custodian or Subcustodian if such branch cannot repay the
deposit due to (i) an act of war, insurrection or civil strife;
or (ii) an action by a foreign government or instrumentality,
whether de jure or de facto, in the country in which the branch
is located preventing such repayment, unless the Custodian or
such Subcustodian expressly agrees in writing to repay the
<PAGE>
deposit under such circumstances.
All currency transactions in any account opened pursuant to
this Agreement are subject to exchange control regulations of
the United States and of the country where such currency is the
lawful currency or where the account is maintained. Any taxes,
costs, charges or fees imposed on the convertibility of a
currency held by the Fund shall be for the account of the Fund.
In the event a delay is caused by the negligence or willful
misconduct of the Custodian in carrying out a Proper Instruction
to transfer cash, the Custodian shall be liable to a Fund for
interest to be calculated at the rate customarily paid by the
Custodian on overnight deposits at the time the delay occurs for
the period from the day when the transfer would have been
effected until the day it is in fact effected. The Custodian
shall not be liable for delays in carrying out such instructions
to transfer cash which are not due to the Custodian's own
negligence or willful misconduct.
5.1 Foreign Exchange Transactions - The Custodian shall,
pursuant to Proper Instructions, settle foreign exchange
contracts or options to purchase and sell foreign currencies for
spot and future delivery on behalf and for the account of each
Fund with such currency brokers or banking institutions,
including Subcustodians, as the Fund may direct pursuant to
Proper Instructions. The Custodian shall be responsible for the
transmission of cash and instructions to and from the currency
broker or banking institution with which the contract or option
is made, the safekeeping of all certificates and other documents
and agreements evidencing or relating to such foreign exchange
transactions as the Custodian may receive. In connection with
such transactions, the Custodian is authorized to make free
outgoing payments of cash in the form of U. S. Dollars or
foreign currency without receiving confirmation of a foreign
exchange contract or option or confirmation that the
countervalue currency completing the foreign exchange contract
has been delivered or received or that the option has been
delivered or received. The Fund accepts full responsibility for
its use of third-party foreign exchange dealers and for
execution of said foreign exchange contracts and options and
understands that the Fund shall be responsible for any and all
costs and interest charges which may be incurred by a Fund or
the Custodian as a result of the failure or delay of third
parties to deliver foreign exchange.
Foreign exchange transactions (including without limitation
contracts, futures, options, and options on futures) other than
those executed with the Custodian as principal, but including
those executed with Subcustodians, shall be deemed to be
portfolio securities of a Fund and accordingly the Custodian
shall only be responsible for delivering or receiving currency
<PAGE>
in respect of such contracts pursuant to Proper Instructions
subject to the fourth paragraph of this Section 5. The Custodian
shall not be responsible for the failure of any counterparty in
such agency transaction to perform its obligations thereunder.
Alternatively, such transactions may be undertaken by the
Custodian as principal, if instructed by a Fund which
instructions may be in the form of a standing instruction. The
obligations of the Custodian in respect of all foreign exchange
transactions shall be contingent on the free, unencumbered
transferability of the currency transacted on the actual
settlement date of the transaction.
In the event a delay is caused by the negligence or willful
misconduct of the Custodian in carrying out a Proper Instruction
to transfer cash, the Custodian shall be liable to a Fund for
interest to be calculated at the rate customarily paid by the
Custodian on overnight deposits at the time the delay occurs for
the period from the day when the transfer would have been
effected until the day it is in fact effected. The Custodian
shall not be liable for delays in carrying out such instructions
to transfer cash which are not due to the Custodian's own
negligence or willful misconduct.
6. Proper Instructions. Proper Instructions shall include, in
the following order of the preferred method of giving such
instructions, authenticated electromechanical communications
including direct electronic transmissions, authenticated SWIFT
and tested telex; a written request signed by two or more
authorized persons as set forth below; telefax transmissions;
oral instructions, including telephone; and such other methods
of communicating Proper Instructions as the parties hereto may
from time to time agree. Each of the first four methods of
communicating Proper Instructions is described and defined below
and may from time to time be described and defined in written
operating memoranda between the Custodian and the Fund. The
Custodian is hereby authorized to act on instructions sent via
any of the foregoing methods from any director, employee or
officer of the Fund or from the investment manager or other
agent as the Fund shall from time to time instruct.
Authenticated electro-mechanical communications shall include
communications effected directly between electromechanical or
electronic devices or systems, including authenticated SWIFT and
tested telex transmissions, and other forms of communications
involving or between such electro-mechanical or electronic
devices or systems as the parties may from time to time agree
upon in writing. In the event media other than tested telex
transmissions are agreed upon, the Custodian may in its
discretion require that the Fund and the Custodian enter into
<PAGE>
certain operating memoranda which shall set forth the media
through which such Proper Instructions shall be transmitted and
the data which must be included in such Proper Instructions in
order for such instructions to be complete. Once such operating
memoranda shall have been instituted, the Fund shall be
responsible for sending instructions which meet the requirements
set forth in such operating memoranda and the Custodian shall
only be responsible for acting on instructions which meet such
requirements. The Custodian shall not be liable for damages of
any kind, including direct or consequential losses resulting
from technical failures or communications system failures of any
kind in respect of instructions sent or attempted to be sent via
electromechanical or electronic communications.
A written request signed by two or more authorized persons
shall include a written request, direction, instruction or
certification signed or initialed on behalf of the Fund by two
or more persons as the Directors shall have from time to time
authorized, or by such other written procedure as the Custodian
and the Fund shall from time to time agree in writing. Those
persons authorized to give Proper Instructions may be identified
by the Directors by name, title or position and will include at
least one officer empowered by the Directors to name other
individuals or entities who are authorized to give Proper
Instructions on behalf of the Fund (including any of its
directors, employees or agents or any investment manager or
adviser or person or entity with similar responsibilities which
is authorized to give Proper Instructions on behalf of the Fund
to the Custodian).
Telephonic or other oral instructions or instructions given by
telefax transmission may be given by any one of the Persons
referred to in the preceding paragraph and will be considered
Proper Instructions if the Custodian believes them to have been
given by a person authorized to give such instructions with
respect to the transaction involved.
With respect to telefax transmissions, the Fund and the
Custodian hereby acknowledge that receipt of legible
instructions cannot be assured, and that the Custodian cannot
verify that authorized signatures on telefax instructions are
original or properly affixed. Accordingly, the Custodian shall
not be responsible for losses or expenses incurred through
actions taken in reliance on inaccurately stated, illegible or
unauthorized telefax instructions.
Oral instructions will be confirmed by authenticated
electro-mechanical communications or written instructions in the
manner set forth above, but the lack of such confirmation shall
in no way affect any action taken by the Custodian in reliance
upon such oral instructions. The Fund hereby authorizes the
Custodian to tape record any and all telephonic or other oral
instructions given to the Custodian by or on behalf of the Fund
(including any of its directors, employees or agents or any
<PAGE>
investment manager or adviser or person or entity with similar
responsibilities which is authorized to give Proper Instructions
on behalf of the Fund to the Custodian).
Proper Instructions may relate to specific transactions or to
types or classes of transactions, and may be in the form of
standing instructions.
The Custodian shall not be responsible for its failure to act on
any instruction received from the Fund which the Custodian in
good faith believes does not meet the requirements set forth
herein.
The Fund hereby authorizes the Custodian to act on instructions
received from an Investment Adviser authorized pursuant to this
Section, provided the Custodian reasonably believes such
instruction to have been sent by an authorized person at the
Investment Adviser or by tested telex, SWIFT or other electronic
devices or systems to which the Custodian and the Fund or the
Investment Adviser have agreed, such instructions to be deemed
proper instructions under this Section 6. Such instructions
shall be deemed Proper Instructions and accordingly shall have
the benefit of the indemnification provision of Section 10.2
hereof.
7. Authority to Appoint Subcustodians and Agents and to Utilize
Securities Depositories. Subject to the provisions hereinafter
set forth in this Section 7, the Fund hereby authorizes the
Custodian to utilize Securities Depositories to act on behalf of
the Fund or to appoint from time to time Subcustodians.
The Custodian may deposit and/or maintain Property of the Fund
in any Securities Depository abroad provided such System meets
the requirements of an "eligible foreign custodian" under
Section 17(f) of the 1940 Act and the rules and regulations
thereunder or which by order of the Securities and Exchange
Commission is exempted therefrom. The Custodian may deposit
and/or maintain, either directly or through one or more agents
appointed by the Custodian, Property of the Fund in any
Securities Depository in the United States, including The
Depository Trust Company, provided such Depository meets
applicable requirements of the Federal Reserve Bank or of the
Securities and Exchange Commission. Notwithstanding anything in
this Agreement to the contrary, any Property held in a
Securities Depository, whether or not the Custodian is a direct
participant or member, will be held subject to the rules,
regulations, operating memoranda or other conditions of
participation in such System.
The Custodian may, at any time and from time to time, appoint
<PAGE>
any bank as defined in Section 2(a)(5) of the 1940 Act meeting
the requirements of a custodian under Section 17(f) of the 1940
Act and the rules and regulations thereunder, to act on behalf
of the Fund as a subcustodian for purposes of holding Property
of the Fund in the United States. Additionally, the Custodian
may, at any time and from time to time, appoint (i) any bank,
trust company or other entity meeting the requirements of an
"eligible foreign custodian" under Section 17(f) of the 1940 Act
and the rules and regulations thereunder or by order of the
Securities and Exchange Commission exempted therefrom, or (ii)
any bank as defined in Section 2(a)(5) of the 1940 Act meeting
the requirements of a custodian under Section 17(f) of the 1940
Act and the rules and regulations thereunder, to act on behalf
of the Fund as a subcustodian for purposes of holding Property
of the Fund outside the United States. Any bank appointed
pursuant to the foregoing provisions shall be a Subcustodian.
Prior to the appointment of any Subcustodian for purposes of
holding Property of a Fund outside the United States, the
Custodian shall have obtained written confirmation of the
approval of the Board of Directors of MSF with respect to (i)
the identity of a Subcustodian, (ii) the country or countries in
which, and the Securities Depositories, if any, through which,
any proposed Subcustodian is authorized to hold Property of the
Fund, and (iii) the subcustodian agreement which shall govern
such appointment. Each such duly approved Subcustodian and the
countries where and Securities Depositories through which they
may hold Property of the Customer shall be listed in an Appendix
(initially, Appendix C for the International Equity Fund,
Appendix D for the Asset Allocation Fund, Appendix E for the
Aggressive Growth Stock Fund, Appendix F for the Growth Stock
Fund, Appendix G for the Select Bond Fund and Appendix H for the
High Yield Bond Fund) attached hereto as the same may from time
to time be amended. The Custodian may, at any time in its
discretion, remove any Subcustodian that has been appointed as
such but will promptly notify the Fund of any such action.
The Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be
held in a country in which no Subcustodian is authorized to act
in order that the Custodian shall have sufficient time to
establish a subcustodial arrangement in accordance herewith. In
the event, however, the Custodian is unable to establish such
arrangements prior to the time such investment is to be
acquired, the Custodian is authorized to designate at its
discretion a local safekeeping agent, and the use of such local
safekeeping agent shall be at the sole risk of the Fund, and
accordingly the Custodian shall be responsible to the Fund for
the actions of such agent if and only to the extent the
Custodian shall have recovered from such agent for any damages
caused the Fund by such agent.
With respect to securities and funds held by a Subcustodian,
either directly or indirectly (including by a Securities
<PAGE>
Depository or clearing agency), notwithstanding any provisions
of this Agreement to the contrary, payment for securities
purchased and delivery of securities sold may be made prior to
receipt of securities or payment, respectively, and securities
or payment may be received in a form, in accordance with
governmental regulations, rules of securities depositories and
clearing agencies, or generally accepted trade practice in the
applicable local market.
In the event the Custodian receives a claim from a Subcustodian
under the indemnification provisions of any subcustodian
agreement, the Custodian shall promptly give written notice to
the Fund of such claim. No more than thirty days after written
notice to the Fund of the Custodian's intention to make such
payment, the Fund will reimburse the Custodian the amount of
such payment except in respect of any negligence or misconduct
of the Custodian.
8. Reporting; Records. The Custodian shall have and perform the
following duties with respect to recordkeeping.
8.1 Records - The Custodian shall create, maintain and
retain such records relating to its activities and obligations
under this Agreement as will enable the Custodian to comply with
its obligations hereunder and as are customarily maintained by a
professional custodian.
8.2 Access to Records - The books and records maintained by
the Custodian pursuant to this Section 8 shall at reasonable
times during the Custodian's regular business hours be open to
inspections and audit by the Auditors and by employees and
agents of the Fund provided that all such individuals shall
observe all security requirements of the Custodian applicable to
its own employees having access to similar records and such
rules as may be reasonably imposed by the Custodian.
8.3 Electronic Records and Communications - The Custodian may
make any of its records available to the Fund via electronic
reporting which may include without limitation on-line software
systems ("Electronic Reports"). The Fund understands that such
Electronic Reports may include data provided to the Custodian by
outside sources which may not have been independently verified
by the Custodian and is subject to change. Accordingly, the
Custodian shall not be liable for inaccuracies, errors or
incomplete information furnished by such sources.
The Custodian may also make available to the Fund certain
software to be used to initiate payment and securities transfer
instructions, affirm brokerage transactions reported through the
Institutional Delivery System or initiate other transaction
<PAGE>
instructions for the Custodian's processing ("Electronic
Instructions").
The Fund agrees that it shall be responsible for protecting and
maintaining the confidentiality and security of any codes
assigned in respect of the Fund's access to such Electronic
Reports or Electronic Instructions and that any instructions
received through such system using the client code assigned to
the Fund shall be deemed to have originated from the Fund and to
be Proper Instructions.
The Custodian shall not be responsible for information added
to, changed or omitted by electronic programming malfunction,
unauthorized access or other failure of such systems unless such
actions are the direct result of the Custodian's negligence, bad
faith or willful malfeasance.
8.4 Review of Records - The Fund agrees to examine all records
howsoever produced or transmitted promptly upon receipt thereof
and to notify the Custodian promptly of any discrepancy or error
therein. Unless the Fund delivers written notice of any such
discrepancy or error to the Custodian within a reasonable period
of time after its receipt thereof, such records shall be deemed
true and accurate.
8.5 Appointment as Recordkeeping and Net Asset Value Calculation
Agent - The Custodian is hereby appointed recordkeeping and net
asset value calculation agent for the International Equity Fund
only, responsible for creating, maintaining and retaining such
records relating to its obligations under this Agreement as are
required under the 1940 Act (including Section 31 thereof and
Rules 31a-1 and 31a-2 thereunder). All such records will be the
property of the Fund.
The Custodian shall compute and determine the net asset value
per share of the Fund as of the close of business on the New
York Stock Exchange on each day on which such Exchange is open,
unless otherwise directed by Proper Instructions. Such
computation and determination shall be made in accordance with
(1) the provisions of MSF's Certificate of Incorporation and
By-Laws, as they may from time to time be amended and delivered
to the Custodian, (2) the votes of the Board of Directors of the
Fund at the time in force and applicable, as they may from time
to time be delivered to the Custodian, and (3) Proper
Instructions. On each day that the Custodian shall compute the
net asset value per share of the Fund, the Custodian shall
provide the Fund with written reports which permit the Fund to
verify that portfolio transactions have been recorded in
accordance with the Fund's instructions and are reconciled with
the Fund's trading records.
In computing the net asset value, the Custodian may rely upon
any information furnished by Proper Instructions, including
without limitation any information (1) as to accrual of
<PAGE>
liabilities of the Fund and as to liabilities of the Fund not
appearing on the books of account kept by the Custodian, (2) as
to the existence, status and proper treatment of reserves, if
any, authorized by the Fund, (3) as to the sources of quotations
to be used in computing the net asset value, including those
listed in Appendix B, (4) as to the fair value to be assigned to
any securities or other property for which price quotations are
not readily available, and (5) as to the sources of information
with respect to "corporate actions" affecting portfolio
securities of the Fund, including those listed in Appendix B.
(Information as to "corporate actions" shall include information
as to dividends, distributions, stock splits, stock dividends,
rights offerings, conversions, exchanges, recapitalizations,
mergers, redemptions, calls, maturity dates and similar
transactions, including the ex- and record dates and the amounts
or other terms thereof.)
In like manner, the Custodian shall compute and determine the
net asset value as of such other times as the Board of Directors
of the Fund from time to time may reasonably request.
Notwithstanding any other provisions of this Agreement,
including Section 10.1, the following provisions shall apply
with respect to the Custodian's foregoing responsibilities in
this Section 8.5: The Custodian shall be held to the exercise of
reasonable care in computing and determining net asset value as
provided in this Section 5.4, but shall not be held accountable
or liable for any losses, damages or expenses the Fund or any
shareholder or former shareholder of the Fund or any other
person may suffer or incur arising from or based upon errors or
delays in the determination of such net asset value unless such
error or delay was due to the Custodian's negligence or reckless
or willful misconduct in determination of such net asset value.
(The parties hereto acknowledge, however, that the Custodian's
causing an error or delay in the determination of net asset
value may, but does not in and of itself, constitute negligence
or reckless or willful misconduct.) In no event shall the
Custodian be liable or responsible to the Fund, any present or
former shareholder of the Fund or any other person for any error
or delay which continued or was undetected after the date of an
audit performed by the certified public accountants employed by
the Fund if, in the exercise of reasonable care in accordance
with generally accepted accounting standards, such accountants
should have become aware of such error or delay in the course of
performing such audit. The Custodian's liability for any such
negligence or reckless or willful misconduct which results in an
error in determination of such net asset value shall be limited
to the direct, out-of-pocket loss the Fund, shareholder or
former shareholder shall actually incur, measured by the
difference between the actual and the erroneously computed net
asset value, and any expenses the Fund shall incur in connection
with correcting the records of the Fund affected by such error
(including charges made by the Fund's registrar and transfer
<PAGE>
agent for making such corrections) or communicating with
shareholders or former shareholders of the Fund affected by such
error.
Without limiting the foregoing, the Custodian shall not be held
accountable or liable to the Fund, any shareholder or former
shareholder thereof or any other person for any delays or
losses, damages or expenses any of them may suffer or incur
resulting from (1) the Custodian's failure to receive timely and
suitable notification concerning quotations or corporate actions
relating to or affecting portfolio securities of the Fund or (2)
any errors in the computation of the net asset value based upon
or arising out of quotations or information as to corporate
actions if received by the Custodian either (i) from a source
which the Custodian was authorized pursuant to the third
paragraph of this Section 8.5 to rely upon, or (ii) from a
source which in the Custodian's reasonable judgment was as
reliable a source for such quotations or information as the
sources authorized pursuant to that paragraph. Nevertheless,
the Custodian will use its best judgment in determining whether
to verify through other sources any information it has received
as to quotations or corporate actions if the Custodian has
reason to believe that any such information might be incorrect.
In the event of any error or delay in the determination of such
net asset value for which the Custodian may be liable, the Fund
and the Custodian will consult and make good faith efforts to
reach agreement on what actions should be taken in order to
mitigate any loss suffered by the Fund or its present or former
shareholders, in order that the Custodian's exposure to
liability shall be reduced to the extent possible after taking
into account all relevant factors and alternatives. Such
actions might include the Fund or the Custodian taking
reasonable steps to collect from any shareholder or former
shareholder who has received any overpayment upon redemption of
shares such overpaid amount or to collect from any shareholder
who has underpaid upon a purchase of shares the amount of such
underpayment or to reduce the number of shares issued to such
shareholder. It is understood that in attempting to reach
agreement on the actions to be taken or the amount of the loss
which should appropriately be borne by the Custodian, the Fund
and the Custodian will consider such relevant factors as the
amount of the loss involved, the Fund's desire to avoid loss of
shareholder good will, the fact that other persons or entities
could have been reasonably expected to have detected the error
sooner than the time it was actually discovered, the
appropriateness of limiting or eliminating the benefit which
shareholders or former shareholders might have obtained by
reason of the error, and the possibility that other parties
providing services to the Fund might be induced to absorb a
portion of the loss incurred.
<PAGE>
9. Responsibility of Custodian. In carrying out the provisions
of this Agreement, the Custodian shall be held to the exercise
of reasonable care, provided that the Custodian shall not
thereby be required to take any action which is in contravention
of any law, rule or regulation or any order of any court of
competent jurisdiction. As used in this Agreement, "reasonable
care" shall mean the level of care which a professional
custodian providing custody services to institutional investors
would provide in light of the circumstances and events which
reasonably influence its performance in the market where the
securities are held or the transaction is effected, including
without limitation local market practices relating to securities
settlement and safekeeping, and "negligence" shall mean the
failure to exercise reasonable care as herein defined. The
Custodian shall, subject to the provisions set forth in Sections
9 and 10 hereof, be responsible to the Fund for any direct
losses, costs or expenses which the Fund incurs by reason of the
Custodian's negligence, bad faith or willful malfeasance.
With respect to securities and funds held by a Subcustodian,
either directly or indirectly (including by a Securities
Depository or foreign clearing agency), including demand and
interest bearing deposits, currencies or other deposits and
foreign exchange contracts as referred to herein, the Custodian
shall be liable to the Fund if and only to the extent that such
Subcustodian is liable to the Custodian and the Custodian
recovers under the applicable subcustodian agreement.
With respect to the securities, cash and other Property of the
Fund held by a Securities Depository utilized by the Custodian
or any Subcustodian or any agent of the Custodian, the Custodian
shall not be liable for the acts and omissions of such
Securities Depository, provided however that the Custodian
shall be liable to the Fund only for any direct loss or damage
to the Fund resulting from use of the Securities Depository if
caused by the negligence, bad faith or willful malfeasance of
the Custodian.
10. Limitations to Custodian's responsibility.
10.1 Liability in General - Except as otherwise provided in
this Agreement, the Custodian shall be responsible for loss or
damage which the Fund may incur by reason of the Custodian's
failure to meet the standard of care set forth herein, provided
always that such loss or damage shall be limited to direct
damages incurred by the Fund without taking into account special
circumstances, and provided further that the Custodian shall in
no event be liable for losses arising from indirect or
<PAGE>
consequential damages or from loss of goodwill, even if the
Custodian has been advised of the likelihood of such loss or
damage and regardless of the form of action.
10.2 Liability of the Custodian with Respect to Proper
Instructions; Evidence of Authority; Etc. - The Custodian shall
not be liable for, and shall be indemnified by the Fund for
losses or damages incurred or assessed against the Custodian as
a result of, any action taken or omitted in reliance upon Proper
Instructions or upon any other written notice, request,
direction, instruction, certificate or other instrument believed
by it to be genuine.
The Custodian shall be entitled, at the expense of the Fund, to
receive and act upon advice of (a) its own counsel or counsel
which it selects, (b) counsel for the Fund, or (c) such other
counsel as the Fund and the Custodian may agree upon, with
respect to all matters. The Custodian shall be without liability
for any action taken or omitted pursuant to such advice.
10.3 Title to securities, fraudulent securities - So long as
and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity
or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Agreement.
10.4 Force Majeure - Notwithstanding any other provision
contained herein, the Custodian shall not be liable for any
action taken, or for any failure to take any action required to
be taken hereunder or otherwise for its failure to fulfill its
obligations hereunder (including without limitation the failure
to receive or deliver securities or the failure to receive or
make any payment) in the event and to the extent that the taking
of such action or such failure arises out of or is caused by
civil commotion, act of God, accident, fire, water damage,
explosion, mechanical breakdown, computer or system failure or
other equipment failure, malfunction or failure caused by
computer virus, failure or malfunctioning of any communications
medium for whatever reason, interruption (whether partial or
total) of power supplies or other utility service, strike or
other stoppage (whether partial or total) of labor, market
conditions which prevent the orderly execution of securities
transactions or affect the value of Property, any law, decree,
regulation or order of any government or governmental body, de
facto or de jure (including any court or tribunal), or any other
cause whatsoever (whether similar or dissimilar to the
foregoing) beyond its control or the control of its
Subcustodian or other agent (collectively, "Force Majeure").
10.5 Sovereign Risk - Without limiting the generality of the
foregoing Section 10.4, the Custodian shall not be liable for
any losses resulting from a Sovereign Risk. As used herein, a
Sovereign Risk shall mean any loss, cost, delay or other effect
directly or indirectly arising from any acts of war, terrorism,
<PAGE>
riot or insurrection; the imposition of exchange control
restrictions; confiscation, expropriation or nationalization of
any property including without limitation cash, cash
equivalents, securities or the assets of any issuer of
securities by any governmental or quasi-governmental authority
(including without limitation those authorities which are
judicial, legislative, executive, military or religious in
nature), whether de facto or de jure; or any other political
risk (whether similar or dissimilar to the foregoing) incurred
in respect of the country in which the issuer of such securities
is organized or in which such securities are held or such
payments are held or effected.
10.6 Foreign Currency Risks - The Fund bears all risks of
holding or transacting in any currency. Without limiting the
generality of the foregoing, the Fund bears all risks that rules
or procedures imposed by Securities Depositories, exchange
controls, asset freezes or other laws or regulations shall
prohibit or impose burdens on or costs relating to the transfer
of, by or for the account of the Fund securities, cash or
currency held outside the United States or denominated in a
currency other than U. S. dollars or on the conversion of any
currency so held. The Custodian shall in no event be obligated
to substitute another currency (including U.S. dollars) for a
currency whose transferability, convertibility or availability
has been affected by any such law, regulation, rule or procedure.
10.7 Investment Risks not assumed by Custodian - The Custodian
shall have no liability in respect of any loss, damage or
expense suffered by the Fund, insofar as such loss, damage or
expense arises from commercial or other investment risks
inherent in investing in capital markets or of holding
securities in a particular jurisdiction or country including
without limitation: (i) political, legal, economic, settlement
and custody infrastructure, exchange rate and currency risks;
(ii) investment and repatriation restrictions; (iii) the Fund's
or Custodian's inability to protect and enforce any local legal
rights including rights of title and beneficial ownership; (iv)
corruption and crime in the local market; (v) unreliable
information which emanates from the local market; (vi)
volatility of banking and financial systems and infrastructure;
(vii) bankruptcy and insolvency risks of any and all local
banking agents, counterparties to cash and securities
transactions or registrars or transfer agents; and (viii) risk
of issuer insolvency or default.
10.8 Investment Limitations - In performing its duties
generally, and more particularly in connection with the
purchase, sale and exchange of securities made by or for the
Fund, the Custodian may assume unless and until notified in
writing to the contrary that Proper Instructions received by it
are not in conflict with or in any way contrary to any
provisions of MSF's Certificate of Incorporation or By-Laws or
votes or proceedings of the shareholders or Directors of the
<PAGE>
Fund. The Custodian shall in no event be liable to the Fund and
shall be indemnified by the Fund for any violation which occurs
in the course of carrying out instructions given by the Fund or
any Investment Adviser of any investment limitations to which
the Fund is subject or other limitations with respect to the
Fund's powers to make expenditures, encumber securities, borrow
or take similar actions affecting the Fund.
10.9 Foreign Ownership Limitations - The Fund shall be
responsible for monitoring foreign ownership limitations in any
markets in which it invests.
10.10 Restricted Securities - The Custodian shall only be
responsible for notifying the Fund of any restrictions on the
transfer of securities held in the Securities Account of which
the Custodian is in fact aware. In no event shall the Custodian
be responsible for the inability of a Fund to sell or transfer
restricted securities if such inability is the result of the
terms of the security itself, actions of the issuer, its Board,
its Counsel or other representative (including without
limitation its registrar), or limitations due to laws,
regulations or other applicable rules. The Custodian shall only
be responsible for passing on information on those corporate
actions in respect of restricted securities which it in fact
receives.
10.11 Market Information - The Custodian may in its discretion
make market information available to the Fund. This service is
for informational purposes only and is not to be construed as a
recommendation to buy or sell a particular security, to invest
or not to invest in a particular country, or to take any action
whatsoever. Although information reported therein is believed to
be accurate, the Custodian cannot guarantee its accuracy or
completeness. The Fund accordingly acknowledges that the
Custodian provides market information on a best efforts basis
and recognizes its responsibility to consult with its own
independent sources before making any investment or other
decisions.
11. Advances and Security for Advances. In the event that the
Custodian is directed by Proper Instructions to make any payment
or transfer of funds from any BBH or Agency Account on behalf of
any Fund for which there would be, at the close of business on
the date of such payment or transfer, whether known at that time
or subsequently determined, insufficient funds held by the
Custodian or any Subcustodian, Securities Depository, or
otherwise on behalf of the Fund, or if the Custodian or any
nominee thereof shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with
the performance of this Agreement (collectively a "Liability"),
<PAGE>
the Custodian may, in its discretion without further Proper
Instructions, provide or authorize an advance ("Advance") for
the account of the Fund in an amount sufficient to satisfy such
liability or to allow the completion of the transaction by
reason of which such payment or transfer of funds is to be made.
Any Advance shall be payable on demand made by the Custodian,
unless otherwise agreed by the Fund and the Custodian, and shall
accrue interest from the date of the Advance to the date of
payment by the Fund at a rate agreed upon from time to time by
the Custodian and the Fund or otherwise at the rate the
Custodian customarily charges on loans to customers. It is
understood that any transaction in respect of which the
Custodian shall have made an Advance, including but not limited
to a foreign exchange contract or transaction in respect of
which the Custodian is not acting as a principal, is for the
account of and at the risk of the Fund, and not, by reason of
such Advance, deemed to be a transaction undertaken by the
Custodian for its own account and risk. If the Custodian shall
make or authorize any Advance to the Fund, then in such event
any property at any time held for the account of the Fund by the
Custodian, a Subcustodian, a Securities Depository or otherwise
("Collateral") shall be security for such Liability or for such
Advance and the interest thereon, and if the Fund shall fail to
pay such Advance or interest when due or shall fail to reimburse
or indemnify the Custodian promptly in respect of a Liability,
the Custodian shall be entitled to utilize available cash and to
dispose of the Fund's property, including securities and
balances in any BBH or Agency Account, to the extent necessary
(which shall include the right to sell or assign securities or
otherwise assign its security interest to third parties) to
obtain repayment, reimbursement or indemnification.
For purposes of this Section 11, all such Collateral shall be
treated as investment securities pursuant to revised Articles 8
and 9 of the Uniform Commercial Code, whether such Articles have
in fact been adopted in the jurisdiction in which the securities
are held or the Advance is granted. Accordingly, with respect to
any Collateral, the Custodian shall have the rights and benefits
of a secured creditor and of a securities intermediary under the
Uniform Commercial Code as heretofore revised.
Deposits maintained in Agency Accounts and BBH Accounts
(including all accounts denominated in any currency) shall
collectively constitute a single and indivisible current account
with respect to the Fund's obligations to the Custodian or
Subcustodian hereunder. Accordingly, balances in all such Agency
and BBH Accounts shall at all times be available for
satisfaction of the Fund's obligations under this Agreement to
the Custodian or any of its Subcustodians or agents including
without limitation any Advances incurred pursuant to this
Section.
<PAGE>
12. Compensation. The Fund shall pay the Custodian a custody fee
based on such fee schedule as may from time to time be agreed
upon in writing by the Custodian and the Fund. Such fee,
together with all out-of-pocket expenses for which the Custodian
is to be reimbursed, shall be billed to the Fund and be paid by
cash or wire transfer to the Custodian.
13. Termination. This Agreement shall continue in full force and
effect until terminated by either party by an instrument in
writing delivered or mailed, postage prepaid, to the other
party, such termination to take effect not sooner than sixty
(60) days after the date of such delivery or mailing. In the
event of termination the Custodian shall be entitled to receive
prior to delivery of the securities, funds and other Property
held by it all accrued fees and unreimbursed expenses and all
Advances and Liabilities, upon receipt by the Fund of a
statement setting forth such fees, expenses, Advances and
Liabilities.
In the event of the appointment of a successor custodian, it is
agreed that the funds and securities owned by the Fund and held
by the Custodian or any Subcustodian shall be delivered to the
successor custodian, and the Custodian agrees to cooperate with
the Fund in execution of documents and performance of other
actions necessary or desirable in order to substitute the
successor custodian for the Custodian under this Agreement.
14. Miscellaneous. The following miscellaneous provisions shall
govern the relationship between the parties --
14.1. Execution of Documents, Etc. -
(a) Actions by the Fund - Upon request, the Fund shall
execute and deliver to the Custodian such proxies, powers of
attorney or other instruments as may be reasonable and necessary
or desirable in connection with the performance by the Custodian
or any Subcustodian of their respective obligations to the Fund
under this Agreement or any applicable subcustodian agreement
with respect to the Fund.
(b) Actions by Custodian - Upon receipt of Proper
Instructions, the Custodian shall execute and deliver to the
trustee or to such other parties as the Fund may designate in
such Proper Instructions, all such documents, instruments or
<PAGE>
agreements as may be reasonable and necessary or desirable in
order to effectuate any of the transactions contemplated hereby.
14.2. Entire Agreement - This Agreement constitutes the entire
understanding and agreement of the Fund, on the one hand, and
the Custodian, on the other, with respect to the subject matter
hereof and accordingly, supersedes as of the effective date of
this Agreement any custodian agreement or other oral or written
agreements heretofore in effect between the Fund and the
Custodian with respect to custody of the Fund's Property.
14.3. Waivers and Amendments - No provision of this Agreement
may be waived, amended or terminated except by a statement in
writing signed by the party against which enforcement of such
waiver, amendment or termination is sought; provided however any
appendix or addendum to this Agreement may be added or amended
from time to time by the Fund's execution and delivery to the
Custodian of such appendix or addendum, in which case the terms
thereof shall take effect immediately upon execution by the
Custodian or otherwise as set forth in this Agreement.
14.4. Interpretation - In connection with the operation of
this Agreement, the Custodian and the Fund may agree in writing
from time to time on such provisions interpretative of or in
addition to the provisions of this Agreement with respect to the
Fund as may be consistent with the general tenor of this
Agreement. No interpretative or additional provisions made as
provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
14.5. Captions - Headings contained in this Agreement, which
are included as convenient references only, shall have no
bearing upon the interpretation of the terms of the Agreement or
the obligations of the parties hereto.
14.6. Governing Law - The provisions of this Agreement shall
be construed in accordance with and governed by the laws of the
State of New York without giving effect to principles of
conflicts of law. The parties hereto irrevocably consent to the
exclusive jurisdiction of the courts of the State of New York
located in New York City in the borough of Manhattan.
14.7 Notices - Except in the case of Proper Instructions,
notices and other writings contemplated by this Agreement shall
be delivered by hand or by facsimile transmission (provided that
in the case of delivery by facsimile transmission, notice shall
also be mailed postage prepaid) to the parties at the following
addresses:
(a) If to the Fund:
[Fund Name]
Mason Street Funds, Inc.
<PAGE>
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attn: Investment Accounting
(b) If to the Custodian:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Attn: Manager, Securities Department
Telephone (617) 772-1330
Telefax: (617) 772-2263
or to such other address as the Fund or the Custodian may have
designated in writing to the other.
14.8. Assignment - This Agreement shall be binding on and
shall inure to the benefit of each Fund severally and the
Custodian and their respective successors and assigns, provided
that neither the Custodian nor the Fund may assign this
Agreement or any of its rights or obligations hereunder without
the prior written consent of the other party.
14.9. Counterparts - This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original. With respect to the Fund, this Agreement shall become
effective when one or more counterparts have been signed and
delivered by MSF and the Custodian.
14.10. Confidentiality; Survival of Obligations - The parties
hereto agree that each shall treat confidentially the terms and
conditions of this Agreement and all information provided by
each party to the other regarding its business and operations.
All confidential information provided by a party hereto shall be
used by any other party hereto solely for the purpose of
rendering services pursuant to this Agreement and, except as may
be required in carrying out this Agreement, shall not be
disclosed to any third party without the prior consent of such
providing party. The foregoing shall not be applicable to any
information that is publicly available when provided or
thereafter becomes publicly available other than through a
breach of this Agreement, or that is required to be disclosed by
<PAGE>
any bank examiner of the Custodian or any Subcustodian, any
auditor of the parties hereto, by judicial or administrative
process or otherwise by applicable law or regulation. The
provisions of this Agreement and any other rights or obligations
incurred or accrued by any party hereto prior to termination of
this Agreement shall survive any termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed in its name and behalf on the day and
year first above written.
MASON STREET FUNDS, INC. BROWN BROTHERS HARRIMAN & CO.
By By
----------------------------- --------------------------------
Name: Name:
Title: Title:
<PAGE>
APPENDIX A
to the
CUSTODIAN AGREEMENT
between
MASON STREET FUNDS, INC.
and
BROWN BROTHERS HARRIMAN & CO.
The Custodian Agreement dated ________________ between Mason
Street Funds, Inc. and Brown Brothers Harriman & Co. shall
henceforward have effect in respect of the following Funds:
International Equity Fund
Asset Allocation Fund
Aggressive Growth Stock Fund
Growth Stock Fund
High Yield Bond Fund
Select Bond Fund
MASON STREET FUNDS, INC.
By
--------------------------------------
Name:
Title:
Date:
<PAGE>
APPENDIX B
to the
CUSTODIAN AGREEMENT
between
MASON STREET FUNDS, INC.
and
BROWN BROTHERS HARRIMAN & CO.
The following authorized sources are to be used for pricing and
foreign exchange quotations, corporate actions, dividends and
rights offerings:
AUTHORIZED SOURCES
Bloomberg
Extel (London)
Fund Managers or Investment Advisers
Interactive Data Corporation
Reputable Brokers
Reuters
Subcustodian Banks
Telekurs
Valorinform (Geneva)
Reputable Financial Publications
Stock Exchanges
<PAGE>
Financial Information Inc. CARD
JJ Kenny
MASON STREET FUNDS, INC.
By
---------------------------
Name:
Title:
Date:
<PAGE>
EX-99.B10
March 4, 1997
Mason Street Funds, Inc.
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Gentlemen:
Reference is made to Pre-Effective Amendment No. 2 to the Registration
Statement on Form N-1A under the Securities Act of 1933 being filed by Mason
Street Funds, Inc. (the "Fund") in connection with the proposed public offering
of any or all of 2,700,000,000 shares of stock, $.001 par value per share (the
"Shares"), of the Aggressive Growth Stock Fund, International Equity Fund,
Growth Stock Fund, Growth and Income Stock Fund, Index 500 Stock Fund, Asset
Allocation Fund, High Yield Bond Fund, Municipal Bond Fund and Select Bond Fund
(the "Portfolios").
In rendering this opinion we have reviewed the Articles of Incorporation
for the Fund dated August 28, 1996, the By-laws of the Fund adopted by the Board
of Directors on October 24, 1996 and the minutes of the meeting of the Board of
Directors on October 24, 1996 relating to the authorization of the Shares, and
we have relied upon certificates as we have considered necessary or appropriate
for purposes of this opinion. In our examination of such materials, we have
assumed the genuineness of all signatures and the conformity to original
documents of all copies submitted to us.
Based upon the foregoing, it is our opinion that the Fund is a corporation
existing under the laws of the State of Maryland and is authorized to issue the
Shares of the Portfolios. It is our further opinion that when the provisions of
any state securities laws as may be applicable have been complied with and such
Shares have been delivered against payment therefor as contemplated by the
Registration Statement, such Shares will be validly issued, fully paid and
nonassessable.
We hereby consent to the use of this opinion in connection with said
Registration Statement as amended relating to said Shares.
Very truly yours,
/s/ VEDDER, PRICE, KAUFMAN & KAMMHOLZ
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<PAGE>
Ex-99.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 2 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
March 4, 1997, relating to the statements of assets and liabilities of the Mason
Street Funds, Inc., which appears in such Statement of Additional Information.
We also consent to the references to us under the headings "Independent
Certified Public Accountants" and "Financial Statements" in such Statement of
Additional Information.
Price Waterhouse LLP
Milwaukee, Wisconsin
March 4, 1997
<PAGE>
EX-99.B14(a)
PROTOTYPE NON-STANDARD 401(k) PROFIT SHARING PLAN ADOPTION AGREEMENT
The undersigned employer(s) - ______________________________, hereinafter
referred to as the "Employer" hereby adopts the _______________________
PROTOTYPE NON-STANDARD 401(k) PROFIT SHARING PLAN AND TRUST.
1. EMPLOYER TAX IDENTIFICATION NUMBER ______________________________.
2. The EFFECTIVE DATE of the Plan shall be _________________________.
3. The EFFECTIVE DATE of this amendment shall be ___________________.
4. The ANNIVERSARY DATE of the Plan shall be _______________________.
5. The ENTRY DATE(S) of the Plan:
5.1 _________________ shall be the first Entry Date.
5.2 _________________ shall be the second Entry Date.
5.3 _________________ shall be the third Entry Date.
5.4 _________________ shall be the fourth Entry Date.
(The Entry Date(s) may not postpone entry into the Plan later than the
earlier of (a) the first day of the Plan Year beginning after the date on
which an Employee satisfies the requirements of Section 6 below, or (b) the
date 6 months after the date such requirements were satisfied).
6. ELIGIBILITY REQUIREMENTS - Each Employee will be eligible to participate in
this Plan in accordance with Section 5 of this Adoption Agreement, except the
following:
Page 1
<PAGE>
6.1 / / Employees who have attained the age of ____ (cannot exceed
21).
6.2 / / Employees who have not completed _____ Year(s) of Service
(cannot exceed 1 year unless the Plan provides a nonforfeitable
right to 100% of the Participant's account balance derived from
Employer contributions after not more than 2 Years of Service in
which case up to 2 years is permissible. If the Year(s) of
Service selected is or includes a fractional year, an Employee
will not be required to complete any specified Hours of Service
to receive credit for such fractional year).
6.3 / / Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and Employee
Representatives, if retirement benefits were the subject of good
faith bargaining. For this purpose, the term "Employee
Representatives" does not include any organization more than half
of whose members are employees who are owners, officers, or
executives of the Employer.
6.4 / / Employees who are nonresident aliens and who earn no earned
income from the Employer which constitutes income from sources
within the United States.
The term "Employee" shall include all Employees of this Employer and any
other employer aggregated with this Employer under Internal Revenue Code
Section 414(b), (c) or (m) and individuals required to be considered
Employees or any such Employer under Code Section 414(n) or under
regulations under Code Section 414(o).
7. COMPENSATION shall mean all of each Participant's:
7.1 / / W-2 earnings
7.2 / / Compensation (as that term is defined in Section 415(c)(3)
of the Code)
Which is actually paid to the Participant during:
7.3 / / The Plan Year.
Page 2
<PAGE>
7.4 / / The Taxable Year ending with or within the Plan Year.
7.5 / / The Limitation Year ending with or within the Plan Year.
Compensation:
7.6 / / Shall include
7.7 / / Shall not include
Employer contributions made pursuant to a salary reduction agreement which
are not includible in the gross income of the employee under sections
125,402(a)(8), 402(h) or 403(b) of the Code.
8. NORMAL RETIREMENT AGE shall mean:
The later of age ____ (not to exceed age 65) or the _______ (not to exceed
the 5th) anniversary of the first day of the first Plan Year in which the
Participant commenced participation in the Plan.
9. VESTING
If a Participant terminates prior to Normal Retirement Age, he shall
receive a percentage of his Accrued Benefit according to the vesting
schedule checked below:
9.1 / / One Hundred Percent schedule.
100% at all times.
9.2 / / Twenty Percent Schedule.
20% after the second Covered Year of Service and 20% for each
additional Covered Year of Service.
9.3 / / Variable Schedule.
Based on Covered Years of Service after Year:
1 ___________________________ 4 _______ 7 100%
2 _______ 5 _______
3 _______ 6 _______
Page 3
<PAGE>
This Option 9.3 shall not be less favorable than the vesting schedules
contained in Internal Revenue Code Sections 411(a)(2)(A) and (B).
Note: Option 9.2 will automatically apply if and when this Plan shall
become top heavy provided that Option 9.1 has not been elected and
Option 9.3 is not at least as favorable as Option 9.2.
9.4 / / Three-Twenty Schedule.
20% after 3 Covered Years of Service and 20% for each additional
Covered Year of Service.
9.5 / / Cliff Schedule.
Full vesting after 5 Covered Years of Service.
COVERED YEARS OF SERVICE for Vesting purposes shall exclude:
9.6 / / Years of Service before age 18.
9.7 / / Years of Service prior to the Effective Date of the Plan or
a predecessor plan.
9.8 / / Years of Service in which the Employee declined to make
mandatory contributions to the Plan.
If the vesting schedule under the Plan(s) shifts in or out of the above
vesting schedule for any Plan Year because of the Plan's top heavy status,
such shift is an amendment to the vesting schedule and the election in
Section 1.4 of the Plan applies.
Notwithstanding the above, the Accrued Benefit shall become fully vested at
Normal Retirement Age.
10. CONTRIBUTIONS
10.1 / / EMPLOYER CONTRIBUTIONS - The Employer may make contribution
to the Plan without regard to current or accumulated earnings and
profits for the taxable year or years ending with or within the
Plan Year.
Page 4
<PAGE>
Unless this option is elected, the Plan will be subject to the requirement
that employer contribution be made out of current or accumulated net
profits. Accordingly, all employer contributions under the Plan, including
Employer discretionary contributions, Elective Deferrals and Qualified Non-
Elective Contributions, will be limited to the Employer's net profits.
10.2 / / ELECTIVE DEFERRALS - A Participant may elect to have his or
her Compensation reduced by the following percentage or amount
per pay period or for a specified pay period of periods, as
designated in writing to the Plan Administrator:
a. / / An amount not in excess of ___ % of a Participant's
Compensation.
b. / / An amount not in excess of $__________ of a
Participant's Compensation.
No Participant shall be permitted to have Elective Deferrals made
under this plan during any calendar year in excess of $7,000
multiplied by the Adjustment Factor.
c. / / A Participant may elect to commence Elective Deferrals
as of
(ENTER AT LEAST ONE DATE OR PERIOD DURING A
CALENDAR YEAR). Such Election shall be come effective as of
the ______ (ENTER NUMBER) pay period following the pay
period during which the Participant's election to commence
Elective Deferrals was made, or as soon as administratively
feasible thereafter.
d. A Participant's election to have Elective Deferrals made pursuant
to a salary reduction agreement shall remain in effect until
modified or terminated. A Participant may modify the amount of
Elective Deferrals as of _____________ (ENTER AT LEAST ONE DATE
OR PERIOD DURING A CALENDAR YEAR). Such election shall become
effective as of the __________ (ENTER NUMBER) pay period
following the pay period during which the Participant's election
to modify Elective Deferrals was made, or as soon as
administratively feasible thereafter.
e. / / A Participant may base Elective Deferrals on cash
bonuses that, at the Participant's election, may be
Page 5
<PAGE>
contributed to the Plan or received by the Participant in
cash.
f. A Participant shall be afforded a reasonable period to elect to
defer amounts described above. Such election shall become
effective as of the __________ (ENTER NUMBER) pay period
following the pay period following the pay period during which
the participant's election to make such Elective Deferrals was
made, or a soon as administratively feasible thereafter.
g. A Participant shall designate the amount and frequency of his or
her Elective Deferrals in the form and manner specified by the
Plan Administrator.
10.3 / / EMPLOYER PROFIT SHARING CONTRIBUTIONS - In addition to
Elective Deferrals, Qualified Non-Elective Contributions,
Qualified Matching Contributions and Matching Contributions, the
Employer may make additional contributions under the Plan which
shall be made solely at the discretion of the Employer but not in
excess of 15% of Participant Compensation, up to the maximum
amount specified in Section 5.5 of the Plan.
Employer contribution under this Section 10.3 shall be allocated
in proportion to compensation and shall vest in accordance with
the vesting schedule specified in Section 9 of the Adoption
Agreement. Forfeitures of Profit Sharing Contributions shall be:
a. / / Added to and allocated in the same manner as the
Contribution.
b. / / Applied to reduce the Contribution.
11. QUALIFIED NON-ELECTIVE CONTRIBUTIONS
11.1 / / The Employer will make Qualified Non-Elective Contributions
to the Plan. If the Employer does make Qualified Non-Elective
Contributions to the Plan, then the amount of such contributions
to the Plan for each Plan Year shall be:
a. / / _____ percent (not to exceed 15 percent) of the
Compensation of all Participants eligible to share in the
allocation.
Page 6
<PAGE>
b. / / _____ percent of the net profits, but in no event more
than
$__________ for any Plan Year.
c. / / An amount as determined by the Employer. The amount of
the special Qualified Non-Elective Contributions allocated
under section 11.2 below will be the amount needed to meet
the Average Actual Deferral Percentage test state in section
11.4 of the Plan.
11.2 Allocations of Qualified Non-Elective Contributions to each
Participant's account shall be made to the accounts of:
/ / All Participants.
/ / Only Non-Highly compensated Participants.
11.3 Allocations of Qualified Non-Elective Contributions to each
Participant's account shall be made (elect one):
a. / / In the ratio in which each Participant's Compensation
for the Plan Year bears to the total Compensation of all
Participants for such Plan Year.
b. / / In the ratio in which each Participant's Compensation
not in excess of $_________ for the Plan Year bears to the
total Compensation of all Participants not in excess of
$__________ for such Plan Year.
12. QUALIFIED MATCHING CONTRIBUTIONS
12.1 / / The Employer will make Qualified Matching Contributions to
the Plan on behalf of Participants who make Elective Deferrals.
12.2 / / The Employer will make Qualified Matching Contributions to
the Plan on behalf of:
a. / / All Participants who make Elective Deferrals.
Page 7
<PAGE>
b. / / All Participants who are Non-Highly Compensated
Employees and who make Elective Deferrals.
12.3 The amount of such Qualified Matching Contributions made on behalf of
each Participant as specified in section 12.2 of this adoption
agreement shall be:
a. / / _____ percent of the Elective Deferral made for each
Plan Year.
b. / / The sum of _____ percent of the portion of the Elective
Deferral which does not exceed _____ percent of the portion
of the Participant's Compensation, plus _____ percent of the
portion of the Elective Deferral which exceeds _____ percent
of the Participant's Compensation, but does not exceed _____
percent of the Participant's Compensation.
c / / The Employer shall not match Elective Deferrals as
provided in a or b above in excess of $________ or in excess
of _______ percent of the Participant's Compensation.
12.4 Qualified Matching Contributions and Qualified Non-Elective
Contributions may be taken into account as Elective Deferrals for
purposes of calculating the Actual Deferral Percentages. In
determining Elective Deferrals for the purpose of the ADP test, the
Employer shall include:
a. / / Qualified Matching Contributions
b. / / Qualified Non-Elective Contributions
under this Plan or any other Plan of the Employer as provided by
regulations under the Code.
12.5 The amount of qualified Matching Contributions made under Section 12.1
of the Plan and taken into account as Elective Deferrals for purposes
of calculating the Actual Deferral Percentage, subject tot such other
requirements as may be prescribed by the Secretary of the Treasury,
shall be:
Page 8
<PAGE>
a. / / All such Qualified Matching Contributions.
b. / / Such Qualified Matching Contributions that are needed
to meet the Actual Deferral Percentage test.
12.6 The amount of Qualified Non-Elective Contributions made under Section
11 of this Plan and taken into account as Elective Deferrals for
purposes of calculating the Actual Deferral Percentages, subject to
such other requirements as may be prescribed by the Secretary of the
Treasury, shall be:
a. / / All such Qualified Non-Elective Contributions.
b. / / Such Qualified Non-Elective Contributions that are
needed to meet the Actual Deferral Percentage test stated in
section 11.4(F) of the Plan.
13. MATCHING CONTRIBUTIONS
13.1 / / The Employer will make Matching Contributions to the Plan on
behalf of Participants who make Elective Deferrals. The Employer
will make Matching Contributions to the Plan on behalf of:
a. / / All Participants who make Elective Deferrals.
b. / / All Participants who are Non-Highly Compensated
Employees and who make Elective Deferrals.
13.2 Matching contributions will be:
a. / / Nonforfeitable when made.
b. / / Subject to the vesting schedule applicable to Employer
contribution, other than Elective Deferrals and Qualified
Non-Elective Contributions, under the Plan.
13.3 The amount of such Matching Contributions made on behalf of each
Participant shall be:
Page 9
<PAGE>
a. / / _____ percent of the Elective Deferral made for each
Plan Year.
b. / / The sum of _____ percent of the portion of the Elective
Deferral which does not exceed _____ percent of the
Participant's Compensation plus _____ percent of the portion
of the Elective Deferral which exceeds _____ percent of the
Participant's Compensation, but does not exceed _____
percent of the Participant's compensation.
The level of contributions chosen by the Employer is subject to both
section 401(m)(2) discrimination test and the section 415 limitations.
14. SPECIAL DISTRIBUTIONS
Elective Deferrals, Qualified Matching Contributions, Qualified Non-
Elective Contributions and income allocable to such amounts shall be
distributable upon separation form service, death, or disability, as
defined in the underlying plan document, and, in addition:
14.1 / / Termination of the Plan without the establishment of another
defined contribution plan.
14.2 / / As soon as administratively feasible after the disposition
by the Employer to an unrelated corporation of substantially all
of the assets (within the meaning of Code Section 409(d)(2)) used
in a trade or business of the Employer if the Employer continues
to maintain this Plan after such disposition, but only with
respect to Employees who continue employment with the corporation
acquiring such assets.
14.3 / / As soon as administratively feasible after the disposition
by the Employer to an unrelated entity of the Employer's interest
in a subsidiary (within the meaning of Code Section 409(d)(3)) if
the Employer continues to maintain this Plan, but only with
respect to Employees who continue employment with such
subsidiary.
Page 10
<PAGE>
14.4 / / Upon the hardship of the Participant, to the extent provided
for in Section 11.6(C) of the Plan and subject to applicable
regulations prescribed by the Secretary of the Treasury.
15. CLAIMS FOR EXCESS ELECTIVE DEFERRALS - Participants who claim Excess
Elective Deferrals for the preceding calendar year must submit their
claims in writing to the plan administrator by
(SPECIFY A DATE BETWEEN MARCH 1 AND APRIL 15).
Excess Elective Deferrals that are distributed after April 16 are not only
includible in the Participant's gross income in the taxable year when made,
but are also includible in the Participant's gross income again in the year
when distributed.
The Plan permits distributions of Excess Contributions and Excess Aggregate
Contributions on or before the last day of the Plan Year after the Plan
Year in which such excess amounts arose. Distribution of such amounts, or
other corrective action, is required under section 401(k)(8) and 401(m)(6)
of the Code if the plan is to maintain its tax-qualified status. However,
if such excess amounts, plus any income and minus any loss allocable
thereto, are distributed more than 22 months after the last day of the Plan
Year in which such excess amounts arose, then section 4979 of the Code
imposes a ten (10) percent excise tax on the Employer maintaining the plan
with respect to such amounts.
The Employer may choose to limit its acceptance of claims to a date that is
not later than March 1.
16 AVERAGE CONTRIBUTION PERCENTAGE
16.1 In computing the Average Contribution Percentage, the employer shall
take into account, and include as Contribution Percentage Amounts:
a. / / Elective Deferrals.
b. / / Qualified Non-Elective Contributions under this plan or
any employer, as provided by regulations.
16.2 The amount of Qualified Non-Elective Contributions that are made under
Section 11.4(l) of this plan and taken into account as Contribution
Percentage Amounts for purposes of calculating the Average
Contribution Percentage, subject to such other requirements as may be
prescribed by Secretary of the Treasury, shall be:
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a. / / All such Qualified Non-Elective Contributions.
b. Such Qualified Non-Elective Contributions that are needed to meet
the Average Contribution Percentage test stated in section 11.8
of the plan.
16.3 The amount of Elective Deferrals made under Section 11.4(B) of this
plan and taken into account as Contribution Percentage Amounts for
purposes of calculating the Average Contribution Percentage, subject
to such other requirements as may be prescribed by the Secretary of
the Treasury, shall be:
a. / / All such Elective Deferrals.
b. / / Such Elective Deferrals that are needed to meet the
Average Contribution Percentage test stated in section 11.8
of the plan.
17. FORFEITURES of Matching Contributions shall be: (Required if the Employer
elects to make Matching Contributions in this Adoption Agreement)
17.1 / / Applied in the current year of forfeiture to reduce employer
contributions.
17.2 / / Allocated in the current year of forfeiture, after all other
forfeitures under the plan to each Participant's Matching
Contribution account in the ratio which each Participant's
Compensation for the Plan Year bears to the total Compensation of
all Participants for such Plan Year. Such forfeitures will not
be allocated to the account of any Highly Compensated Employee.
18. INDIVIDUAL INVESTMENT ACCOUNTS
Individual Investment Accounts for Elective Deferrals, Qualified Non-
Elective Contributions, Qualified Matching Contributions and Matching
Contributions:
18.1 / / Will not be used.
18.2 / / Will be used as follows:
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Each Participant will have a separate Individual Investment Account
which will contain the amount allocated to the Participant Account.
Each Participant will have the power to direct the investment with
respect to his Individual Investment Account subject to such rules as
the Administrator and the Trustee may deem necessary. Gains and
losses of the Account shall accrue to such Account only.
Individual Investment Accounts for Employer Contributions under Section
10.3 of this Adoption Agreement:
18.3 / / Will not be used.
18.4 / / Will be used as follows:
Each Participant will have a separate Individual Investment Account
which will contain the amount allocated to the Participant Account.
Each Participant will have the power to direct the investment with
respect to his Individual Investment Account subject to such rules as
the Administrator and the Trustee may deem necessary. Gains and
losses of the Account shall accrue to such Account only.
19. LIMITATION YEAR shall mean each 12 consecutive month period ending on
_____.
NOTE: A written resolution must be adopted by the Employer if the
Limitation Year is other than the calendar year.
20. LIMITATION IN BENEFITS - If the Employer maintains or has ever, maintained,
in addition to this Plan, one or more plans which are either qualified
defined benefit plans or qualified defined contribution plans other than
paired plan:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreements 001, 002, 003, 004, 006, 007
in which any Participant in this Plan is (or was) a participant or could
possible become a participant, the Employer must complete this Section.
The Employer must also complete this Section if it maintains a welfare
benefit fund, as defined in Code Section 419(e), or an individual medical
account, as defined in Code Section 415(l)(2) under which amounts are
treated as annual additions with respect to any Participant in the Plan.
If the Participant is covered under another qualified defined contribution
plan maintained by the Employer, other than a master or prototype plan:
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20.1 / / The provisions of Section 5.5(B) of the Plan will apply as
if the other plan were a master or prototype plan.
20.2 / / The total Annual Additions will be limited to the maximum
permissible amount and excess amounts will be reduced in a manner
that precludes Employer discretion, as follows:
20.3 / / If the Participant is or has ever been a Participant in a
defined benefit plan maintained by the Employer, the benefits
under the plans will be limited as follows (this method must
preclude Employer discretion):
21. MINIMUM CONTRIBUTION FOR TOP HEAVY PLAN - If the Employer maintains one or
more defined benefit plans in which a Participant participates in addition
to this Plan and does not maintain any other defined contribution plans in
which a Participant participates, the minimum benefit requirement
applicable to Top Heavy Plans shall be met under this Plan.
If the minimum benefit requirement is met under this Plan, the additional
minimum benefit:
21.1 / / Shall be provided.
21.2 / / Shall not be provided.
22. YEAR OF SERVICE shall mean
22.1 / / 1000 Hours of Service.
22.2 / / ______ Hours of Service (less than 1000 Hours of Service).
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In the event the plan would otherwise fail the nondiscrimination tests of
Code Sections 401(a)(26) of 410(b), for purposes of allocating Employer
Profit Sharing Contribution, the above Hour of Service requirement shall be
changed for that Year to a 500 hour requirement.
23. PREDECESSOR EMPLOYER - Service with the following Predecessor Employer(s):
shall be counted for purposes of:
23.1 / / Eligibility Years of Service.
23.2 / / Vesting (Covered Years of Service).
24. ADMINISTRATOR shall mean:
24.1 / / The Employer.
24.2 / / Individuals specified in Section 28.
25. OTHER BENEFITS
25.1 / / Early Retirement Benefit (fully vested): Subject to the
Joint and Survivor Annuity requirements, any Participant may
retire and receive the entire amount in his Participant Account
provided he has attained age _______ and has at least ________
Covered Years of Service.
26. ACTUARIAL EQUIVALENT
For purposes of establishing present value to compute the top heavy ratio,
benefit payments shall be discounted only for mortality and interest based
on the following:
26.1 / / Pre-Retirement Interest Rate _____ %.
26.2 / / Post-Retirement Mortality Table: _____ with _____ %
interest.
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27. PARTICIPATING AFFILIATES - Each Affiliate (i.e., each member of a
controlled group of corporations, commonly controlled group of businesses, or an
affiliated service group within the meaning of section 414 of the Code) must
adopt this Plan as a Participating Affiliate. (Attach additional signature
pages if there is more than one Participating Affiliate.)
Participating Affiliate Name Employer I. D.
Address Taxable Year
By Title Date
28. ADMINISTRATOR - If Option 24.2 is elected the following named individuals
shall serve as Plan Administrator.
Signature by the Administrator ( if other than the Employer) is in
acknowledgment of acceptance of appointment.
Administrator(s) Name(s): Signature(s):
Optional Provision - To be elected if Plan Section 10.6(E) is not elected.
29. APPOINTMENT OF TRUSTEE - Signature by the Trustee is in acknowledgement of
acceptance of appointment.
Trustee Name: Signature:
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29. APPOINTMENT OF TRUSTEE OR CUSTODIAN (Select 29.1 or 29.2)
Incorporated businesses must name a Trustee. Unincorporated businesses
covering one or more Self Employed Individuals may appoint a Custodian or a
Trustee.
29.1 / / Trustee - Signature by the Trustee is in acknowledgement of
acceptance of appointment.
Trustee Name: Signature:
29.2 / / Custodian - __________________ is hereby appointed as
Custodian.
Signature of Authorized Individual Accepting Appointment.
Optional Provision - To be elected if Plan Section 10.7 is elected.
30. INSURANCE TRUSTEE - Signature by the Trustee is in acknowledgement of
acceptance of appointment
Insurance Trustee Name: Signature:
31. ADOPTION AGREEMENT USAGE
This Adoption Agreement is only to be used with basic Defined Contribution
Plan document 02.
An Employer who has ever maintained or who later adopts any plan (including
a welfare benefit fund, as defined in Section 419(e) of the Code, which
provides post - retirement medical benefits allocated to separate accounts
for key employees as defined in Code Section 419A(d)(3), or an individual
medical account, as defined in Section 415(l)(2) of the code) in addition
to this Plan other than paired plans:
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Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreements 001, 002, 003, 004, 006, 007
may not rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Internal Revenue Code. If the Employer who adopts or
maintains multiple plans other than the paired plans identified above
wishes to obtain reliance that is plans are qualified, application for a
determination letter should be made to the appropriate Key District
Director of Internal Revenue.
Failure of the Employer to properly complete this Adoption Agreement may
result in the disqualification of this Plan.
32. SPONSORING ORGANIZATION - The Sponsoring organization or its authorized
representative identified below will inform the adopting employer of any
amendments made to the Plan or of the discontinuance or abandonment of the Plan.
The organization sponsoring this Plan is __________________________.
The authorized representative of the sponsoring organization is
________________.
The Employer represents that the legal and tax aspects of this Plan and
Trust have been duly considered and passed upon by its attorney and/or tax
advisor who has determined that it is suitable and has been properly
completed and adopted.
ADOPTION FOR THE EMPLOYER
DATE OF EXECUTION SIGNATURE TITLE
Document #61724
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EX-99.B14(b)
PROTOTYPE NON-STANDARD 401(k) PROFIT SHARING PLAN ADOPTION AGREEMENT
The undersigned employer(s) - **SAVE UNDER client #.adp IN INSTITUION
0DIRECTORY**, hereinafter referred to as the "Employer", hereby adopts the
____________ PROTOTYPE NON-STANDARD FLEX 401(k) PROFIT SHARING PLAN AND TRUST.
The name of the Plan shall be ___________.
1. EMPLOYER TAX IDENTIFICATION NUMBER: ______________________________.
2. The EFFECTIVE DATE of the initial adoption of the Plan is _____ (usually
the first day of the Plan Year).
3. If this is an amendment of an existing plan, the EFFECTIVE DATE of the
amendment is __________
(usually the first day of the Plan Year).
4. The LAST DAY of the PLAN YEAR, ________ shall be the ANNIVERSARY DATE.
5. The ENTRY DATE(S) of the Plan:
5.1 / / Shall be the first day of each PLAN YEAR and the first day
of each quarter thereafter.
5.2 / / Shall be the first day of each PLAN YEAR and the first day
of the seventh month of each Plan Year.
5.3 / / Other ____________________________________
6. ELIGIBILITY REQUIREMENTS
6.1 CASH OR DEFERRED ARRANGEMENT: Each Employee except the following
shall be eligible to participate in the 401(k) Cash or Deferred
Arrangement, any Matching Contributions, any Qualified Matching
Contributions or any Qualified Non-elective Contributions in
accordance with Section 5 above. (Eligibility for participation in
any Discretionary Profit Sharing Contributions shall be determined in
Section 6.2 below).
a. / / Employees who have not attained the age of (cannot
exceed 21).
b. / / Employees who have not completed Year of Service
(cannot exceed 1 year). If the Year of Service selected is
or includes a fractional year, an Employee will not be
required to
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complete any specified Hours of Service to receive credit
for such fractional year.
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c. / / Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and
Employee Representatives, if retirement benefits were the
subject of good faith bargaining SHALL NOT be eligible to
participate. For this purpose, the term "Employee
Representatives" does not include any organization more than
half of whose members are employees who are owners,
officers, or executives of the Employer.
d. / / Employees who are nonresident aliens (within the
meaning of Code section 7701(1)(B)) and who received no
earned income (within the meaning of Code section 911(d)(2))
from the Employer which constitutes income from sources
within the United States (within the meaning of Code section
861(a)(3)).
e. / / Employees included in the following job
classifications:
e.1. / / Hourly Employees
e.2 / / Salaried Employees
e.3 / / commissioned Sales Employees
e.4 / / Employees of the following Employers aggregated
under Code sections 414(b), 414(c) or 414(m)
e.5 / / Other _______________________________________
f. Unless otherwise elected by the Employer below, the requirements
for eligibility to participate of this section 6.1 shall apply to all
employees with no exceptions.
f.1 / / These requirements shall apply solely to an
Employee employed after _______. If an Employee was
employed on or before the specified date, he shall
become a participant immediately
f.2 / / The age and service requirement for eligibility to
participate shall be waived for individuals employed on
the Effective Date of this Adoption Agreement.
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6.2 DISCRETIONARY PROFIT SHARING CONTRIBUTION: Each Employee except the
following shall be eligible to participate in any Discretionary Profit
Sharing Contributions in accordance with Section 5 above.
a. / / Employees who have not attained the age of _____
(cannot exceed 21).
b. / / Employees who have not completed _____ Year of Service
(cannot exceed 1 year unless the Plan provides for 100%
vesting of this contribution). If the Year of Service
selected is or includes a fractional year, an Employee will
not be required to complete any specified Hours of Service
to receive credit for such fractional year.
c. / / Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and
Employee Representatives, if retirement benefits were the
subject of good faith bargaining SHALL NOT be eligible to
participate. For this purpose, the term "Employee
Representatives" does not include any organization more than
half of whose members are employees who are owners,
officers, or executives of the Employer.
d. / / Employees who are nonresident aliens (within the
meaning of Code Section 7701(1)(B)) and who received no
earned income (within the meaning of Code Section 911(d)(2))
from the Employer which constitutes income from sources
within the United States (within the meaning of Code Section
861(a)(3)).
e. / / Employees included in the following job
classifications:
e.1 / / Hourly Employees
e.2 / / Salaried Employees
e.3 / / Commissioned Sales Employees
e.4 / / Employees of the following Employers aggregated
under Code Sections 414(b), 414(c) or 414(m)
e.5 / / Other _________________________________________
f. Unless otherwise elected by the Employer below, the requirements
for eligibility to participate of this Section 6.2 shall apply to
all employees with no exceptions.
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f.1 / / These requirements shall apply solely to an
Employee employed after ______. If an Employee was
employed on or before the specified date, he shall
become a participant immediately.
f.2 / / The age and service requirement for eligibility to
participate shall be waived for individuals employed on
the Effective Date of this Adoption Agreement.
7. COMPENSATION shall mean all of each Participant's:
7.1 / / W-2 earnings reported in the Wages, Tips, and Other
Compensation Box on Form W2.
7.2 / / Compensation (as that term is defined in Section 415(c)(3)
of the Code).
which is actually paid to the Participant during:
7.3 / / The Plan Year.
7.4 / / The calendar year ending with or within the Plan Year.
7.5 / / Other: (A period determined on the basis of any consecutive
monthly period ending within the Plan Year which is at least 12
months in duration and which is applied uniformly to all
Employees who are plan Participants).
7.6 / / Compensation shall include Employer contributions made
pursuant to a salary reduction agreement which are not includible
in the gross income of the employee under Sections 125,
402(a)(8), 402(h) or 403(b) of the Code.
7.7 / / Compensation shall not include Employer Contributions made
pursuant to a salary reduction agreement which are not includible
in the gross income of the employee under Section 125, 402(a)(8),
402(h) or 403(b) of the code
7.8 / / Compensation shall not include earnings paid prior to the
date the Employee became a plan Participant.
7.9 / / Compensation for determining the amount of the Salary
Deferral and Matching Contribution (if applicable) agreed to
between the Employer and Employee shall be determined as a
percentage of the Employee's Compensation except that
Compensation for the purpose of determining this percentage shall
not include the following:
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7.10 / / Criteria for hardship distributions are set forth in the
Plan.
8. NORMAL RETIREMENT AGE shall mean:
The later of age _____ (not to exceed age 65) or the _____ (not to exceed
5th) anniversary of the first day of the first Plan Year in which the
Participant commenced participation in the Plan. If no age is elected and
this section is left blank, Normal Retirement Age shall mean age 65.
9. VESTING
9.1 EMPLOYER MATCHING CONTRIBUTIONS: If a Participant terminates prior to
Normal Retirement Age he shall receive a percentage of his Accrued
Benefit derived from Matching Contributions according to the vesting
schedule checked below. Each Participant shall be 100% vested at all
times in his Elective Deferral Contributions, Qualified Matching
Contributions and Qualified Non-elective Contributions. Each
Participant shall vest in his share of any Discretionary Profit
Sharing Contributions according to the schedule determined in Section
9.2 below.
a. / / One hundred percent schedule - 100% at all times.
b. / / Twenty Percent Schedule - 20% after the second Covered
Year of Service and 20% for each additional year credited
thereafter, until 100% is reached at six years.
c. Variable Schedule:
Based on Covered Year of Service after Year:
1 _______ 3 _______ 5 _______ 7 _______ 100%
2 _______ 4 _______ 6 _______
This option c shall not be less favorable than the vesting schedules
contained in Internal Revenue Code Sections 411(a)(2)(A) and (B).
d. / / Years of Service for purposes of determining vesting
shall exclude Years of Service
d.1 / / prior to the Effective Date of this Plan or a
predecessor plan.
d.2 / / prior to the age of 18.
Note: Option b will automatically apply if and when this Plan shall
become top heavy provided that Option a has not been elected
and Option c is not at least as favorable as Option b.
If the vesting schedule under the Plan(s) shifts in or out of the
above vesting schedule for any Plan Year because of the Plan's top
heavy status, such shift is an
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amendment to the vesting schedule and the election in Section 1.4 of
the Plan applies.
Notwithstanding the above, the Accrued Benefit shall become fully
vested at Normal Retirement Age.
9.2 EMPLOYER DISCRETIONARY PROFIT SHARING CONTRIBUTIONS: If a Participant
terminates prior to Normal Retirement Age he shall receive a
percentage of his Accrued Benefit derived from Discretionary Profit
Sharing Contributions according to the vesting schedule checked
below. Each Participant shall be 100% vested at all times in his
Elective Deferral Contributions, Qualified Matching Contributions and
Qualified Non-elective Contributions.
a. / / One hundred percent schedule - 100% at all times.
b. / / Twenty Percent Schedule - 20% after the second Covered
Year of Service and 20% for each additional year credited
thereafter, until 100% is reached at six years.
c. / / Variable Schedule:
Based on Covered Year of Service after Year:
1 _______ 3 _______ 5 _______ 7 _______ 100%
2 _______ 4 _______ 6 _______
This option c shall not be less favorable than the vesting schedules
contained in Internal Revenue Code Sections 411(a)(2)(A) and (B).
d. / / Years of Service for purposes of determining vesting
shall exclude Years of Service
d.1 / / prior to the Effective Date of this Plan or a
predecessor plan.
d.2 / / prior to the age of 18.
Note: Option b will automatically apply if and when this Plan shall become
top heavy provided that Option a has not been elected and Option c
is not at least as favorable as Option b.
If the vesting schedule under the Plan(s) shifts in or out of the above
vesting schedule for any Plan Year because of the Plan's top heavy status,
such shift is an amendment to the vesting schedule and the election in
Section 1.4 of the Plan applies.
Notwithstanding the above, the Accrued Benefit shall become fully vested at
Normal Retirement Age.
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10. CONTRIBUTIONS
10.1 DISCRETIONARY PROFIT SHARING CONTRIBUTIONS: (vests according to
Section 9.2):
Employer Profit Sharing contributions under the Plan shall be made
solely at the discretion of the Employer pursuant to Section 4.1 of
the Plan, and shall be allowed up to the maximum amount specified in
Section 5.5 of the Plan. Unless elected otherwise below, Employer
contributions for Discretionary Profit Sharing shall be made without
regard to current or accumulated profits.
a. / / The Employer shall make this contribution ONLY if it
has earned current or accumulated profits.
b. / / Forfeitures of Employer Profit Sharing Contributions
shall be:
b.1 / / added to and allocated with the Employer's
contribution.
b.2 / / used to reduce the Employer's contribution.
c. ALLOCATION OF CONTRIBUTIONS: The Employer Profit Sharing
Contribution to the Plan will be allocated among the accounts of
Participants as of the Anniversary Date as follows:
c.1 / / The Employer shall not make this contribution on
behalf of a Participant who is not employed with the
Employer on the Anniversary Date, unless the
Participant terminated employment during the Plan Year
by reason of death, disability or retirement.
/ / The Employer shall not make this contribution on behalf
of a Participant who is not credited with:
c.1(a) / / more than 500 Hours of Service.
c.1(b) / / at least 1000 Hours of Service. If the
Plan fails to pass the participation or
coverage tests required under Code Sections
401(a)26 or 410(b) as a result of this Hours
of Service requirement, such requirement
shall be reduced to 501.
c.2 / / ALLOCATION BASED ON COMPENSATION: In the ratio
which each Participant's Compensation bears to the
Compensation paid to all Participants.
c.3 / / ALLOCATION UNDER PERMITTED DISPARITY RULES:
Employer Discretionary Contributions for the Plan Year
plus any forfeitures will be allocated to Participants'
accounts under the rules for
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Permitted Disparity. (As defined in Section 5.8 of the
Plan Document).
If the Plan is Top Heavy for the Plan Year (as defined in
Section 8 of the Plan document), begin at step c.3(a);
otherwise begin at step c.3(c).
c.3(a) Contributions and forfeitures will be allocated to
each Participant's account in the ratio that each
Participant's total Compensation bears to all
Participant's total Compensation, but not in
excess of 3% of each Participant's Compensation.
c.3(b) Any contributions and forfeitures remaining after
the allocation in c.3(a) above will be allocated
to each Participant's account in the ratio that
each Participant's Compensation for the Plan Year
in excess of the Integration level bears to the
Excess Compensation of all Participants, but not
in excess of 3% of each Participant's
Compensation.
c.3(c) Any contributions and forfeitures (remaining after
the allocation in c.3(b) above in the case of a
Top Heavy Plan) will be allocated to each
Participant's account in the ratio that the sum of
each Participant's total Compensation and
Compensation in excess of the Integration Level
bears to the sum of all Participants' total
Compensation and Compensation in excess of the
Integration Level, but not in excess of the
Maximum Disparity Rate.
c.3(d) Any remaining Employer contributions or
forfeitures will be allocated to each
Participant's account in the ratio that each
Participant's total Compensation for the Plan Year
bears to all Participants' total Compensation for
that year.
c.4 For purposes of section c.3(b) above: EXCESS COMPENSATION
SHALL MEAN COMPENSATION IN EXCESS:
c.4(a) / / of the Taxable Wage Base in effect as of
the beginning of the Plan Year.
c.4(b) / / of $__________ (a dollar amount less
than the Taxable Wage Base).
c.4(c) / / of _____% of the Taxable Wage Base (not
to exceed 100%).
10.2 ELECTIVE DEFERRALS (100% vested): A Participant may elect to have his
or her Compensation reduced by the following percentage per pay
period, or for a specified pay period or periods, as designated in
writing to the Plan Administrator. Unless elected otherwise below, the
Employer's contribution for Elective Deferrals shall be made without
regard to current or accumulated profits.
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The amount which may be elected shall not be in excess of _____
percent of a Participant's Compensation. Unless elected otherwise
below, a Participant's election regarding Elective Deferrals shall
apply to his cash bonuses.
a. A Participant may elect to commence Elective Deferrals as of
________ (i.e., each entry date). Such election shall become
effective as of the ____________ pay period following the pay
period during which the Participant's election to commence
Elective Deferrals was made, or as soon as administratively
feasible thereafter.
b. / / A Participant's election regarding Elective Deferrals
SHALL NOT apply to Cash Bonuses.
c. No Participant shall be permitted to have Elective Deferrals made
under this plan during any calendar year in excess of $7,000,
multiplied by the Adjustment Factor.
d. A Participant's election to have Elective Deferrals made pursuant
to a salary reduction agreement shall remain in effect until
modified or terminated.
e. / / The Employer shall make this contribution ONLY if it
has earned sufficient current or accumulated profits.
f. / / A Participant may modify the amount of Elective
Deferrals as of ________ (i.e., each entry date). Such
modification shall become effective as of the pay period
following the pay period during which the Participant's
election to modify Elective Deferrals was made, or as soon
as administratively feasible thereafter. A Participant may
CEASE Elective Deferrals at any time, effective with the
______ pay period following the pay period during which the
Participant's election to cease Elective Deferrals was made,
or as soon as administratively feasible thereafter.
11. QUALIFIED NON-ELECTIVE CONTRIBUTIONS (100% Vested)
11.1 / / The Employer may make Qualified Non-elective Contributions
to the plan in such amounts as determined by the Employer. The
contribution shall be 100% vested and treated as a deferral for
purposes of distribution. Employer contributions for Qualified
Non-elective Contributions shall be made without regard to
current or accumulated profits.
11.2 / / The Employer shall make this contribution ONLY if it has
earned current or accumulated profits.
11.3 If Qualified Non-elective Contributions are needed to meet the Actual
Deferral Percentage ("ADP") test described in Section 11.4 of the
Plan, such contribution shall be allocated as of the Anniversary Date
to the accounts of:
a. / / Non-highly compensated Participants
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b. / / ALL Non-Key and Non-highly Compensated Employees who
are Participants
c. / / All Participants
in the ratio that each such Participant's Compensation for the
Plan Year bears to the total Compensation of all such compensated
Participants for such Plan Year.
11.4 If Qualified Non-elective Contributions are made to the Plan for a
purpose other than to meet the Actual Deferral Percentage test
described in Section 11.4 of the Plan (i.e., to meet a minimum
contribution requirement under the top heavy rules), the contribution
shall be allocated among the accounts of:
a. / / Non-Key Participants and shall be made in the ratio in
which each Non-Key Participant's Compensation for the Plan
Year bears to the total Compensation of all Non-Key
Participants for such Plan Year.
b. / / all Participants and shall be made in the ratio in
which each Participant's Compensation for the Plan Year
bears to the total Compensation of all Participants for such
Plan Year.
12. QUALIFIED MATCHING CONTRIBUTIONS (100% Vested)
12.1. / / The Employer will make Qualified Matching Contributions
to the Plan on behalf of Participants defined below who
make Elective Deferrals, irrespective of their employment
status on the last day of the Plan Year. The contribution
shall be 100% vested and treated as a deferral for purposes
of distribution. Qualified Matching Contributions shall be
made without regard to current or accumulated profits.
a. / / all Participants who make Elective Deferrals.
b. / / all Non-highly compensated Participants who make
Elective Deferrals.
12.2 The amount of Qualified Matching Contributions made on behalf of each
such Participant shall be as specified below:
a. / / _____ percent of the Elective Deferral made for each
Plan Year.
b. The Employer shall not match Elective Deferrals as provided in a.
above in excess of $__________ or in excess of _____ percent of
the Participant's Compensation used for determining the amount of
the Participant's Salary Deferral as defined in Section 7 of this
Adoption Agreement.
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12.3 / / The Employer may make Qualified Matching Contributions from
time to time as it deems advisable, without regard to current or
accumulated profits. Such contribution shall be equal to a
specified percentage of the Participant's Elective Deferral,
provided the Employer may establish a limit on the amount of the
Elective Deferral which shall be matched by resolution or other
official statement. The limit shall be specified as either a
dollar amount or as a percentage of Compensation used for
determining the amount of the Participant's Salary Deferral as
defined in Section 7 of this Adoption Agreement. This
contribution shall be made on behalf of all individuals who
deferred during the Plan Year. The contribution shall be 100%
vested and treated as a deferral for purposes of distribution.
/ / Notwithstanding the above, the Employer shall not make a
Qualified Matching Contribution on behalf of a Participant who is
not employed with the Employer on the Anniversary Date,
regardless of credited Hours of Service, unless the Participant
terminated employment during the Plan Year by reason of death,
disability or retirement.
/ / Notwithstanding the above, the Employer shall not make a
Qualified Matching Contribution on behalf of a Participant who is
not credited with:
a. / / more than 500 Hours of Service.
b. / / at least 1000 Hours of Service. If the Plan fails
to pass the participation or coverage tests required
under Code Sections 401(a)26 or 410(b) as a result of
this Hours of Service requirement, such requirement
shall be reduced to 501.
12.4 The level of contributions chosen by the Employer is subject to the
Code Section 401(m)(2) discrimination test and the Section 415
contribution limitations.
13. MATCHING CONTRIBUTIONS (May be subject to a Vesting Schedule under
Section 9)
13.1 / / The Employer will make Matching Contributions to the Plan on
behalf of Participants defined below who make Elective Deferrals,
irrespective of their employment status on the last day of the
Plan Year. The contribution shall be allocated to all
Participants who make Elective Deferrals, may be subject to a
vesting schedule and treated as a non-elective Employer
contribution for purposes of distributions. Matching
Contributions shall be made without regard to current or
accumulated profits.
13.2 / / Matching contributions will be:
a. / / Nonforfeitable when made.
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b. / / Subject to the vesting schedule applicable to Employer
contributions, other than Elective Deferrals, Qualified
Non-elective Contributions and Profit Sharing Contributions,
under the Plan.
c. / / The amount of such Matching Contributions made on
behalf of each Participant shall be:
c.1 / / _____ percent of the Elective Deferral made for
each Plan Year.
c.2 / / The Employer shall not match Elective Deferrals as
provided in a. above in excess of $_________ or in
excess of _____ percent of the Participant's
Compensation used for determining the amount of the
Participant's Salary Deferral as defined in Section 7
of this Adoption Agreement.
13.3 / / The Employer may make Matching Contributions from time to
time as it deems advisable, without regard to current or
accumulated profits. Such contribution shall be equal to a
specified percentage of the Participant's Elective Deferral,
provided that the Employer may establish a limit on the amount of
the Elective Deferral which shall be matched. Such limit shall
be specified either as a dollar amount or as a percentage of
Compensation used for determining the amount of the Participant's
Salary Deferral as defined in Section 7 of this Adoption
Agreement. This contribution shall be made on behalf of all
individuals who deferred during the Plan Year.
/ / Notwithstanding the above, the Employer shall not make a Matching
Contribution on behalf of a Participant who is not employed with
the Employer on the Anniversary Date, unless the Participant
terminated employment during the Plan Year by reason of death,
disability or retirement.
/ / Notwithstanding the above, the Employer shall not make a
Qualified Matching Contribution on behalf of a Participant who is
not credited with:
a. / / more than 500 Hours of Service.
b. / / at least 1000 Hours of Service. If the Plan fails to
pass the participation or coverage tests required under Code
Sections 401(a)26 or 410(b) as a result of this Hours of
Service requirement, such requirement shall be reduced to
501.
13.4 The level of contributions chosen by the Employer is subject to the
Code Section 401(m)(2) discrimination test and the Section 415
contribution limitations.
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14. SPECIAL DISTRIBUTIONS AND MISCELLANEOUS RULES
14.1 Elective Deferrals, Qualified Matching Contributions, Qualified
Non-elective Contributions and income allocable to such amounts shall
be distributable upon separation from service, death, or disability,
as defined in the underlying Plan document. Further, such amounts may
be distributable on any of the following events:
a. Termination of the Plan without the establishment of another
defined contribution plan.
b. As soon as would be administratively feasible after the
disposition by the Employer to an unrelated corporation of
substantially all of the assets (within the meaning of Code
Section 409(d)2)) used in a trade or business of the Employer, if
the Employer continues to maintain this Plan after such
disposition, but only with respect to Employees who continue
employment with the corporation which acquired such assets.
c. As soon as would be administratively feasible after the
disposition by the Employer to an unrelated entity of the
Employer's interest in a subsidiary (within the meaning of Code
Section 409(d)(3)) if the Employer continues to maintain this
Plan, but only with respect to Employees who continue employment
with such subsidiary.
14.2 HARDSHIP DISTRIBUTIONS:
/ / Upon application to, and approval by, the Administrator, a
special distribution may be made upon the hardship of the
Participant, to the extent provided for in Section 11.6(C) of the
Plan, and subject to applicable regulations prescribed by the
Secretary of the Treasury.
14.3 AGE 59 1/2:
/ / A Participant shall be permitted to withdraw all or a portion of
his vested account balance on or after the attainment of age
59 1/2.
14.4 PARTICIPANT LOANS:
/ / Participant loans shall be permitted in this Plan.
14.5 CALENDAR YEAR ELECTION:
Irrespective of any other language, clause or provision in the Plan
and Trust or Adoption Agreement, the Employer may elect to use the
calendar year ending with or within the determination year for the
look back year (as defined in Treasury Regulations under Section
414(q) of the Code) calculation for determining which Employees are
Highly Compensated Employees. The determination year shall be the
months (if any) in the current Plan Year which follow the end of the
calendar look-back year. If the Employer elects to make the calendar
year election with respect to any Plan, entity or arrangement, the
election must apply to all of the Plans, entities, and arrangements of
the Employer.
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/ / Employer elects to use the calendar year to determine whether an
Employee is Highly Compensated Employee in the look-back year.
14.6 VALUATION DATE for purposes of distributions, the Plan shall have the
following interim Valuation Dates:
a. / / Daily (each day of the Plan Year)
b. / / Quarterly (last day of each quarter of the Plan Year)
c. / / Other _______________________________________________
15. CLAIMS FOR EXCESS ELECTIVE DEFERRALS: Participants may notify the Plan of
and claim Excess Elective Deferrals for the preceding calendar year by
submitting their claims in writing to the Plan Administrator by March 1.
16. ACTUAL DEFERRAL AND CONTRIBUTION PERCENTAGES
16.1 Qualified Matching Contributions and Qualified Non-Elective
Contributions may be taken into account as Elective Deferrals for
purposes of calculating the Actual Deferral Percentages. In
determining Elective Deferrals for the purpose of the ADP test the
Employer shall include such Qualified Matching Contributions and such
Qualified Non-Elective Contributions under this Plan or any other Plan
of the Employer as necessary to meet the test and as provided for by
regulations under the Code.
16.2 The amount of such contributions taken into account as Elective
Deferrals for purposes of calculating the Actual Deferral Percentage,
subject to such other requirements as may be prescribed by the
Secretary of the Treasury, shall be those contributions as needed to
meet the test. Employer elections regarding Qualified Matching
Contributions are set forth in Section 12 above.
16.3 Qualified Matching Contributions and Qualified Non-Elective
Contributions may be taken into account as Contributions for purposes
of calculating the Actual Contribution Percentages. In determining
which contributions shall be counted for the purpose of the ACP test
the Employer shall include such Qualified Matching Contributions and
such Qualified Non-Elective Contributions under this Plan or any other
Plan of the Employer as necessary to meet the test and as provided for
by regulations under the Code.
16.4 The amount of such contributions taken into account as Contributions
for purposes of calculating the Actual Contribution Percentage,
subject to such other requirements as may be prescribed by the
Secretary of the Treasury, shall be those contributions as needed to
meet the test. Employer elections regarding vesting for Matching
Contributions are set forth in Section 13 above.
17. FORFEITURES: Forfeitures of Matching Contributions shall be: (Required if
the Employer elects to make Matching Contributions in this Adoption
Agreement)
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17.1 / / Applied in the current year of forfeiture to reduce employer
contributions.
17.2 / / Allocated in the current year of forfeiture, after all other
forfeitures under the plan, to each Participant's Matching
Contribution account in the ratio which each Participant's
Compensation for the Plan Year bears to the total Compensation of
all Participants for such Plan Year. Such forfeitures will not
be allocated to the account of any Highly Compensated Employee.
18. / / INDIVIDUAL INVESTMENT DIRECTION: If the Employer has elected
this Section, each Participant will have the right to direct the
investment of the amount allocated to his Plan account for each of the
contribution types which have also been checked below. Each
Participant will have the power to direct the investment with respect
to those contributions and the earning or losses thereon subject to
such rules as the Administrator and the Trustee may deem necessary.
Gains and losses of the funds so directed by the Participant shall
accrue solely to those funds. The Participant directing the
investment of amounts allocated to his account shall be solely
responsible for the investment results of such directions. This means
that the Participant shall be solely responsible for whatever gains
and/or losses are attributable to the amounts allocated to his account
for which he directs the investment. Contributions not checked below
will be held in a pooled trust and subject to the investment direction
and management of the Plan Administrator. If the Participant fails to
direct the investment of any contribution type checked below, the
failure will be deemed a direction by the Participant to invest said
funds in a money market, dollar-a-share fund or similar vehicle chosen
by the Plan for this purpose. Claims for excess Elective Deferrals
must be submitted by the date elected in Section 15 above.
18.1 / / Elective Deferrals
18.2 / / Qualified Non-elective Contributions
18.3 / / Matching Contributions
18.4 / / Qualified Matching Contributions.
18.5 / / Profit Sharing Contributions
19. LIMITATION YEAR shall mean each 12 consecutive month period ending on
______________________.
20. LIMITATION IN BENEFITS: If the Employer maintains or has ever maintained,
in addition to this Plan, one or more plans which are either qualified
defined benefit plans or qualified defined contribution plans other than
paired plan:
Plan #01 - Adoption Agreement 001
in which any Participant in this Plan is (or was) a participant or could
possibly become a participant, the Employer must complete this Section.
The Employer must also complete this Section if it maintains a welfare
benefit fund, as defined in Code Section 419(e), or
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an individual medical account, as defined in Code Section 415(l)(2) under
which amounts are treated as annual additions with respect to any
participant in this Plan. If the Participant is covered under another
qualified defined contribution plan maintained by the Employer, other than
a master or prototype plan:
20.1 / / The provisions of Section 5.5 (B) of the Plan will apply as
if the other plan were a master or prototype plan.
20.2 / / The total Annual Additions will be limited to the maximum
permissible amount and excess amounts will be reduced in a manner
that precludes Employer discretion, as follows:
20.3 / / If the Participant is or has ever been a Participant in a
defined benefit plan maintained by the Employer, the benefits
under the plans will be limited as follows (this method must
preclude Employer discretion):
21. MINIMUM CONTRIBUTION FOR TOP HEAVY PLAN: If the Employer maintains one or
more defined benefit plans in which a Participant participates in addition
to this Plan and does not maintain any other defined contribution plans in
which a Participant participates, the minimum benefit requirement
applicable to Top Heavy Plans shall be met under this Plan. If the minimum
benefit requirement is met under this Plan, the additional minimum benefit
shall not be provided.
22. YEAR OF SERVICE shall mean 1000 Hours of Service unless the Employer elects
otherwise below.
Hours of Service (less than 1000 Hours of Service).
23. PREDECESSOR EMPLOYER: Service with the following Predecessor Employer(s):
shall be counted for purposes of (place an "X" in the blank before the item
selected) eligibility, _____ Years of Service, and _____ vesting
(Covered Years of Service).
24. ADMINISTRATOR shall mean the Employer unless the Employer appoints an
individual or entity below. The Administrator shall have the sole and
ultimate authority to interpret the Plan terms and provisions.
25. OTHER BENEFITS:
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/ / Early Retirement Benefit (fully vested): Subject to the Joint and
Survivor Annuity requirements, any Participant may retire and receive
the entire amount in his Participant Account provided he has attained
age _____ and has at least _________ Covered Years of Service.
26. ACTUARIAL EQUIVALENT:
For purposes of establishing present value to compute the top heavy ratio,
benefit payments shall be discounted only for mortality and interest based
on the following:
26.1 / / Pre-Retirement Interest Rate _____%.
26.2 / / Post-Retirement Mortality Table: _________ with _____%
interest.
27. PARTICIPATING AFFILIATES: Each Affiliate (i.e., each member of a
controlled group of corporations, commonly controlled group of businesses,
or an affiliated service group within the meaning of Section 414 of the
Code) must adopt this Plan as a Participating Affiliate. [Attach
additional signature pages if there is more than one Participating
Affiliate.]
Participating Affiliate Name: ________________________________________
Employer Tax I.D.: ___________________________________________________
Taxable Year: ________________________________________________________
By: _______________________ Title: ___________________ Date: _____
28. ADMINISTRATOR: If the Employer has appointed an individual or an entity,
the following named individuals shall serve as Plan Administrator.
Signature by the Administrator (if other than the Employer) is in
acknowledgement of acceptance of appointment.
Administrator(s) Name(s) : Signature(s):
Optional Provision - To be elected if Plan Section 10.6 (E) is elected
< 29.> APPOINTMENT OF TRUSTEE OR CUSTODIAN (Select 29.1 or 29.2)
Incorporated businesses must name a Trustee. Unincorporated businesses
covering one or more Self Employed Individuals may appoint a Custodian or a
Trustee.
29.1 The following individual or entity shall be Trustee(s):
Name: ___________________________________________________________
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Address: ________________________________________________________
Phone Number: ___________________________________________________
Signature by the Trustee is in acknowledgment of acceptance of
appointment.
Signature: ______________________________________________________
29.2 The following individual or entity shall be Custodian(s).
Name: ___________________________________________________________
Address: ________________________________________________________
Phone Number: ___________________________________________________
Signature by the Custodian is in acknowledgment of acceptance of
appointment.
Signature: ______________________________________________________
Optional Provision - To be elected if Plan Section 10.6 (E) is not elected
< 29.> APPOINTMENT OF TRUSTEE: The following individual or entity shall be
Trustee(s):
Name: ________________________________________________________________
Address: _____________________________________________________________
Phone Number: ________________________________________________________
Signature by the Trustee is in acknowledgment of acceptance of appointment.
Signature: ___________________________________________________________
Optional Provision - To be elected if Plan Section 10.7 is elected.
30. INSURANCE TRUSTEE: Signature by the Trustee is in acknowledgement of
acceptance of appointment.
Insurance Trustee Name: ______________________________________________
Signature: ___________________________________________________________
30.< 31.> ADOPTION AGREEMENT USAGE:
This Adoption Agreement is only to be used with basic Defined Contribution
Plan document 03. The Adopting Employer may not rely on the opinion
letter issued by the National Office of the Internal Revenue Service as
evidence that this Plan is qualified under Section 401 of the Internal
Revenue Code. In order to obtain the reliance with respect to
qualification, application for a determination letter should be made to the
appropriate Key District Director of Internal Revenue.
Failure of the Employer to properly complete this Adoption Agreement may
result in the disqualification of this Plan.
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31.< 32.> SPONSORING ORGANIZATION - The Sponsoring organization or its
authorized representative identified below will inform the adopting
employer of any amendments made to the Plan or of the discontinuance
or abandonment of the Plan. The organization sponsoring this Plan is:
The authorized representative of the sponsoring organization is:
The Employer represents that the legal and tax aspects of this Plan and Trust
have been duly considered and passed upon by its attorney and/or tax advisor who
has determined that it is suitable and has been properly completed and adopted.
ADOPTION FOR THE EMPLOYER
By: ___________________________________________________ Date: ______________
Document #61726
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EX-99.B14(c)
PROTOTYPE MONEY PURCHASE PENSION PLAN ADOPTION AGREEMENT
The undersigned employer(s) - **SAVE UNDER CLIENT #.ADP IN INSTITUION
DIRECTORY**, hereinafter referred to as the "Employer", hereby adopts the
______________
Non-Standard Prototype Money Purchase Pension Plan and Trust.
1. EMPLOYER TAX IDENTIFICATION NUMBER ____________________.
2. The EFFECTIVE DATE of the Plan shall be _______________.
3. The EFFECTIVE DATE of this amendment __________________.
4. The ANNIVERSARY DATE of the Plan shall be _____________.
5. The ENTRY DATE(S) of the Plan:
5.1 ________________ shall be the first Entry Date.
5.2 ________________ shall be the second Entry Date.
5.3 Other:_______________________________________.
(The Entry Date(s) may not postpone entry into the Plan later than the
earlier of (a) the first day of the Plan Year beginning after the date on
which an Employee satisfies the requirements of Section 6 below, or (b) the
date 6 months after the date such requirements were satisfied).
6. ELIGIBILITY REQUIREMENTS - Each Employee will be eligible to participate in
this Plan in accordance with Section 5 of this Adoption Agreement, except
the following:
6.1 / / Employees who have not attained the age of ___ (cannot
exceed 21).
6.2 / / Employees who have not completed ___ Year(s) of Service
(cannot exceed 1 year unless the Plan provides a nonforfeitable
right to 100% of the Participant's account balance derived from
Employer contributions after not more than 2 Years of Service, in
which case, up to 2 years is permissible. If the Year(s) of
Service selected is, or includes, a fractional year, an Employee
will not be required to complete any specified Hours of Service
to receive credit for such fractional year.).
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6.3 / / Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and Employee
Representatives, if retirement benefits were the subject of good
faith bargaining. For this purpose, the term "Employee
Representatives" does not include any organization more than half
of whose members are employees who are owners, officers, or
executives of the Employer.
6.4 / / Employees who are nonresident aliens and who receive no
earned income from the Employer which constitutes income from
sources within the United States.
6.5 / / a salaried employee.
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6.6 / / an hourly employee.
6.7 / / a commissioned salesperson.
6.8 / / Other:___________________________________________.
The term "Employee" shall include all Employees of this Employer and any
other employer aggregated with this Employer under Internal Revenue Code
Section 414(b), (c) or (m) and individuals required to be considered
Employees or any such Employer under Code Section 414(n) or under
regulations under Code Section 414(o).
7. COMPENSATION shall mean all of each Participant's:
7.1 / / W-2 earnings
7.2 / / Compensation (as that term is defined in Section 415(c)(3)
of the Code)
which is actually paid to the Participant during:
7.3 / / The Plan Year.
7.4 / / The taxable year ending with or within the Plan Year.
7.5 / / The Limitation Year ending with or within the Plan Year.
Compensation:
7.6 / / Shall include.
7.7 / / Shall not include.
Employer contributions made pursuant to a salary reduction agreement which
are not includable in the gross income of the employee under sections 125,
402(a)(8), 402(h) or 403(b) of the Code.
Compensation shall exclude:
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7.8 / / Basic Salary.
7.9 / / Basic Hourly.
7.10 / / Commissions.
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7.11 / / Bonuses.
7.12 / / Other: _______________________________________________.
The exclusions shall not apply if the Plan utilizes Permitted Disparity or
in determining minimum benefits and contributions.
8. NORMAL RETIREMENT AGE shall mean:
The later of age _____ (not to exceed age 65) or the _____ (not to exceed
5th) anniversary of the first day of the first Plan Year in which the
Participant commenced participation in the Plan.
9. VESTING
If a Participant terminates prior to Normal Retirement Age he shall receive
a percentage of his Accrued Benefit according to the vesting schedule
checked below:
9.1 / / One Hundred Percent schedule - 100% at all times.
9.2 / / Twenty Percent Schedule - 20% after the second Covered Year
of Service and 20% for each additional Covered Year of Service.
9.3 / / Variable Schedule - Based on Covered Years of Service after
Year:
1 _______ 3 _______ 5 _______ 7 _______ 100%
2 _______ 4 _______ 6 _______
This Option 9.3 shall not be less favorable than the vesting schedules
contained in Internal Revenue Code Sections 411(a)(2)(A) and (B).
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Note: Option 9.2 will automatically apply if and when this Plan shall
become top heavy provided that Option 9.1 has not been elected and Option
9.3 is not at least as favorable as Option 9.2.
9.4 / / Three-Twenty Schedule - 20% after 3 Covered Years of Service
and 20% for each additional Covered Year of Service.
9.5 / / Cliff Schedule - Full vesting after 5 Covered Years of
Service.
COVERED YEARS OF SERVICE for Vesting purposes shall exclude:
9.6 / / Years of Service before age 18.
9.7 / / Years of Service prior to the Effective Date of the Plan or
a predecessor plan.
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9.8 / / Years of Service in which the Employee declined to make
mandatory contributions to the Plan.
If the vesting schedule under the Plan(s) shifts in or out of the above
vesting schedule for any Plan Year because of the Plan's top heavy status,
such shift is an amendment to the vesting schedule and the election in
Section 1.4 of the Plan applies.
Notwithstanding the above, the Accrued Benefit shall become fully vested at
Normal Retirement Age.
10. CONTRIBUTIONS:
Employer contributions will be calculated based on compensation of those
Participants who are New or Active Participants who have completed a Year
of Service. In the event that the Plan would fail the nondiscrimination
tests under Code Sections 401(a)(26) or 410(b) if the tests were based on
only these Participants, Employees credited with more than 500 Hours of
Service but not a Year of Service shall be considered to be Plan
Participants.
10.1 / / The Employer hereby agrees to contribute to the Plan an
amount equal to (not to exceed 25%) of Compensation.
10.2 / / The Employer hereby agrees to contribute an amount equal to
_____ % (Base Contribution Percentage, not less than 3%) of each
Participant's Compensation up to the Integration Level plus
_____ % (not less than 3% and not to exceed the Base
Contribution Percentage by more than the lesser of: (1) the Base
Contribution Percentage, or (2) the Money Purchase Maximum
Disparity Rate) of such Participant's Excess Compensation as
defined in Section 12.
The above excess percentage rate shall not exceed the rates applicable
to the Employer for old age insurance under the Social Security Act
for such Plan Year of Compensation. Both the taxable wage base and
old age insurance tax rate are those in effect on the first day of the
Plan Year. Such amount will be allocated directly to such
Participant's Account in the same manner as calculating the
contribution and no allocation shall be made under Section 11 of this
Adoption Agreement.
10.3 / / The Employer shall not make a contribution on behalf of a
Participant who terminates employment with the Employer by reason
other than death, disability or retirement and who is not
employed with the Employer on the Anniversary Date.
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10.4 / / Forfeitures of Employer Contributions shall be applied to
reduce the Employer's Contribution.
10.5 / / Forfeitures of Employer Contributions shall be added to the
Employer's Contribution in the year of forfeiture and allocated
therewith.
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11. ALLOCATION OF CONTRIBUTIONS:
The Employer contribution to the Plan will be allocated among Participant
Accounts:
11.1 / / Allocation based on compensation
In the ratio which each Participant's Compensation bears to the
Compensation paid to all Participants.
11.2 / / Allocation under permitted disparity rules
Employer contributions for the Plan Year plus any forfeitures will be
allocated to Participants' accounts as follows:
If the Plan is Top Heavy for the Plan Year (as defined in Section 8 of
the Plan document), begin at step (1), otherwise begin at step (3).
(1) Contributions and forfeitures will be allocated to each
Participant's account in the ratio that each Participant's total
Compensation bears to all Participant's total Compensation, but
not in excess of 3% of each Participant's Compensation.
(2) Any contributions and forfeitures remaining after the allocation
in (1) above will be allocated to each Participant's account in
the ratio that each Participant's Compensation for the Plan Year
in excess of the Integration level bears to the Excess
Compensation of all Participants, but not in excess of 3%.
(3) Any contributions and forfeitures (remaining after the allocation
in (2) above in the case of a Top Heavy Plan) will be allocated
to each Participant's account in the ratio that the sum of each
Participant's total Compensation and Compensation in excess of
the Integration Level bears to the sum of all Participants' total
Compensation and Compensation in excess of the Integration Level,
but not in excess of the Profit Sharing Maximum Disparity Rate.
(4) Any remaining Employer contributions or forfeitures will be
allocated to each Participant's account in the ratio that each
Participant's total Compensation for the Plan Year bears to all
Participant's total Compensation for that year.
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12. EXCESS COMPENSATION SHALL MEAN COMPENSATION IN EXCESS:
12.1 / / of the Taxable Wage Base in effect as of the beginning of
the Plan Year.
12.2 / / of $ _____ (a dollar amount less than the Taxable Wage
Base).
12.3 / / of _____ % of the Taxable Wage Base (not to exceed 100%).
13. INDIVIDUAL INVESTMENT ACCOUNTS:
13.1 / / Will not be used.
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13.2 / / Will be used as follows:
Each Participant will have a separate Individual Investment Account
which will contain the amount allocated to the Participant Account.
Each Participant will have the power to direct the investment with
respect to his Individual Investment Account subject to such rules as
the Administrator and the Trustee may deem necessary. Gains and losses
of the Account shall accrue to such Account only.
14. LIMITATION YEAR shall mean each 12 consecutive month period ending on
___________________________.
NOTE: A written resolution must be adopted by the Employer if the
Limitation Year is other than the calendar year.
15. LIMITATION IN BENEFITS - If the Employer maintains or has ever maintained,
in addition to this Plan, one or more plans which are either qualified
defined benefit plans or qualified defined contribution plans other than
paired plan:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreements 001, 002, 005, 009
in which any Participant in this Plan is (or was) a participant or could
possibly become a participant, the Employer must complete this Section.
The Employer must also complete this Section if it maintains a welfare
benefit fund, as defined in Code Section 419(e), or an individual medical
account, as defined in Code Section 415(l)(2) under which amounts are
treated as annual additions with respect to any Participant in this Plan.
If any Participant is covered under another qualified defined contribution
plan maintained by the Employer, other than a master or prototype plan:
15.1 / / The provisions of Section 5.5 (B) of the Plan will apply as
if the other plan were a master or prototype plan.
15.2 / / The total Annual Additions will be limited to the maximum
permissible amount and excess amounts will be reduced in a manner
that precludes Employer discretion, as follows:
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15.3 / / If the Participant is or has ever been a Participant in a
defined benefit plan maintained by the Employer, the benefits
under the plans will be limited as follows (this method must
preclude Employer discretion):
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16. MINIMUM CONTRIBUTION FOR TOP HEAVY PLAN - If the Employer maintains one or
more defined benefit plans in which a Participant participates in addition
to this Plan and does not maintain any other defined contribution plans in
which a Participant participates, the minimum benefit requirement
applicable to Top Heavy Plans shall be met under this Plan.
If the minimum benefit requirement is met under this Plan, the additional
minimum benefit:
16.1 / / Shall be provided.
16.2 / / Shall not be provided.
17. YEAR OF SERVICE shall mean:
17.1 / / 1000 Hours of Service.
17.2 / / _____ Hours of Service (less than 1000 Hours of Service).
18. PREDECESSOR EMPLOYER - Service with the following Predecessor Employer(s):
shall be counted for purposes of:
18.1 / / eligibility Years of Service.
18.2 / / vesting (Covered Years of Service).
19. ADMINISTRATOR shall mean:
19.1 / / The Employer.
19.2 / / Individuals specified in item 23 below.
20. OTHER BENEFITS
20.1 / / Early Retirement Benefit (fully vested): Subject to the
Joint and Survivor Annuity requirements, any Participant may
retire and receive the
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entire amount in his Participant Account provided he has attained
age ____ and has at least ____________ Covered Years of Service.
21. ACTUARIAL EQUIVALENT - For purposes of establishing present value to
compute the top heavy ratio, benefit payments shall be discounted only for
mortality and interest based on the following:
21.1 / / Pre-Retirement Interest Rate ___ %.
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21.2 / / Post-Retirement Mortality Table _______ with _______ %
interest.
22. PARTICIPATING AFFILIATES - Each Affiliate (i.e., each member of a
controlled group of corporations, commonly controlled group of trades or
businesses, or an affiliated service group within the meaning of section
414 of the Code) must adopt this Plan as a Participating Affiliate. [Attach
additional signature pages if there is more than one Participating
Affiliate.
Participating Affiliate Name ____________________ Employer I.D.__________
Address__________________________________________ Taxable Year___________
By______________________________________ Title____________ Date__________
23. ADMINISTRATOR - If Option 19.2 is elected the following named individuals
shall serve as Plan Administrator.
Signature by the Administrator (if other than the Employer) is in
acknowledgment of acceptance of appointment as Administrator.
Administrator(s) Name(s) Signature(s):
24. Appointment of Trustee - Signature by the Trustee is in acknowledgment of
acceptance of appointment.
Trustee Name(s): Signature(s):
25. ADOPTION AGREEMENT USAGE
This Adoption Agreement is only to be used with basic Defined Contribution
Plan document 02.
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The Adopting Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that this Plan
is qualified under Section 401 of the Internal Revenue Code. In order to
obtain reliance with respect to qualification, application for a
determination letter should be made to the appropriate Key District
Director of Internal Revenue.
Failure of the Employer to properly complete this Adoption Agreement may
result in the disqualification of this Plan.
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26. SPONSORING ORGANIZATION - The Sponsoring organization or its authorized
representative
identified below will inform the adopting employer of any amendments made
to the Plan or of the discontinuance or abandonment of the Plan.
The organization sponsoring this Plan is
.
The authorized representative of the sponsoring organization is
.
The Employer represents that the legal and tax aspects of this Plan and Trust
have been duly considered and passed upon by its attorney and/or tax advisor who
has determined that it is suitable and has been properly completed and adopted.
ADOPTION FOR THE EMPLOYER
Signature Title
Date
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EX-99.B14(d)
PROTOTYPE NON-STANDARD PROFIT SHARING PLAN ADOPTION AGREEMENT
The undersigned employer(s) - _______________________, hereinafter referred to
as the "Employer", hereby adopts the _______________________ PROTOTYPE NON-
STANDARD PROTOTYPE PROFIT SHARING PLAN AND TRUST.
1. EMPLOYER TAX IDENTIFICATION NUMBER _______________________________.
2. The EFFECTIVE DATE of the Plan shall be __________________________.
3. The EFFECTIVE DATE of this amendment _____________________________.
4. The ANNIVERSARY DATE of the Plan shall be ________________________.
5. The ENTRY DATE(S) of the Plan:
5.1 _____________ shall be the first Entry Date.
5.2 _____________ shall be the second Entry Date.
(The Entry Date(s) may not postpone entry into the Plan later than the earlier
of (a) the first day of the Plan Year beginning after the date on which an
Employee satisfies the requirements of Section 6 below, or (b) the date 6 months
after the date such requirements were satisfied).
6. ELIGIBILITY REQUIREMENTS - Each Employee will be eligible to participate
in this Plan in accordance with Section 5 of this Adoption Agreement, except the
following:
6.1 / / Employees who have not attained the age of _____ (cannot
exceed 21).
6.2 / / Employees who have not completed _____ Year(s) of Service
(cannot exceed 1 year unless the Plan provides a
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nonforfeitable right to 100% of the Participant's account
balance derived from Employer contributions after not more
than 2 Years of Service, in which case, up to 2 years is
permissible. If the Year(s) of Service selected is, or
includes, a fractional year, an Employee will not be
required to complete any specified Hours of Service to
receive credit for such fractional year.).
6.3 / / Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and
Employee representatives, if retirement benefits were the
subject of good faith bargaining. For this purpose, the
term "Employee Representatives" does not include any
organization more than half of whose members are employees
who are owners, officer, or executives of the Employer.
6.4 / / Employees who are nonresident aliens and who receive no
earned income from the Employer which constitutes income
from sources within the United States.
6.5 / / a salaried employee.
6.6 / / an hourly employee.
6.7 / / a commissioned salesperson.
The term "Employee" shall include all Employees of this Employer and any
other employer aggregated with this Employer under Internal Revenue Code
Section 414(b), (c) or (m) and individuals required to be considered
Employees or any such Employer under Code Section 414(n) or under
regulations under Code Section 414(o).
7. COMPENSATION shall mean all of each Participant's:
7.1 / / W-2 earnings
7.2 / / Compensation (as that term is defined in Section 415(c)(3)
of the Code)
which is actually paid to the Participant during:
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7.3 / / The Plan Year.
7.4 / / The taxable year ending with or within the Plan Year.
7.5 / / The Limitation Year ending with or within the Plan Year.
Compensation:
7.6 / / Shall include
7.7 / / Shall not include
employer contributions made pursuant to a salary reduction agreement which
are not includable in the gross income of the employee under sections 125,
402(a)(8), 402(h) or 403(b) of the Code.
7.8 / / Basic Salary
7.9 / / Basic Hourly
7.10 / / Commissions
7.11 / / Bonuses
7.12 / / Other _______________________________________.
The exclusions shall not apply if the Plan utilizes Permitted Disparity or
indetermining minimum benefits and contributions.
8. NORMAL RETIREMENT AGE shall mean:
The later of age _____ (not to exceed age 65) or the _____ (not to exceed
5th) anniversary of the first day of the first Plan Year in which the
Participant commenced participation in the Plan.
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9. VESTING
If a Participant terminates prior to Normal Retirement Age he shall receive
a percentage of his Accrued Benefit according to the vesting schedule
checked below:
9.1 / / One Hundred Percent schedule.
100% at all times.
9.2 / / Twenty Percent Schedule.
20% after the second Covered Year of Service and 20% for each
additional Covered Year of Service.
9.3 / / Variable Schedule.
Based on Covered Years of Service after Year:
1 __________ 3 __________ 5 __________ 7 100%
2 __________ 4 __________ 6 __________
This option 9.3 shall not be less favorable than the vesting schedules
contained in Internal Revenue Code Sections 411(a)(2)(A) and (B).
Note: Option 9.2 will automatically apply if and when this Plan shall
become top heavy provided that Option 9.1 has not been elected and Option
9.3 is not at least as favorable as Option 9.2.
9.4 / / Three-Twenty Schedule.
20% after 3 Covered Years of Service and 20% for each additional
Covered Year of Service.
9.5 / / Cliff Schedule.
Full vesting after 5 Covered Years of Service.
COVERED YEARS OF SERVICE for Vesting purposes shall exclude:
9.6 / / Years of Service before age 18.
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9.7 / / Years of Service prior to the Effective Date of the Plan or
a predecessor plan.
9.8 / / Years of Service in which the Employee declined to make
mandatory contributions to the Plan.
If the vesting schedule under the Plan(s) shifts in or out of the above
vesting schedule for any Plan Year because of the Plan's top heavy status,
such shift is an amendment to the vesting schedule and the election in
Section 1.4 of the Plan applies.
Notwithstanding the above, the Accrued Benefit shall become fully vested at
Normal Retirement Age.
10. CONTRIBUTIONS
Employer contributions under the Plan shall be made solely at the
discretion of the Employer but not in excess of 15% of Participant
Compensation plus the dollar amount of any credit carryovers, up to the
maximum amount specified in Section 5.5 of the Plan.
10.1 / / Forfeitures of Employer Contributions shall be used to
reduce the Employer's Contribution.
10.2 / / Forfeitures of Employer Contributions shall be added to the
Employer's Contribution and allocated therewith.
10.3 / / The Employer shall not make a contribution on behalf of a
Participant who terminates employment with the Employer by
reason other than death, disability or retirement and who is
not employed with the Employer on the Anniversary Date.
11. ALLOCATION OF CONTRIBUTIONS
The Employer Contribution to the Plan will be allocated among the accounts
of Participants who have completed a Year of Service during the Plan Year
unless such allocation would cause the Plan to fail the nondiscrimination
tests of Code Section 401(a)26 and 410(b). In that case, Employees who
have completed 500 Hours of Service during the Plan Year shall be made
Participants and the accounts of all Participants who have completed 500
Hours of Service during the Plan Year shall share in the allocation of
contribution.
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11.1 / / ALLOCATION BASED ON COMPENSATION - In the ratio which each
Participant's Compensation bears to the Compensation paid to
all Participants.
11.2 / / ALLOCATION UNDER PERMITTED DISPARITY RULES - Employer
contributions for the Plan Year plus any forfeitures will be
allocated to Participants' accounts as follows:
If the Plan is Top Heavy for the Plan Year (as defined in Section 8 of the
Plan document), begin at step (1), otherwise begin at step (3).
(1) Contributions and forfeitures will be allocated to each
Participant's account in the ratio that each Participant's total
Compensation bears to all Participant's total Compensation, but
not in excess of 3% of each Participant's Compensation.
(2) Any contributions and forfeitures remaining after the allocation
in (1) above will be allocated to each Participant's account in
the ratio that each Participant's Compensation for the Plan Year
in excess of the Integration Level bears to the Excess
Compensation of all Participants, but not in excess of 3%.
(3) Any contributions and forfeitures (remaining after the allocation
in (2) above in the case of a Top Heavy Plan) will be allocated
to each Participant's account in the ratio that the sum of each
Participant's total Compensation and Compensation in excess of
the Integration Level bears to the sum of all Participants' total
Compensation and Compensation in excess of the Integration Level,
but not in excess of the Maximum Disparity Rate.
(4) Any remaining Employer contributions or forfeitures will be
allocated to each Participant's account in the ratio that each
Participant's total Compensation for the Plan Year bears to all
Participant's total Compensation for that year.
12. EXCESS COMPENSATION SHALL MEAN COMPENSATION IN EXCESS:
12.1 / / of the Taxable Wage Base in effect as of the beginning of
the Plan Year.
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12.2 / / of $ __________ (a dollar amount less than the Taxable Wage
Base).
12.3 / / of _____% of the Taxable Wage Base (not to exceed 100%).
13. INDIVIDUAL INVESTMENT ACCOUNTS:
13.1 / / Will not be used.
13.2 / / Will be used as follows:
Each Participant will have a separate Individual Investment Account
which will contain the amount allocated to the Participant Account.
Each Participant will have the power to direct the investment with
respect to his Individual Investment Account subject to such rules as
the Administrator and the Trustee may deem necessary. Gains and
losses of the Account shall accrue to such Account only.
14. LIMITATION YEAR shall mean each 12 consecutive month period ending on
__________.
NOTE: A written resolution must be adopted by the Employer if the
Limitation Year is other than the calendar year.
15. LIMITATION IN BENEFITS - If the Employer maintains or has ever,
maintained, in addition to this Plan, one or more plans which are either
qualified defined benefit plans or qualified defined contribution plans
other than paired plan:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreements 001, 002, 005, 009
in which any Participant in this Plan is (or was) a participant or could
possibly become a participant, the Employer must complete this Section.
The Employer must also complete this Section if it maintains a welfare
benefit fund, as defined in Code Section 419(e), or an individual medical
account, as defined in Code Section 415(1)(2) under which amounts are
treated as annual additions with respect to any Participant in this Plan.
If any Participant is covered under another qualified defined contribution
plan maintained by the Employer, other than a master or prototype plan:
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15.1 / / The provisions of Section 5.5 (B) of the Plan will apply as
if the other plan were a master or prototype plan.
15.2 / / The total Annual Additions will be limited to the maximum
permissible amount and excess amounts will be reduced in a
manner that precludes Employer discretion, as follows:
16. MINIMUM CONTRIBUTION FOR TOP HEAVY PLAN - If the Employer maintains one or
more defined benefit plans in which a Participant participates in addition
to this Plan and does not maintain any other defined contribution plans in
which a Participant participates, the minimum benefit requirement
applicable to Top Heavy Plans shall be met under this Plan.
If the minimum benefit requirement is met under this Plan, the additional
minimum benefit:
16.1 / / Shall be provided.
16.2 / / Shall not be provided.
17. YEAR OF SERVICE shall mean
17.1 / / 1000 Hours of Service
17.2 / / __________ Hours of Service (less than 1000 Hours of
Service).
18. PREDECESSOR EMPLOYER - Service with the following Predecessor Employer(s):
.
shall be counted for purposes of:
18.1 / / eligibility Years of Service.
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18.2 / / vesting (Covered Years of Service).
19. ADMINISTRATOR shall mean:
19.1 / / The Employer.
19.2 / / Individuals specified in item 23 below.
20. OTHER BENEFITS
20.1 / / Early Retirement Benefit (fully vested): Subject to the
Joint and Survivor Annuity requirements, any Participant may
retire and receive the entire amount in his Participant
Account provided he has attained age _____ and has at least
_____ Covered Years of Service.
21. ACTUARIAL EQUIVALENT - For purposes of establishing present value to
compute the top heavy ratio, benefit payments shall be discounted only for
mortality and interest based on the following:
21.1 / / Pre-Retirement Interest Rate _____%
21.2 / / Post-Retirement Mortality Table __________ with _____%
interest.
22. PARTICIPATING AFFILIATES - Each Affiliate (i.e., each member of a
controlled group of corporations, commonly controlled group of trades or
businesses, or an affiliated service group within the meaning of section
414 of the Code) must adopt this Plan as a Participating Affiliate.
(Attach additional signature pages if there is more than one Participating
Affiliate).
Participating Affiliate Name Employer I. D.
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Address Taxable Year
By Title Date
23. ADMINISTRATOR - If Option 19.2 is elected the following named individuals
shall serve as Plan Administrator.
Signature by the Administrator (if other than the Employer) is in
acknowledgment of acceptance of appointment as Administrator.
Administrator(s) Name(s) Signature(s):
24. Appointment of Trustee or Custodian (Select 24.1 or 24.2)
Incorporated businesses must name a Trustee. Unincorporated businesses
covering one or more Self Employed Indificuals may appoint a Custodian or a
Trustee.
24.1 / / Trustee - Signature by the Trustee is in acknowledgement of
acceptance of appointment.
Trustee Name: Signature:
24.2 / / Custodian - ____________ is hereby appointed as Custodian.
Signature of Authorized Individual Accepting Appointment
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Optional Provision - To be elected if Plan Section 10.7 is elected.
25. INSURANCE TRUSTEE - Signature by the Trustee is in acknowledgment of
acceptance of appointment.
Insurance Trustee Name: Signature:
26< 25>. ADOPTION AGREEMENT USAGE
This Adoption Agreement is only to be used with basic Defined Contribution
Plan document 02.
The Adopting Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that this Plan
is qualified under Section 401 of the Internal Revenue Code. In order to
obtain reliance with respect to qualification, application for a
determination letter should be made to the appropriate Key District
Director of Internal Revenue.
27< 26>. SPONSORING ORGANIZATION
The Sponsoring organization or its authorized representative identified
below will inform the adopting employer of any amendments made to the Plan
or of the discontinuance or abandonment of the Plan.
The organization sponsoring this Plan is ______________________________.
The authorized representative of the sponsoring organization is
___________________________.
The Employer represents that the legal and tax aspects of this Plan and
Trust have been duly considered and passed upon by its attorney and/or tax
advisor who has determined that it is suitable and has been properly
completed and adopted.
ADOPTION FOR THE EMPLOYER
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Date of Execution Signature Title
Document #61728
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EX-99.B14(e)
PROTOTYPE STANDARD 401(k) PROFIT SHARING PLAN ADOPTION AGREEMENT
The undersigned employer(s) - ______________________________, hereinafter
referred to as the "Employer" hereby adopts the __________________________
PROTOTYPE STANDARD 401(k) PROFIT SHARING PLAN AND TRUST.
1. EMPLOYER TAX IDENTIFICATION NUMBER ____________________________________.
2. The EFFECTIVE DATE of the Plan shall be _______________________________.
3. The EFFECTIVE DATE of this amendment shall be _________________________.
4. The ANNIVERSARY DATE of the Plan shall be _____________________________.
5. The ENTRY DATE(S) of the Plan:
5.1 ______________ shall be the first Entry Date.
5.2 ______________ shall be the second Entry Date.
5.3 ______________ shall be the third Entry Date.
5.4 ______________ shall be the fourth Entry Date.
(The Entry Date(s) may not postpone entry into the Plan later than the
earlier of (a) the first day of the Plan Year beginning after the date on
which an Employee satisfies the requirements of Section 6 below, or (b) the
date 6 months after the date such requirements were satisfied).
6. ELIGIBILITY REQUIREMENTS - Each Employee will be eligible to participate in
this Plan in accordance with Section 5 of this Adoption Agreement, except
the following:
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6.1 / / Employees who have not attained the age of _________ (cannot
exceed 21).
6.2 / / Employees who have not completed _____ Year(s) of Service
(cannot exceed 1 year unless the Plan provides a nonforfeitable
right to 100% of the Participant's account balance derived from
Employer contributions after not more than 2 Years of Service in
which case up to 2 years is permissible. If the Year(s) of
Service selected is or includes a fractional year, an Employee
will not be required to complete any specified Hours of Service
to receive credit for such fractional year).
6.3 / / Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and Employee
Representatives, if retirement benefits were the subject of good
faith bargaining. For this purpose, the term "Employee
Representatives" does not include any organization more than half
of whose members are employees who are owners, officers, or
executives of the Employer.
6.4 / / Employees who are nonresident aliens and who earn no earned
income from the Employer which constitutes income from sources
within the United States.
The term "Employee" shall include all Employees of this Employer and any
other employer aggregated with this Employer under Internal Revenue Code
Section 414(b), (c) or (m) and individuals required to be considered
Employees or any such Employer under Code Section 414(n) or under
regulations under Code Section 414(o).
7. COMPENSATION shall mean all of each Participant's:
7.1 / / W-2 earnings
7.2 / / Compensation (as that term is defined in Section 415(c)(3)
of the Code)
Which is actually paid to the Participant during:
7.3 / / The Plan Year.
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7.4 / / The Taxable Year ending with or within the Plan Year.
7.5 / / The Limitation Year ending with or within the Plan Year.
Compensation:
7.6 / / Shall include
7.7 / / Shall not include
Employer contributions made pursuant to a salary reduction agreement which
are not includible in the gross income of the employee under sections
125,402(a)(8), 402(h) or 403(b) of the Code.
8. NORMAL RETIREMENT AGE shall mean:
The later of age _____ (not to exceed age 65) or the _____ (not to exceed
the 5th) anniversary of the first day of the first Plan Year in which the
Participant commenced participation in the Plan.
9. VESTING
If a Participant terminates prior to Normal Retirement Age, he shall
receive a percentage of his Accrued Benefit according to the vesting
schedule checked below:
9.1 / / One Hundred Percent schedule.
100% at all times.
9.2 / / Twenty Percent Schedule.
20% after the second Covered Year of Service and 20% for each
additional Covered Year of Service.
9.3 / / Variable Schedule.
Based on Covered Years of Service after Year:
1 _______ 4 _______ (at least 60%)
2 _______ (at least 20%) 5 _______ (at least 80%)
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3 _______ (at least 40%) 6 100%
If the vesting schedule under the Plan(s) shifts in or out of the above
vesting schedule for any Plan Year because of the Plan's top heavy status,
such shift is an amendment to the vesting schedule and the election in
Section 1.4 of the Plan applies.
Notwithstanding the above, the Accrued Benefit shall become fully vested at
Normal Retirement Age.
10. CONTRIBUTIONS
10.1 / / EMPLOYER CONTRIBUTIONS - The Employer may make contribution
to the Plan without regard to current or accumulated earnings and
profits for the taxable year or years ending with or within the
Plan Year.
Unless this option is elected, the Plan will be subject to the requirement
that employer contribution be made out of current or accumulated net
profits. Accordingly, all employer contributions under the Plan, including
Employer discretionary contributions, Elective Deferrals and Qualified Non-
Elective Contributions, will be limited to the Employer's net profits.
10.2 / / ELECTIVE DEFERRALS - A Participant may elect to have his or
her Compensation reduced by the following percentage or amount
per pay period or for a specified pay period of periods, as
designated in writing to the Plan Administrator:
a. / / An amount not in excess of _____% of a Participant's
Compensation.
b. / / An amount not in excess of $___________ of a
Participant's Compensation.
No Participant shall be permitted to have Elective Deferrals made
under this plan during any calendar year in excess of $7,000
multiplied by the Adjustment Factor.
c. / / A Participant may elect to commence Elective Deferrals
as of
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(ENTER AT LEAST ONE DATE OR PERIOD DURING A
CALENDAR YEAR). Such Election shall be come effective as of
the ______ (ENTER NUMBER) pay period following the pay
period during which the Participant's election to commence
Elective Deferrals was made, or as soon as administratively
feasible thereafter.
d. A Participant's election to have Elective Deferrals made pursuant
to a salary reduction agreement shall remain in effect until
modified or terminated. A Participant may modify the amount of
Elective Deferrals as of ____________ (ENTER AT LEAST ONE DATE OR
PERIOD DURING A CALENDAR YEAR). Such election shall become
effective as of the _____________ (ENTER NUMBER) pay period
following the pay period during which the Participant's election
to modify Elective Deferrals was made, or as soon as
administratively feasible thereafter.
e. / / A Participant may base Elective Deferrals on cash
bonuses that, at the Participant's election, may be
contributed to the Plan or received by the Participant in
cash.
f. A Participant shall be afforded a reasonable period to elect to
defer amounts described above. Such election shall become
effective as of the _________ (ENTER NUMBER) pay period following
the pay period following the pay period during which the
participant's election to make such Elective Deferrals was made,
or a soon as administratively feasible thereafter.
g. A Participant shall designate the amount and frequency of his or
her Elective Deferrals in the form and manner specified by the
Plan Administrator.
10.3 / / EMPLOYER PROFIT SHARING CONTRIBUTIONS - In addition to
Elective Deferrals, Qualified Non-Elective Contributions,
Qualified Matching Contributions and Matching Contributions, the
Employer may make additional contributions under the Plan which
shall be made solely at the discretion of the Employer but not in
excess of 15% of Participant Compensation, up to the maximum
amount specified in Section 5.5 of the Plan.
Employer contribution under this Section 10.3 shall be allocated
in proportion to compensation and shall vest in accordance with
the
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vesting schedule specified in Section 9 of the Adoption
Agreement. Forfeitures of Profit Sharing Contributions shall be:
a. / / Added to and allocated in the same manner as the
Contribution.
b. / / Applied to reduce the Contribution.
11. QUALIFIED NON-ELECTIVE CONTRIBUTIONS
11.1 / / The Employer will make Qualified Non-Elective Contributions
to the Plan. If the Employer does make Qualified Non-Elective
Contributions to the Plan, then the amount of such contributions
to the Plan for each Plan Year shall be:
a. / / _____ percent (not to exceed 15 percent) of the
Compensation of all Participants eligible to share in the
allocation.
b. / / _____ percent of the net profits, but in no event more
than
$__________ for any Plan Year.
c. / / An amount as determined by the Employer. The amount of
the special Qualified Non-Elective Contributions allocated
under section 11.2 below will be the amount needed to meet
the Average Actual Deferral Percentage test state in section
11.4 of the Plan.
11.2 Allocations of Qualified Non-Elective Contributions to each
Participant's account shall be made to the accounts of:
/ / All Participants.
/ / Only Non-Highly compensated Participants.
11.3 Allocations of Qualified Non-Elective Contributions to each
Participant's account shall be made (elect one):
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a. / / In the ratio in which each Participant's Compensation
for the Plan Year bears to the total Compensation of all
Participants for such Plan Year.
b. / / In the ratio in which each Participant's Compensation
not in excess of
$__________ for the Plan Year bears to the total
Compensation of all Participants not in excess of
$__________ for such Plan Year.
12. QUALIFIED MATCHING CONTRIBUTIONS
12.1 / / The Employer will make Qualified Matching Contributions to
the Plan on behalf of Participants who make Elective Deferrals.
12.2 / / The Employer will make Qualified Matching Contributions to
the Plan on behalf of:
a. / / All Participants who make Elective Deferrals.
b. / / All Participants who are Non-Highly Compensated
Employees and who make Elective Deferrals.
12.3 The amount of such Qualified Matching Contributions made on behalf of
each Participant as specified in section 12.2 of this adoption
agreement shall be:
a. / / _____ percent of the Elective Deferral made for each
Plan Year.
b. / / The sum of ______ percent of the portion of the
Elective Deferral which does not exceed _____ percent of the
portion of the Participant's Compensation, plus _____
percent of the portion of the Elective Deferral which
exceeds _____ percent of the Participant's Compensation, but
does not exceed _____ percent of the Participant's
Compensation.
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c / / The Employer shall not match Elective Deferrals as
provided in a or b above in excess of $__________ or in
excess of _____ percent of the Participant's Compensation.
12.4 Qualified Matching Contributions and Qualified Non-Elective
Contributions may be taken into account as Elective Deferrals for
purposes of calculating the Actual Deferral Percentages. In
determining Elective Deferrals for the purpose of the ADP test, the
Employer shall include:
a. / / Qualified Matching Contributions
b. / / Qualified Non-Elective Contributions
under this Plan or any other Plan of the Employer as provided by
regulations under the Code.
12.5 The amount of qualified Matching Contributions made under Section 12.1
of the Plan and taken into account as Elective Deferrals for purposes
of calculating the Actual Deferral Percentage, subject tot such other
requirements as may be prescribed by the Secretary of the Treasury,
shall be:
a. / / All such Qualified Matching Contributions.
b. / / Such Qualified Matching Contributions that are needed
to meet the Actual Deferral Percentage test.
12.6 The amount of Qualified Non-Elective Contributions made under Section
11 of this Plan and taken into account as Elective Deferrals for
purposes of calculating the Actual Deferral Percentages, subject to
such other requirements as may be prescribed by the Secretary of the
Treasury, shall be:
a. / / All such Qualified Non-Elective Contributions.
b. / / Such Qualified Non-Elective Contributions that are
needed to meet the Actual Deferral Percentage test stated in
section 11.4(F) of the Plan.
13. MATCHING CONTRIBUTIONS
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13.1 / / The Employer will make Matching Contributions to the Plan on
behalf of Participants who make Elective Deferrals. The Employer
will make Matching Contributions to the Plan on behalf of:
a. / / All Participants who make Elective Deferrals.
b. / / All Participants who are Non-Highly Compensated
Employees and who make Elective Deferrals.
13.2 Matching contributions will be:
a. / / Nonforfeitable when made.
b. / / Subject to the vesting schedule applicable to Employer
contribution, other than Elective Deferrals and Qualified
Non-Elective Contributions, under the Plan.
13.3 The amount of such Matching Contributions made on behalf of each
Participant shall be:
a. / / _____ percent of the Elective Deferral made for each
Plan Year.
b. / / The sum of _____ percent of the portion of the Elective
Deferral which does not exceed _____ percent of the
Participant's Compensation plus _____ percent of the portion
of the Elective Deferral which exceeds _____ percent of the
Participant's Compensation, but does not exceed _____
percent of the Participant's compensation.
The level of contributions chosen by the Employer is subject to both
section 401(m)(2) discrimination test and the section 415 limitations.
14. SPECIAL DISTRIBUTIONS
Elective Deferrals, Qualified Matching Contributions, Qualified Non-
Elective Contributions and income allocable to such amounts shall be
distributable upon
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separation form service, death, or disability, as defined in the underlying
plan document, and, in addition:
14.1 / / Termination of the Plan without the establishment of another
defined contribution plan.
14.2 / / As soon as administratively feasible after the disposition
by the Employer to an unrelated corporation of substantially all
of the assets (within the meaning of Code Section 409(d)(2)) used
in a trade or business of the Employer if the Employer continues
to maintain this Plan after such disposition, but only with
respect to Employees who continue employment with the corporation
acquiring such assets.
14.3 / / As soon as administratively feasible after the disposition
by the Employer to an unrelated entity of the Employer's interest
in a subsidiary (within the meaning of Code Section 409(d)(3)) if
the Employer continues to maintain this Plan, but only with
respect to Employees who continue employment with such
subsidiary.
14.4 / / Upon the hardship of the Participant, to the extent provided
for in Section 11.6(C) of the Plan and subject to applicable
regulations prescribed by the Secretary of the Treasury.
15. CLAIMS FOR EXCESS ELECTIVE DEFERRALS - Participants who claim Excess
Elective Deferrals for the preceding calendar year must submit their claims
in writing to the plan administrator by
(SPECIFY A DATE BETWEEN MARCH 1 AND APRIL 15).
Excess Elective Deferrals that are distributed after April 16 are not only
includible in the Participant's gross income in the taxable year when made,
but are also includible in the Participant's gross income again in the year
when distributed.
The Plan permits distributions of Excess Contributions and Excess Aggregate
Contributions on or before the last day of the Plan Year after the Plan
Year in which such excess amounts arose. Distribution of such amounts, or
other corrective action, is required under section 401(k)(8) and 401(m)(6)
of the Code if the plan is to maintain its tax-qualified status. However,
if such excess amounts, plus any income and minus any loss allocable
thereto, are distributed more than 22 1/2 months after the last day of the
Plan Year in which such excess
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amounts arose, then section 4979 of the Code imposes a ten (10) percent
excise tax on the Employer maintaining the plan with respect to such
amounts.
The Employer may choose to limit its acceptance of claims to a date that is
not later than March 1.
16 AVERAGE CONTRIBUTION PERCENTAGE
16.1 In computing the Average Contribution Percentage, the employer shall
take into account, and include as Contribution Percentage Amounts:
a. / / Elective Deferrals.
b. / / Qualified Non-Elective Contributions under this plan or
any employer, as provided by regulations.
16.2 The amount of Qualified Non-Elective Contributions that are made under
Section 11.4(l) of this plan and taken into account as Contribution
Percentage Amounts for purposes of calculating the Average
Contribution Percentage, subject to such other requirements as may be
prescribed by Secretary of the Treasury, shall be:
a. / / All such Qualified Non-Elective Contributions.
b. Such Qualified Non-Elective Contributions that are needed to meet
the Average Contribution Percentage test stated in section 11.8
of the plan.
16.3 The amount of Elective Deferrals made under Section 11.4(B) of this
plan and taken into account as Contribution Percentage Amounts for
purposes of calculating the Average Contribution Percentage, subject
to such other requirements as may be prescribed by the Secretary of
the Treasury, shall be:
a. / / All such Elective Deferrals.
b. / / Such Elective Deferrals that are needed to meet the
Average Contribution Percentage test stated in section 11.8
of the plan.
17. FORFEITURES of Matching Contributions shall be: (Required if the Employer
elects to make Matching Contributions in this Adoption Agreement)
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17.1 / / Applied in the current year of forfeiture to reduce employer
contributions.
17.2 / / Allocated in the current year of forfeiture, after all other
forfeitures under the plan to each Participant's Matching
Contribution account in the ratio which each Participant's
Compensation for the Plan Year bears to the total Compensation of
all Participants for such Plan Year. Such forfeitures will not
be allocated to the account of any Highly Compensated Employee.
18. INDIVIDUAL INVESTMENT ACCOUNTS
Individual Investment Accounts for Elective Deferrals, Qualified Non-
Elective Contributions, Qualified Matching Contributions and Matching
Contributions:
18.1 / / Will not be used.
18.2 / / Will be used as follows:
Each Participant will have a separate Individual Investment Account
which will contain the amount allocated to the Participant Account.
Each Participant will have the power to direct the investment with
respect to his Individual Investment Account subject to such rules as
the Administrator and the Trustee may deem necessary. Gains and
losses of the Account shall accrue to such Account only.
Individual Investment Accounts for Employer Contributions under Section
10.3 of this Adoption Agreement:
18.3 / / Will not be used.
18.4 / / Will be used as follows:
Each Participant will have a separate Individual Investment Account
which will contain the amount allocated to the Participant Account.
Each Participant will have the power to direct the investment with
respect to his Individual Investment Account subject to such rules as
the Administrator and the Trustee may deem necessary. Gains and
losses of the Account shall accrue to such Account only.
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19. LIMITATION YEAR shall mean each 12 consecutive month period ending on
__________.
NOTE: A written resolution must be adopted by the Employer if the
Limitation Year is other than the calendar year.
20. LIMITATION IN BENEFITS - If the Employer maintains or has ever, maintained,
in addition to this Plan, one or more plans which are either qualified
defined benefit plans or qualified defined contribution plans other than
paired plan:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreements 001, 002, 003, 004, 006, 007
in which any Participant in this Plan is (or was) a participant or could
possible become a participant, the Employer must complete this Section.
The Employer must also complete this Section if it maintains a welfare
benefit fund, as defined in Code Section 419(e), or an individual medical
account, as defined in Code Section 415(l)(2) under which amounts are
treated as annual additions with respect to any Participant in the Plan.
If the Participant is covered under another qualified defined contribution
plan maintained by the Employer, other than a master or prototype plan:
20.1 / / The provisions of Section 5.5(B) of the Plan will apply as
if the other plan were a master or prototype plan.
20.2 / / The total Annual Additions will be limited to the maximum
permissible amount and excess amounts will be reduced in a manner
that precludes Employer discretion, as follows:
20.3 / / If the Participant is or has ever been a Participant in a
defined benefit plan maintained by the Employer, the benefits
under the plans will be limited as follows (this method must
preclude Employer discretion):
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21. MINIMUM CONTRIBUTION FOR TOP HEAVY PLAN - If the Employer maintains one or
more defined benefit plans in which a Participant participates in addition
to this Plan and does not maintain any other defined contribution plans in
which a Participant participates, the minimum benefit requirement
applicable to Top Heavy Plans shall be met under this Plan.
If the minimum benefit requirement is met under this Plan, the additional
minimum benefit:
21.1 / / Shall be provided.
21.2 / / Shall not be provided.
22. YEAR OF SERVICE shall mean
22.1 / / 1000 Hours of Service.
22.2 / / ________ Hours of Service (less than 1000 Hours of Service).
In the event the plan would otherwise fail the nondiscrimination tests of
Code Sections 401(a)(26) of 410(b), for purposes of allocating Employer
Profit Sharing Contribution, the above Hour of Service requirement shall be
changed for that Year to a 500 hour requirement.
23. PREDECESSOR EMPLOYER - Service with the following Predecessor Employer(s):
shall be counted for purposes of:
23.1 / / Eligibility Years of Service.
23.2 / / Vesting (Covered Years of Service).
24. ADMINISTRATOR shall mean:
24.1 / / The Employer.
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24.2 / / Individuals specified in Section 28.
25. OTHER BENEFITS
25.1 / / Early Retirement Benefit (fully vested): Subject to the
Joint and Survivor Annuity requirements, any Participant may
retire and receive the entire amount in his Participant Account
provided he has attained age _____ and has at least _____ Covered
Years of Service.
26. ACTUARIAL EQUIVALENT
For purposes of establishing present value to compute the top heavy ratio,
benefit payments shall be discounted only for mortality and interest based
on the following:
26.1 / / Pre-Retirement Interest Rate _____ %.
26.2 / / Post-Retirement Mortality Table: __________ with _____ %
interest.
27. PARTICIPATING AFFILIATES - Each Affiliate (i.e., each member of a
controlled group of corporations, commonly controlled group of businesses,
or an affiliated service group within the meaning of section 414 of the
Code) must adopt this Plan as a Participating Affiliate. (Attach
additional signature pages if there is more than one Participating
Affiliate.)
Participating Affiliate Name Employer I. D.
Address Taxable Year
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By Title Date
28. ADMINISTRATOR - If Option 24.2 is elected the following named individuals
shall serve as Plan Administrator.
Signature by the Administrator ( if other than the Employer) is in
acknowledgment of acceptance of appointment.
Administrator(s) Name(s): Signature(s):
Optional Provision - To be elected if Plan Section 10.6(E) is not elected.
29. APPOINTMENT OF TRUSTEE - Signature by the Trustee is in acknowledgement of
acceptance of appointment.
Trustee Name: Signature:
29. APPOINTMENT OF TRUSTEE OR CUSTODIAN (Select 29.1 or 29.2)
Incorporated businesses must name a Trustee. Unincorporated businesses
covering one or more Self Employed Individuals may appoint a Custodian or a
Trustee.
29.1 / / Trustee - Signature by the Trustee is in acknowledgement of
acceptance of appointment.
Trustee Name: Signature:
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29.2 / / Custodian - ___________________ is hereby appointed as
Custodian.
Signature of Authorized Individual Accepting Appointment.
Optional Provision - To be elected if Plan Section 10.7 is elected.
30. INSURANCE TRUSTEE - Signature by the Trustee is in acknowledgement of
acceptance of appointment
Insurance Trustee Name: Signature:
31. ADOPTION AGREEMENT USAGE
This Adoption Agreement is only to be used with basic Defined Contribution
Plan document 02.
An Employer who has ever maintained or who later adopts any plan (including
a welfare benefit fund, as defined in Section 419(e) of the Code, which
provides post - retirement medical benefits allocated to separate accounts
for key employees as defined in Code Section 419A(d)(3), or an individual
medical account, as defined in Section 415(l)(2) of the code) in addition
to this Plan other than paired plans:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreements 001, 002, 003, 004, 006, 007
may not rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Internal Revenue Code. If the Employer who adopts or
maintains multiple plans other than the paired plans identified above
wishes to obtain reliance that is plans are qualified, application for a
determination letter should be made to the appropriate Key District
Director of Internal Revenue.
Failure of the Employer to properly complete this Adoption Agreement may
result in the disqualification of this Plan.
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32. SPONSORING ORGANIZATION - The Sponsoring organization or its authorized
representative identified below will inform the adopting employer of any
amendments made to the Plan or of the discontinuance or abandonment of the
Plan.
The organization sponsoring this Plan is ______________________________.
The authorized representative of the sponsoring organization is
_____________________.
The Employer represents that the legal and tax aspects of this Plan and
Trust have been duly considered and passed upon by its attorney and/or tax
advisor who has determined that it is suitable and has been properly
completed and adopted.
ADOPTION FOR THE EMPLOYER
DATE OF EXECUTION SIGNATURE TITLE
Document #61730
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EX-99.B14(f)
PROTOTYPE 401(k) PROFIT SHARING PLAN ADOPTION AGREEMENT
The undersigned employer(s) - **SAVE UNDER client #.adp IN INSTITUION
DIRECTORY**, hereinafter referred to as the "Employer", hereby adopts the
_____________________ PROTOTYPE STANDARD FLEX 401(k) PROFIT SHARING PLAN AND
TRUST. The name of the Plan shall be _______________.
1. EMPLOYER TAX IDENTIFICATION NUMBER: ________________________________.
2. The EFFECTIVE DATE of the initial adoption of the Plan is _______________
(usually the first day of the Plan Year).
3. If this is an amendment of an existing plan, the EFFECTIVE DATE of the
amendment is _____ (usually the first day of the Plan Year).
4. The LAST DAY of the PLAN YEAR, _________________ shall be the ANNIVERSARY
DATE.
5. The ENTRY DATE(S) of the Plan:
5.1 / / Shall be the first day of each PLAN YEAR and the first day
of each quarter thereafter.
5.2 / / Shall be the first day of each PLAN YEAR and the first day
of the seventh month of each Plan Year.
5.3 / / Other ___________________________________________
6. ELIGIBILITY REQUIREMENTS
6.1 CASH OR DEFERRED ARRANGEMENT: Each Employee except the following
shall be eligible to participate in the 401(k) Cash or Deferred
Arrangement, any Matching Contributions, any Qualified Matching
Contributions or any Qualified Non-elective Contributions which the
Employer may make to the Plan in accordance with Section 5 above.
(Eligibility for participation in any Discretionary Profit Sharing
Contributions shall be determined in Section 6.2 below).
a. / / Employees who have not attained the age of _____ (cannot
exceed 21).
b. / / Employees who have not completed Year of Service (cannot
exceed 1 year). If the Year of Service selected is or includes
a fractional year, an Employee will not be required to complete
any specified Hours of Service to receive credit for such
fractional year.
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c. / / Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and Employee
Representatives, if retirement benefits were the subject of good
faith bargaining SHALL NOT be eligible to participate. For this
purpose, the term "Employee Representatives" does not include any
organization more than half of whose members are employees who
are owners, officers, or executives of the Employer.
d. / / Employees who are nonresident aliens (within the meaning of
Code Section 7701(1)(B)) and who received no earned income
(within the meaning of Code Section 911(d)(2)) from the Employer
which constitutes income from sources within the United States
(within the meaning of Code Section 861(a)(3)).
e. / / The age and service requirement for eligibility to
participate shall be waived for individuals employed on the
Effective Date of this Adoption Agreement.
6.2 DISCRETIONARY PROFIT SHARING CONTRIBUTION: Each Employee except the
following shall be eligible to participate in any Discretionary Profit
Sharing Contributions in accordance with Section 5 above.
a. / / Employees who have not attained the age of _____ (cannot
exceed 21).
b. / / Employees who have not completed _____ Year of Service
(cannot exceed 1 year unless the Plan provides for 100% vesting
of this contribution). If the Year of Service selected is or
includes a fractional year, an Employee will not be required to
complete any specified Hours of Service to receive credit for
such fractional year.
c. / / Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and Employee
Representatives, if retirement benefits were the subject of good
faith bargaining SHALL NOT be eligible to participate. For this
purpose, the term "Employee Representatives" does not include any
organization more than half of whose members are employees who
are owners, officers, or executives of the Employer.
d. / / Employees who are nonresident aliens (within the meaning of
Code section 7701(1)(B)) and who received no earned income
(within the meaning of Code Section 911(d)(2)) from the Employer
which constitutes income from sources within the United States
(within the meaning of Code section 861(a)(3)).
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e. / / The age and service requirement for eligibility to
participate shall be waived for individuals employed on the
Effective Date of this Adoption Agreement.
7. COMPENSATION shall mean all money or value which is actually paid to the
Participant during the Plan Year, as represented in Sections 7.1 and 7.2
below. Unless elected otherwise by the Employer below, Compensation SHALL
INCLUDE Employer contributions made pursuant to a salary reduction
agreement which are not includible in the gross income of the employee
under sections 125, 402(a)(8), 402(h) or 403(b) of the Code. Unless
elected otherwise by the Employer below, Compensation, for purposes of the
Cash or Deferred Arrangement, SHALL INCLUDE earnings paid prior to the date
an Employee became a Participant. Criteria for hardship distributions are
set forth in the basic plan.
7.1 / / W-2 earnings reported in the Wages, Tips, and Other
Compensation Box on Form W2.
7.2 / / Compensation (as that term is defined in Section 415(c)(3)
of the Code).
7.3 / / Compensation SHALL NOT INCLUDE Employer contributions made
pursuant to a salary reduction agreement which are not includible
in the gross income of the employee under Sections 125,
402(a)(8), 402(h) or 403(b) of the Code.
7.4 / / Compensation SHALL NOT INCLUDE earnings paid prior to the
date the Employee became a Plan Participant.
8. NORMAL RETIREMENT AGE shall mean:
The later of age _____ (not to exceed age 65) or the _____ (not to exceed
5th) anniversary of the first day of the first Plan Year in which the
Participant commenced participation in the Plan. If no age is elected and
this section is left blank, Normal Retirement Age will be deemed to be 65.
9. VESTING
9.1 EMPLOYER MATCHING CONTRIBUTIONS: If a Participant terminates prior to
Normal Retirement Age he shall receive a percentage of his Accrued
Benefit derived from Matching Contributions according to the vesting
schedule checked below. Each Participant shall be 100% vested at all
times in his Elective Deferral Contributions, any Qualified Matching
Contributions or any Qualified Non-elective Contributions the Employer
may make to the Plan on his behalf. Each Participant shall vest in
his share of any Discretionary Profit Sharing Contributions according
to the schedule determined in Section 9.2 below.
a. / / One hundred percent schedule - 100% at all times.
b. / / Twenty Percent Schedule - 20% after the second Covered Year
of Service and 20% for each additional year credited thereafter,
until 100% is reached at six years.
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c. Variable Schedule:
Based on Covered Year of Service after Year:
1 _______ 3 _______ 5 _______ 7 100%
2 _______ 4 _______ 6
This option c shall not be less favorable than the vesting schedules
contained in Internal Revenue Code Sections 411(a)(2)(A) and (B).
d. / / Years of Service for purposes of determining vesting shall
exclude Years of Service
d.1 / / prior to the Effective Date of this Plan or a
predecessor plan.
d.2 / / prior to the age of 18.
Note: Option b will automatically apply if and when this Plan shall
become top heavy provided that Option a has not been elected and
Option c is not at least as favorable as Option b.
If the vesting schedule under the Plan (s) shifts in or out of the
above vesting schedule for any Plan Year because of the Plan's top
heavy status, such shift is an amendment to the vesting schedule and
the election in Section 1.4 of the Plan applies.
Notwithstanding the above, the Accrued Benefit shall become fully
vested at Normal Retirement Age.
9.2 EMPLOYER DISCRETIONARY PROFIT SHARING CONTRIBUTIONS: If a Participant
terminates prior to Normal Retirement Age he shall receive a
percentage of his Accrued Benefit derived from Discretionary Profit
Sharing Contributions according to the vesting schedule checked
below. Each Participant shall be 100% vested at all times in his
Elective Deferral Contributions, any Qualified Matching Contributions
or any Qualified Non-elective Contributions the Employer may make to
the Plan on his behalf.
a. / / One hundred percent schedule - 100% at all times.
b. / / Twenty Percent Schedule - 20% after the second Covered Year
of Service and 20% for each additional year credited thereafter,
until 100% is reached at six years.
c. / / Variable Schedule:
Based on Covered Year of Service after Year:
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1 _______ 3 _______ 5 _______ 7 _______ 100%
2 _______ 4 _______ 6 _______
This option c shall not be less favorable than the vesting schedules
contained in Internal Revenue Code Sections 411(a)(2)(A) and (B).
d. / / Years of Service for purposes of determining vesting shall
exclude Years of Service
d.1 / / prior to the Effective Date of this Plan or a
predecessor plan.
d.2 / / prior to the age of 18.
Note: Option b will automatically apply if and when this Plan shall become
top heavy provided that Option a has not been elected and Option c
is not at least as favorable as Option b.
If the vesting schedule under the Plan(s) shifts in or out of the above
vesting schedule for any Plan Year because of the Plan's top heavy status,
such shift is an amendment to the vesting schedule and the election in
Section 1.4 of the Plan applies.
Notwithstanding the above, the Accrued Benefit shall become fully vested at
Normal Retirement Age.
10. CONTRIBUTIONS
10.1 DISCRETIONARY PROFIT SHARING CONTRIBUTIONS:
Employer Profit Sharing contributions under the Plan shall be made
solely at the discretion of the Employer pursuant to Section 4.1 of
the Plan, and shall be allowed up to the maximum amount specified in
Section 5.5 of the Plan. Determination by the Employer to make a
Discretionary Profit Sharing Contribution, and Elective Deferral
Contributin, a Qualified Matching Contribution, a Qualified Non-
Elective Contribution or a Matching Contribution shall be made
without regard to current or accumulated profits. Forfeitures of
Employer Profit Sharing Contributions shall be added to and allocated
with the Employer's Contribution.
a. ALLOCATION OF CONTRIBUTIONS: The Employer Profit Sharing
Contribution to the Plan will be allocated among the accounts of
Participants as of the Anniversary Date as follows:
a.1 / / The Employer shall not allocate a portion of a
Discretionary Profit Sharing Contribution on behalf of
a Participant who terminates employment with the
Employer by reason other than death, disability or
retirement, who is not employed with the Employer on
the Anniversary Date
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and who is not credited with more than 500 Hours of
Service.
a.2 / / ALLOCATION BASED ON COMPENSATION: In the ratio
which each Participant's Compensation bears to the
Compensation paid to all Participants.
a.3 / / ALLOCATION UNDER PERMITTED DISPARITY RULES:
Employer Profit Sharing Contributions for the Plan Year
plus any forfeitures will be allocated to Participants'
accounts under the rules for Permitted Disparity. (As
defined in Section 5.8 of the Plan Document and
described below). Excess Compensation shall mean
Compensation in excess of the Taxable Wage Base at the
beginning of the Plan Year.
If the Plan is Top Heavy for the Plan Year (as defined in
Section 8 of the Plan document), begin at step a.3(a);
otherwise begin at step a.3(c).
a.3 (a) Contributions and forfeitures will be allocated to
each Participant's account in the ratio that each
Participant's total Compensation bears to all
Participant's total Compensation, but not in excess of
3% of each Participant's Compensation.
a.3 (b) Any contributions and forfeitures remaining after
the allocation in a.3(a) above will be allocated to each
Participant's account in the ratio that each
Participant's Compensation for the Plan Year in excess
of the Integration level bears to the Excess
Compensation of all Participants, but not in excess of
3% of each Participant's Compensation.
a.3 (c) Any contributions and forfeitures (remaining after
the allocation in a.3(b) above in the case of a Top
Heavy Plan) will be allocated to each Participant's
account in the ratio that the sum of each Participant's
total Compensation and Compensation in excess of the
Integration Level bears to the sum of all Participants'
total Compensation and Compensation in excess of the
Integration Level, but not in excess of the Maximum
Disparity Rate.
a.3 (d) Any remaining Employer contributions or
forfeitures will be allocated to each Participant's
account in the ratio that each Participant's total
Compensation for the Plan Year bears to all
Participants' total Compensation for that year.
10.2 ELECTIVE DEFERRALS: A Participant may elect to have his or her
Compensation reduced by the following percentage per pay period, or
for a specified pay period or periods, as designated in writing to
the Plan Administrator. The amount which may be elected shall not be
in excess of
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_____ percent of a Participant's Compensation. The Employer's
contribution for Elective Deferrals shall be made without regard to
current or accumulated profits. Unless elected otherwise by the
Employer below, a Participant's election regarding Elective Deferrals
shall apply to his cash bonuses.
a. A Participant may elect to commence Elective Deferrals as of
__________ (i.e., each entry date). Such election shall become
effective as of the _____ pay period following the pay period
during which the Participant's election to commence Elective
Deferrals was made, or as soon as administratively feasible
thereafter.
b. / / A Participant's election regarding Elective Deferrals SHALL
NOT apply to Cash Bonuses.
c. No Participant shall be permitted to have Elective Deferrals made
under this plan during any calendar year in excess of $7,000,
multiplied by the Adjustment Factor.
d. A Participant's election to have Elective Deferrals made pursuant
to a salary reduction agreement shall remain in effect until
modified or terminated.
e. A Participant may modify the amount of Elective Deferrals as of
__________ (i.e., each entry date). Such modification shall
become effective as of the _____ pay period following the pay
period during which the Participant's election to modify Elective
Deferrals was made, or as soon as administratively feasible
thereafter.
f. A Participant may CEASE Elective Deferrals at any time, effective
with the _____ pay period following the pay period during which
the Participant's election to cease Elective Deferrals was made,
or as soon as administratively feasible thereafter.
11. QUALIFIED NON-ELECTIVE CONTRIBUTIONS
11.1 / / The Employer may make Qualified Non-elective Contributions
to the plan in such amounts as determined by the Employer. The
contribution shall be 100% vested and treated as a deferral for
purposes of distribution. Employer contributions for Qualified
Non-elective Contributions shall be made without regard to
current or accumulated profits.
11.2 If Qualified Non-elective Contributions are needed to meet the Actual
Deferral Percentage ("ADP") test described in Section 11.4 of the
Plan, such contribution shall be allocated as of the Anniversary Date
to the accounts of:
a. / / Non-highly compensated Participants
b. / / ALL Non-Key and Non-highly Compensated Employees who are
Participants
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c. / / All Participants
in the ratio that each such Participant's Compensation for the
Plan Year bears to the total Compensation of all such compensated
Participants for such Plan Year.
11.3 If Qualified Non-elective Contributions are made to the Plan for a
purpose other than to meet the Actual Deferral Percentage test
described in Section 11.4 of the Plan (i.e., to meet a minimum
contribution requirement under the top heavy rules), the contribution
shall be allocated among the accounts of:
a. / / Non-Key Participants and shall be made in the ratio in which
each Non-Key Participant's Compensation for the Plan Year bears
to the total Compensation of all Non-Key Participants for such
Plan Year.
b. / / all Participants and shall be made in the ratio in which
each Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for such Plan Year.
12. QUALIFIED MATCHING CONTRIBUTIONS (100% Vested)
12.1. / / The Employer will make Qualified Matching Contributions to
the Plan on behalf of Participants defined below who make
Elective Deferrals, irrespective of their employment status on
the last day of the Plan Year. The contribution shall be 100%
vested and treated as a deferral for purposes of distribution.
The Employer's determination to make a Qualified Matching
Contribution shall be made without regard to current or
accumulated profits.
a. / / all Participants who make Elective Deferrals.
b. / / all Non-highly compensated Participants who make Elective
Deferrals.
12.2 The amount of Qualified Matching Contributions made on behalf of each
such Participant shall be as specified below:
a. / / _____ percent of the Elective Deferral made for each Plan
Year.
b. The Employer shall not match Elective Deferrals as provided in a.
above in excess of
$__________ or in excess of _____ percent of the Participant's
Compensation.
12.3 / / The Employer may make Qualified Matching Contributions from
time to time as it deems advisable, without regard to current or
accumulated profits. Such contribution shall be equal to a
specified percentage of the Participant's Elective Deferral,
provided the Employer may establish a limit on the amount of the
Elective Deferral which shall be
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matched by resolution or other official statement. The limit
shall be specified as either a dollar amount or as a percentage
of Compensation. This contribution shall be made on behalf of
all individuals who deferred during the Plan Year. The
contribution shall be 100% vested and treated as a deferral for
purposes of distribution.
12.4 The level of contributions chosen by the Employer is subject to the
Code Section 401(m)(2) discrimination test and the Section 415
contribution limitations.
13. MATCHING CONTRIBUTIONS (May be subject to a Vesting Schedule under
Section 9)
13.1 / / The Employer will make Matching Contributions to the Plan on
behalf of Participants defined below who make Elective Deferrals,
irrespective of their employment status on the last day of the
Plan Year. The contribution shall be allocated to all
Participants who make Elective Deferrals, may be subject to a
vesting schedule and treated as a non-elective Employer
contribution for purposes of distributions. The Employer's
determination to make a Matching Contribution shall be made
without regard to current or accumulated profits.
13.2 / / Matching contributions will be:
a. / / Nonforfeitable when made.
b. / / Subject to the vesting schedule applicable to Employer
contributions, other than Elective Deferrals, Qualified
Non-elective Contributions and Profit Sharing Contributions,
under the Plan.
13.3 The amount of such Matching Contributions made on behalf of each
Participant shall be:
a. / / _____ percent of the Elective Deferral made for each Plan
Year.
b. / / The Employer shall not match Elective Deferrals as provided
in Section 13.1 above in excess of $__________ or in excess of
____ percent of the Participant's Compensation.
13.4 / / The Employer may make Matching Contributions from time to
time as it deems advisable, without regard to current or
accumulated profits. Such contribution shall be equal to a
specified percentage of the Participant's Elective Deferral,
provided that the Employer may establish a limit on the amount of
the Elective Deferral which shall be matched. Such limit shall
be specified by resolution or other official statement either as
a dollar amount or as a percentage of Compensation. This
contribution shall be made on behalf of all individuals who
deferred during the Plan Year.
13.5 The level of contributions chosen by the Employer is subject to the
Code Section 401(m)(2) discrimination test and the Section 415
contribution limitations.
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14. SPECIAL DISTRIBUTIONS AND MISCELLANEOUS RULES
14.1 Elective Deferrals, Qualified Matching Contributions, Qualified
Non-elective Contributions and income allocable to such amounts shall
be distributable upon separation from service, death, or disability,
as defined in the underlying Plan document. Further, such amounts may
be distributable on any of the following events:
a. Termination of the Plan without the establishment of another
defined contribution plan.
b. As soon as would be administratively feasible after the
disposition by the Employer to an unrelated corporation of
substantially all of the assets (within the meaning of Code
Section 409(d)2)) used in a trade or business of the employer,
if the employer continues to maintain this Plan after such
disposition, but only with respect to employees who continue
employment with the corporation which acquired such assets.
c. As soon as would be administratively feasible after the
disposition by the Employer to an unrelated entity of the
Employer's interest in a subsidiary (within the meaning of Code
Section 409(d)(3)) if the Employer continues to maintain this
Plan, but only with respect to Employees who continue employment
with such subsidiary.
14.2 HARDSHIP DISTRIBUTIONS:
/ / Upon application to, and approval by, the Administrator, a
special distribution may be made upon the hardship of the
Participant, to the extent provided for in Section 11.6(C) of the
Plan, and subject to applicable regulations prescribed by the
Secretary of the Treasury.
14.3 AGE 59 1/2:
/ / A Participant shall be permitted to withdraw all or a portion of
his vested account balance on or after the attainment of age
59 1/2.
14.4 PARTICIPANT LOANS:
/ / Participant loans shall be permitted in this Plan.
14.5 CALENDAR YEAR ELECTION:
Irrespective of any other language, clause or provision in the Plan
and Trust or Adoption Agreement, for Plans that have elected to use
the calendar year (the twelve contiguous month period beginning
January 1 and ending December 31) as the Plan's Plan Year, the
Employer shall use the calendar year ending with the Plan Year in the
look-back year (as defined in Treasury Regulations under Section
414(q) of the Code) calculation for determining which Employees are
Highly Compensated Employees. The use of the calendar year as the
look-back year shall apply to all Plans, entities, and arrangements of
the Employer. The
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<PAGE>
determination year shall be the twelve month period ending with the
Plan Year as well.
For Plans not using the calendar year as their Plan Year, the
determination year shall be the same as the Plan Year and the Employer
shall use the twelve contiguous months immediately preceding the
determination year as the look-back year.
14.6 VALUATION DATE(s) for DISTRIBUTIONS:
The Plan shall have the following interim Valuation Date(s) for
purposes of distributions:
a. / / Daily (each day of the Plan Year)
b. / / Quarterly (last day of each quarter of the Plan Year)
c. / / Other ___________________________________________
15. CLAIMS FOR EXCESS ELECTIVE DEFERRALS: Participants may notify the Plan of
and claim Excess Elective Deferrals for the preceding calendar year by
submitting their claims in writing to the Plan Administrator by March 1.
16. ACTUAL DEFERRAL AND CONTRIBUTION PERCENTAGES
16.1 Qualified Matching Contributions and Qualified Non-Elective
Contributions may be taken into account as Elective Deferrals for
purposes of calculating the Actual Deferral Percentages. In
determining Elective Deferrals for the purpose of the ADP test the
Employer shall include such Qualified Matching Contributions and such
Qualified Non-Elective Contributions under this Plan or any other Plan
of the Employer as necessary to meet the test and as provided for by
regulations under the Code.
16.2 The amount of such contributions taken into account as Elective
Deferrals for purposes of calculating the Actual Deferral Percentage,
subject to such other requirements as may be prescribed by the
Secretary of the Treasury, shall be those contributions as needed to
meet the test.
16.3 Qualified Matching Contributions and Qualified Non-Elective
Contributions may be taken into account as Contributions for purposes
of calculating the Actual Contribution Percentages. In determining
which contributions shall be counted for the purpose of the ACP test
the Employer shall include such Qualified Matching Contributions and
such Qualified Non-Elective Contributions under this Plan or any other
Plan of the Employer as necessary to meet the test and as provided for
by regulations under the Code.
16.4 The amount of such contributions taken into account as Contributions
for purposes of calculating the Actual Contribution Percentage,
subject to such other requirements as may be prescribed by the
Secretary of the Treasury, shall be those contributions as needed to
meet the test.
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<PAGE>
17. FORFEITURES: Forfeitures of Matching Contributions shall be: (Required if
the Employer elects to make Matching Contributions in this Adoption
Agreement)
17.1 / / Applied in the current year of forfeiture to reduce employer
contributions.
17.2 / / Allocated in the current year of forfeiture, after all other
forfeitures under the plan, to each Participant's Matching
Contribution account in the ratio which each Participant's
Compensation for the Plan Year bears to the total Compensation of
all Participants for such Plan Year. Such forfeitures will not
be allocated to the account of any Highly Compensated Employee.
18. / / INDIVIDUAL INVESTMENT DIRECTION: If the Employer has elected this
Section, each Participant will have the right to direct the investment of
the amount allocated to his Plan account for each of the contribution types
which have also been checked below. Each Participant will have the power
to direct the investment with respect to those contributions and the
earning or losses thereon subject to such rules as the Administrator and
the Trustee may deem necessary. Gains and losses of the funds so directed
by the Participant shall accrue solely to those funds. The Participant
directing the investment of amounts allocated to his account shall be
solely responsible for the investment results of such directions. This
means that the Participant shall be solely responsible for whatever gains
and/or losses are attributable to the amounts allocated to his account for
which he directs the investment. Contributions not checked below will be
held in a pooled trust and subject to the investment direction and
management of the Plan Administrator. If the Participant fails to direct
the investment of any contribution type checked below, the failure will be
deemed a direction by the Participant to invest said funds in a money
market, dollar-a-share fund or similar vehicle chosen by the Plan for this
purpose.
18.1 / / Elective Deferrals
18.2 / / Qualified Non-elective Contributions
18.3 / / Matching Contributions
18.4 / / Qualified Matching Contributions.
18.5 / / Profit Sharing Contributions
19. LIMITATION YEAR shall mean each 12 consecutive month period ending on
_________________.
20. LIMITATION IN BENEFITS: If the Employer maintains or has ever maintained,
in addition to this Plan, one or more plans which are either qualified
defined benefit plans or qualified defined contribution plans other than
paired plans:
Plan #01 - Adoption Agreement 001
Plan #02 - 001, 002, 004, 003, 006, 009
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<PAGE>
in which any Participant in this Plan is (or was) a participant or could
possibly become a participant, the Employer must complete this Section.
The Employer must also complete this Section if it maintains a welfare
benefit fund, as defined in Code Section 419(e), or an individual medical
account, as defined in Code Section 415(l)(2) under which amounts are
treated as annual additions with respect to any participant in this Plan.
If the Participant is covered under another qualified defined contribution
plan maintained by the Employer, other than a master or prototype plan:
20.1 / / The provisions of Section 5.5 (B) of the Plan will apply as
if the other plan were a master or prototype plan.
20.2 / / The total Annual Additions will be limited to the maximum
permissible amount and excess amounts will be reduced in a manner
that precludes Employer discretion, as follows:
20.3 / / If the Participant is or has ever been a Participant in a
defined benefit plan maintained by the Employer, the benefits
under the plans will be limited as follows (this method must
preclude Employer discretion):
21. MINIMUM CONTRIBUTION FOR TOP HEAVY PLAN: If the Employer maintains one or
more defined benefit plans in which a Participant participates in addition
to this Plan and does not maintain any other defined contribution plans in
which a Participant participates, the minimum benefit requirement
applicable to Top Heavy Plans shall be met under this Plan. If the minimum
benefit requirement is met under this Plan, the additional minimum benefit
shall not be provided.
22. YEAR OF SERVICE shall mean 1000 Hours of Service unless the Employer elects
otherwise below.
Hours of Service (less than 1000 Hours of Service).
23. PREDECESSOR EMPLOYER: Service with the following Predecessor Employer(s):
shall be counted for purposes of eligibility, Years of Service, and vesting
(Covered Years of Service).
24. ADMINISTRATOR shall mean the Employer unless the Employer appoints an
individual or entity below. The Administrator shall have the sole and
ultimate authority to interpret the Plan terms and provisions.
25. OTHER BENEFITS
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<PAGE>
/ / Early Retirement Benefit (fully vested): Subject to the Joint and
Survivor Annuity requirements, any Participant may retire and receive the
entire amount in his Participant Account provided he has attained age _____
and has at least _____ Covered Years of Service.
26. ACTUARIAL EQUIVALENT:
For purposes of establishing present value to compute the top heavy ratio,
benefit payments shall be discounted only for mortality and interest based
on the following:
26.1 / / Pre-Retirement Interest Rate _____%.
26.2 / / Post-Retirement Mortality Table: __________________ with
_____% interest.
27. PARTICIPATING AFFILIATES: Each Affiliate (i.e., each member of a
controlled group of corporations, commonly controlled group of businesses,
or an affiliated service group within the meaning of Section 414 of the
Code) must adopt this Plan as a Participating Affiliate. [Attach
additional signature pages if there is more than one Participating
Affiliate.]
Participating Affiliate Name: _______________________________________
Employer Tax I.D.: __________________________________________________
Taxable Year: _______________________________________________________
By: ___________________________ Title: ____________ Date: _______
28. ADMINISTRATOR: If the Employer has appointed an individual or an entity,
the following named individuals shall serve as Plan Administrator.
Signature by the Administrator (if other than the Employer) is in
acknowledgement of acceptance of appointment.
Administrator(s) Name(s) : Signature(s):
Optional Provision - To be elected if Plan Section 10.6 (E) is elected
< 29.> APPOINTMENT OF TRUSTEE OR CUSTODIAN (Select 29.1 or 29.2)
Incorporated businesses must name a Trustee. Unincorporated businesses
covering one or more Self Employed Individuals may appoint a Custodian or a
Trustee.
29.1 The following individual or entity shall be Trustee(s):
Name: __________________________________________________________
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<PAGE>
Address: _______________________________________________________
Phone Number: __________________________________________________
Signature by the Trustee is in acknowledgment of acceptance of
appointment.
Signature: _____________________________________________________
29.2 The following individual or entity shall be Custodian(s).
Name: __________________________________________________________
Address: _______________________________________________________
Phone Number: __________________________________________________
Signature by the Custodian is in acknowledgment of acceptance of
appointment.
Signature: _____________________________________________________
Optional Provision - To be elected if Plan Section 10.6 (E) is not elected
< 29.> APPOINTMENT OF TRUSTEE: The following individual or entity shall be
Trustee(s):
Name: _______________________________________________________________
Address: ____________________________________________________________
Phone Number: _______________________________________________________
Signature by the Trustee is in acknowledgment of acceptance of appointment.
Signature: __________________________________________________________
Optional Provision - To be elected if Plan Section 10.7 is elected.
30. INSURANCE TRUSTEE: Signature by the Trustee is in acknowledgement of
acceptance of appointment.
Insurance Trustee Name: _____________________________________________
Signature: __________________________________________________________
30. < 31.> ADOPTION AGREEMENT USAGE
This Adoption Agreement is only to be used with basic Defined Contribution Plan
document 02. An Employer who has ever maintained or who later adopts any plan
(including a welfare benefit fund, as defined in Section 419(e) of the Code,
which provides post-retirement medical benefits allocated to separate accounts
for key employees as defined in Code Section 419A(d)(3), or an individual
medical account, as defined in Section 415(1)(2) of the Code) in addition to
this Plan other than paired plans:
Plan #01 - Adoption Agreement 001
Plan #02 - 001, 002, 004, 003, 006, 009
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<PAGE>
may not rely on the opinion letter issued by the National Office of the Internal
Revenue Service as evidence that this Plan is qualified under Section 401 of the
Internal Revenue Code. If the Employer who adopts or maintains multiple plans
other than the paired plans identified above wishes to obtain reliance that its
plans are qualified, application for a determination letter should be made to
the appropriate Key District Director of Internal Revenue. [Failure of the
Employer to properly complete this Adoption Agreement may result in the
disqualification of this Plan.] The Employer may not rely on the opinion letter
issued by the National Office of the Internal Revenue Service as evidence that
this Plan is qualified under Section 401 of the Code unless the terms of the
Plan, as herein adopted or amended, that pertain to the requirements of Sections
401(a)(4), 401(a)(17), 401(1), 401(a)(5), 410(b) and 414(s) of the Code, as
amended by the Tax Reform Act of 1986 or later laws,
30.1 are made effective retroactively to the first day of the Plan Year
beginning after December 31, 1988 (or such other date on which these
requirements first become effective with respect to this Plan);
30.2 are made effective no later than the first day on which the Employer is no
longer entitled, under regulations, to rely on a reasonable good faith
interpretation of these requirements, and the prior provisions of the Plan
constitute such an interpretation.
31. < 32.> SPONSORING ORGANIZATION - The Sponsoring organization or its
authorized representative identified below will inform the
adopting employer of any amendments made to the Plan or of the
discontinuance or abandonment of the Plan. The organization
sponsoring this Plan is:
The authorized representative of the sponsoring organization is:
The Employer represents that the legal and tax aspects of this Plan and
Trust have been duly considered and passed upon by its attorney and/or tax
advisor who has determined that it is suitable and has been properly
completed and adopted.
ADOPTION FOR THE EMPLOYER
By: ______________________________________________________ Date: _______
Document #61732
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<PAGE>
EX-99.B14(g)
PROTOTYPE MONEY PURCHASE PENSION PLAN ADOPTION AGREEMENT
The undersigned employer(s) - ________________________________________________
hereinafter referred to as the "Employer", hereby adopts the ___________________
Standard Prototype Money Purchase Pension Plan and Trust.
1. EMPLOYER TAX IDENTIFICATION NUMBER ____________________________________.
2. The EFFECTIVE DATE of the Plan shall be ________________________________.
3. The EFFECTIVE DATE of this amendment ____________________________________.
4. The ANNIVERSARY DATE of the Plan shall be _______________________________.
5. The ENTRY DATE(S) of the Plan:
5.1 ___________________________________ shall be the first Entry Date.
5.2 ___________________________________ shall be the second Entry Date.
(The Entry Date(s) may not postpone entry into the Plan later than the earlier
of (a) the first day of the Plan Year begining after the date on which an
Employee satisfies the requirements of Section 6 below, or (b) the date 6 months
after the date such requirements were satisfied).
6. ELIGIBILITY REQUIREMENTS - Each Employee will be eligible to participate
in this Plan in accordance with Section 5 of this Adoption Agreement,
except the following:
6.1 _____ Employees who have not attained the age of __________ (cannot
exceed 21).
6.2 _____ Employees who have not completed ________ Year(s) of Service
(cannot exceed 1 year unless the Plan provides a nonforfeitable right
to 100% of the Participant's account balance derived from Employer
contributions after not more than 2 Years of Service, in which case,
up to 2 years is permissible. If the Year(s) of Service selected is,
or includes, a fractional year, an Employee will not be required to
complete any specified Hours of Service to receive credit for such
fractional year.)
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<PAGE>
6.3 _____ Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and Employee
Representatives, if retirement benefits were the subject of good faith
bargaining. For this purpose, the term "Employee Representatives"
does not include any organization more than half of whose members are
employees who are owners, officers, or executives of the Employer.
6.4 _____ Employees who are nonresident aliens and who receive no earned
income from the Employer which constitutes income from sources within
the United States.
The term "Employee" shall include all Employees of this Employer and any other
employer aggregated with this Employer under Internal Revenue Code Section
414(b), (c) or (m) and individuals required to be considered Employees or any
such Employer under Code Section 414(n) or under regulations under Code Section
414(o).
7. COMPENSATION shall mean all of each Participant's:
7.1 _____ W-2 earnings
7.2 _____ Compensation (as that term is defined in Section 415(c)(3) of
the Code)
which is actually paid to the Participant during:
7.3 _____ The Plan Year.
7.4 _____ The taxable year ending with or within the Plan Year.
7.5 _____ The Limitation Year ending with or within the Plan Year.
Compensation:
7.6 _____ Shall include
7.7 _____ Shall not include
Employer contributions made pursuant to a salary reduction agreement which
are not includable in the gross income of the employee under sections 125,
402(a)(8), 402(h) or 403(b) of the Code.
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<PAGE>
8. NORMAL RETIREMENT AGE shall mean:
The later of age ______ (not to exceed age 65) or the ________ (not to
exceed 5th) anniversary of the first day of the first Plan Year in which
the Participant commenced participation in the Plan.
9. VESTING
If a participant terminates prior to Normal Retirement Age he shall receive
a percentage of his Accrued Benefit according to the vesting schedule
checked below:
9.1 ____ One Hundred Percent schedule - 100% at all times.
9.2 ____ Twenty Percent Schedule - 20% after the second Covered Year of
Service and 20% for each additional Covered Year of Service.
9.3 ____ Variable Schedule - Based on Covered Years of Service after
Year:
1 _____ 3 _____ (at least 40%)5 ________ (at least 80%)
2 _____ (at least 20%) 4 _______ (at least 60%)
6 100%
9.4 Three Year Vesting Schedule - 100% after three (3) Covered
Years of Service.
Notwithstanding the above, the Accrued Benefit shall become fully vested at
Normal Retirement Age.
10. CONTRIBUTIONS:
Employer contributions will be calculated based on Compensation of those
Participants who are New or Active Participants who have not incurred a
Break in Service.
10.1 _____ The Employer hereby agrees to contribute to the Plan an amount
equal to _________ (not to exceed 25%) of Compensation.
10.2 _____The Employer hereby agrees to contribute an amount equal to _____
% (Base Contribution Percentage, not less than 3%) of each
Participant's Compensation (as defined in Section 5.8 (D)(d) of the
Plan) for the Plan Year up to the Integration Level plus _____ % (not
less than 3% and not to exceed the Base Contribution Percentage by
more than the lesser of (1)
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<PAGE>
the Base Contribution Percentage, or (2) the Money Purchase Maximum
Disparity Rate) of such Participant's Excess Compensation as defined
in Section 12.
The above excess percentage rate shall not exceed the rates applicable
to the Employer for old age insurance under the Social Security Act
for such Plan Year of Compensation. Both the taxable wage base and
old age insurance tax rate are those in effect on the first day of the
Plan Year. Such amount will be allocated directly to such
Participant's Account in the same manner as calculating the
contribution and no allocation shall be made under Section 11 of this
Adoption Agreement.
10.3 ______Forfeitures of Employer Contributions shall be applied to reduce
the Employer's Contribution.
10.4 ______Forfeitures of Employer Contributions shall be added to the
Employer's Contribution in the year of forfeiture and allocated
therewith.
11. ALLOCATION OF CONTRIBUTIONS:
The Employer contribution to the Plan will be allocated amoung Participant
Accounts:
11.1 ______ ALLOCATION BASED ON COMPENSATION
In the ratio which each Participant's Compensation bears to the
Compensation paid to all Participants.
11.2 ______ ALLOCATION UNDER PERMITTED DISPARITY RULES
Employer contributions for the Plan Year plus any forfeitures will be
allocated to Participants' accounts as follows:
If the Plan is Top Heavy for the Plan Year (as defined in Section 8 of
the Plan document), begin at step (1), otherwise begin at step (3).
(1) Contributions and forfeitures will be allocated to each
Participant's account in the ratio that each Participant's total
Compensation bears to all Participant's total Compensation, but
not in excess of 3% of each Participant's Compensation.
(2) Any contributions and forfeitures remaining after the allocation
in (1) above will be allocated to each Participant's account in
the ratio that each Participant's Compensation for the Plan Year
in excess of
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<PAGE>
the Integration Level bears to the Excess Compensation of all
Participants, but not in excess of 3%.
(3) Any contributions and forfeitures (remaining after the allocation
in (2) above in the case of a Top Heavy Plan) will be allocated
to each Participant's account in the ratio that the sum of each
Participant's total Compensation and Compensation in excess of
the Integration Level bears to the sum of all Participants' total
Compensation and Compensation in excess of the Integration Level,
but not in excess of the Profit Sharing Maximum Disparity Rate.
(4) Any remaining Employer contributions or forfeitures will be
allocated to each Participant's account in the ratio that each
Participant's total Compensation for the Plan Year bears to all
Participant's total Compensation for that year.
12. EXCESS COMPENSATION SHALL MEAN COMPENSATION IN EXCESS:
12.1 _____ of the Taxable Wage Base in effect as of the beginning of the
Plan Year.
12.2 _____ of $ ___________________________ (a dollar amount less than the
Taxable Wage Base).
12.3 _____ of ______ % of the Taxable Wage Base (not to exceed 100%).
13. INDIVIDUAL INVESTMENT ACCOUNTS:
13.1 ____ Will not be used.
13.2 ____ Will be used as follows:
Each Participant will have a separate Individual Investment Account
which will contain the amount allocated to the Participant Account.
Each Participant will have the power to direct the investment with
respect to his Individual Investment Account subject to such rules as
the Administrator and the Trustee may deem necessary. Gains and
losses of the Account shall accrue to such Account only.
14. LIMITATION YEAR shall mean each 12 consecutive month period ending on _____
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<PAGE>
NOTE: A written resolution must be adopted by the Employer if the
Limitation Year is other than the calendar year.
15. LIMITATION IN BENEFITS - If the Employer maintains or has ever maintained,
in addition to this Plan, one or more plans which are either qualified
defined benefit plans or qualified defined contribution plans other than
paired plan:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreements 001, 002, 005, 009
in which any Participant in this Plan is (or was) a participant or could
possibly become a participant, the Employer must complete this Section.
The Employer must also complete this Section if it maintains a welfare
benefit fund, as defined in Code Section 419(e), or an individual medical
account, as defined in Code Section 415(1)(2) under which amounts are
treated as annual additions with respect to any Participant in this Plan.
If any Participant is covered under another qualified defined contribution
plan maintained by the Employer, other than a master or prototype plan:
15.1 ____ The provisions of Section 5.5 (B) of the Plan will apply as if
the other plan were a master or prototype plan.
15.2 ____ The total Annual Additions will be limited to the maximum
permissible amount and excess amounts will be reduced in a manner that
precludes Employer discretion, as follows:
15.3 ____ If the Participant is or has ever been a Participant in a defined
benefit plan maintained by the Employer, the benefits under the plans
will be limited as follows (this method must preclude Employer
discretion):
16. MINIMUM CONTRIBUTION FOR TOP HEAVY PLAN - If the Employer maintains one or
more defined benefit plans in which a Participant participates in addition
to this Plan and does not maintain any other defined contribution plans in
which a Participant participates, the minimum benefit requirement
applicable to Top Heavy Plans shall be met under this Plan.
If the minimum benefit requirement is met under this Plan, the additional
minimum benefit:
16.1 ___ Shall be provided.
16.2 ___ Shall not be provided.
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<PAGE>
17. YEAR OF SERVICE shall mean
17.1 ____ 1000 Hours of Service
17.2 ____ ______ Hours of Service (less than 1000 Hours of Service).
18. PREDECESSOR EMPLOYER - Service with the following Predecessor Employer(s):
shall be counted for purposes of:
18.1 ____ eligibility Years of Service
18.2 ____ vesting (Covered Years of Service)
19. ADMINISTRATOR shall mean:
19.1 _____ The Employer
19.2 _____ Individuals specified in item 23 below.
20. OTHER BENEFITS
20.1 _____Early Retirement Benefit (fully vested): Subject to the Joint
and Survivor Annuity requirements, any Participant may retire and
receive the entire amount in his Participant Account provided he has
attained age ________ and has at least ________ Covered Years of
Service.
21. ACTUARIAL EQUIVALENT - For purposes of establishing present value to
compute the top heavy ratio, benefit payments shall be discounted only for
mortality and interest based on the following:
21.1 ______Pre-Retirement Interest Rate ________ %.
21.2 ______Post-Retirement Mortality Table __________________with ________
% interest.
22. PARTICIPATING AFFILIATES - Each Affiliate (i.e., each member of a
controlled group of corporations, commonly controlled group of trades or
businesses, or an affiliated service group within the meaning of section
414 of the Code) must adopt this Plan as a Participating Affiliate.
(Attach additional signature pages if there is more than one Participating
Affiliate.)
7
<PAGE>
Participating Affiliate Name ________________________ Employer I.D. ______
Address _____________________________________________ Taxable Year________
By _________________________________ Title ____________________ Date ______
23. ADMINISTRATOR - If Option 19.2 is elected the following named individuals
shall serve as Plan Administrator.
Signature by the Administrator (if other than the Employer) is in
acknowledgment of acceptance of appointment as Administrator.
Administrator(s) Name(s) Signature(s):
__________________________
__________________________
__________________________
Optional Provision - To be elected if Plan Section 10.6(E) is not elected.
24. Appointment of Trustee - Signature by the Trustee is in acknowledgment of
acceptance of appointment.
Trustee Name: Signature:
_______________________
Optional Provision - To be elected if Plan Section 10.6(E) is elected.
24. Appointment of Trustee or Custodian (Select 24.1 or 24.2)
Incorporated businesses must name a Trustee. Unincorporated businesses
covering one or more Self Employed Individuals may appoint a Custodian or a
Trustee.
24.1 ______ Trustee - Signature by the Trustee is in acknowledgment of
acceptance of appointment.
Trustee Name: Signature:
______________________
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<PAGE>
24.2 _______ Custodian - _________________________________ is hereby
appointed as Custodian.
Signature of Authorized Individual Accepting Appointment
Optional Provision - To be elected if Plan Section 10.7 is elected.
25. INSURANCE TRUSTEE - Signature by the Trustee is in acknowledgment of
acceptance of appointment.
Insurance Trustee Name: Signature:
26< 25>.ADOPTION AGREEMENT USAGE
This Adoption Agreement is only to be used with basic Defined Contribution
Plan document 02.
An Employer who has ever maintained or who later adopts any plan (including
a welfare benefit fund, as defined in Section 419(e) of the Code, which
provides post-retirement medical benefits allocated to separate accounts
for key employees as defined in Code Section 419A(d)(3), or an individual
medical account, as defined in Section 415(1)(2) of the code) in addition
to this Plan other than paired plans:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreement 001, 002, 006, 009, 010
may not rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Internal Revenue Code. If the Employer who adopts or
maintains multiple plans other than the paired plans identified above
wishes to obtain reliance that its plans are qualified, application for a
determination letter should be made to the appropriate Key District
Director of Internal Revenue.
Failure of the Employer to properly complete this Adoption Agreement may
result in the disqualification of this Plan.
27< 26>.SPONSORING ORGANIZATION - The Sponsoring organization or its authorized
representative identified below will inform the adopting employer of any
amendments made to the Plan or of the discontinuance or abandonment of the
Plan.
9
<PAGE>
The organization sponsoring this Plan is _______________________.
The authorized representative of the sponsoring organization is
The Employer represents the the legal and tax aspects of this Plan and Trust
have been duly considered and passed upon by its attorney and/or tax advisor who
has determined that it is suitable and has been properly completed and adopted.
ADOPTION FOR THE EMPLOYER
Date of Execution
------------------------------------------------------
Signature
----------------------
Title
-------------------------
<PAGE>
EX-99.B14(h)
PROTOTYPE STANDARD PROFIT SHARING PLAN ADOPTION AGREEMENT
The undersigned employer(s)- ______________________, hereinafter referred to as
the "Employer", hereby adopts the ___________________ PROTOTYPE STANDARD PROFIT
SHARING PLAN AND TRUST.
1. EMPLOYER TAX IDENTIFICATION NUMBER __________________________________.
2. The EFFECTIVE DATE of the Plan shall be _____________________________.
3. The EFFECTIVE DATE of this amendment ________________________________.
4. The ANNIVERSARY DATE of the Plan shall be ___________________________.
5. The ENTRY DATE(S) of the Plan:
5.1 ______________ shall be the first Entry Date.
5.2 ______________ shall be the second Entry Date.
(The Entry Date(s) may not postpone entry into the Plan later than the
earlier of (a) the first day of the Plan Year beginning after the date on
which an Employee satisfies the requirements of Section 6 below, or (b) the
date 6 months after the date such requirements were satisfied).
6. ELIGIBILITY REQUIREMENTS - Each Employee will be eligible to participate in
this Plan in accordance with Section 5 of this Adoption Agreement, except
the following:
6.1 / / Employees who have not attained the age of _____ (cannot
exceed 21).
6.2 / / Employees who have not completed _____ Year(s) of Service
(cannot exceed 1 year unless the Plan provides a nonforfeitable
right to 100% of the Participant's account balance
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derived from Employer contributions after not more than 2 Years
of Service, in which case, up to 2 years is permissible. If the
Year(s) of Service selected is, or includes, a fractional year,
an Employee will not be required to complete any specified Hours
of Service to receive credit for such fractional year.
6.3 / / Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and Employee
Representatives, if retirement benefits were the subject of good
faith bargaining. For this purpose, the term "Employee
Representatives" does not include any organization more than half
of whose members are owners, officers, or executives of the
Employer.
6.4 / / Employees who are nonresident aliens and who receive no
earned income from the Employer which constitutes income from
sources within the United States.
The term "Employee" shall include all Employees of this Employer and any
other employer aggregated with this Employer under Internal Revenue Code
Section 414(b), (c) or (m) and individuals required to be considered
Employees or any such Employer under Code Section 414(n) or under
regulations under Code Section 414(o).
7. COMPENSATION shall mean all of each Participant's:
7.1 / / W-2 earnings
7.2 / / Compensation (as that term is defined in Section 415(c)(3)
of the Code)
Which is actually paid to the Participant during:
7.3 / / The Plan Year.
7.4 / / The taxable year ending with or within the Plan Year.
7.5 / / The Limitation Year ending with or within the Plan Year.
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Compensation:
7.6 / / Shall include
7.7 / / Shall not include
Employer contributions made pursuant to a salary reduction agreement which
are not includable in the gross income of the employee under sections 125,
402(a)(8), 402(h) or 403(b) of the Code.
8. NORMAL RETIREMENT AGE shall mean:
The later of age ____ (not to exceed age 65) or the _______ (not to exceed
5th) anniversary of the first day of the first Plan Year in which the
Participant commenced participation in the Plan.
9. VESTING
If a Participant terminates prior to Normal Retirement Age he shall receive
a percentage of his Accrued Benefit according to the vesting schedule
checked below:
9.1 / / One Hundred Percent schedule.
100% at all times.
9.2 / / Twenty Percent Schedule.
20% after the second Covered Year of Service and 20% for each
additional Covered Year of Service.
9.3 / / Variable Schedule
Based on Covered Years of Service after Year:
1 __________ 4 __________ (at least 60%)
2 __________ (at least 20%) 5 __________ (at least 80%)
3 __________ (at least 40%) 6 100%
9.4 / / Three Year Vesting Schedule
100% vested after the completion of three (3) Covered Years of
Service.
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If the vesting schedule under the Plan(s) shifts in or out of the above
vesting schedule for any Plan Year because of the Plan's top heavy status,
such shift is an amendment to the vesting schedule and the election in
Section 1.4 of the Plan applies.
Notwithstanding the above, the Accrued Benefit shall become fully vested at
Normal Retirement Age.
10. CONTRIBUTIONS
Employer contributions under the Plan shall be made solely at the
discretion of the Employer but not in excess of 15% of Participant
Compensation plus the dollar amount of any credit carryovers, up to the
maximum amount specified in Section 5.5 of the Plan and shall be allocated
pursuant to Section 11 of this Adoption Agreement to those Participants who
have not incurred a Break in Service. Forfeitures of Employer
Contributions shall be:
10.1 / / applied to reduce the Employer's Contribution.
10.2 / / added to the Employer's contribution and allocated
therewith.
11. ALLOCATION OF CONTRIBUTIONS
The Employer contribution to the Plan will be allocated among Participant
Accounts:
11.1 / / ALLOCATION BASED ON COMPENSATION
In the ratio which each Participant's Compensation bears to the
Compensation paid to all Participants.
11.2 / / ALLOCATION UNDER PERMITTED DISPARITY RULES
Employer contributions for the Plan Year plus any forfeitures will be
allocated to Participants' accounts as follows:
If the Plan is Top Heavy for the Plan Year (as defined in Section 8 of
the Plan document), begin at step (1), otherwise begin at step (3).
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(1) Contributions and forfeitures will be allocated to each
Participant's account in the ratio that each Participant's total
Compensation bears to all Participant's total Compensation, but
not in excess of 3% of each Participant's Compensation.
(2) Any contributions and forfeitures remaining after the allocation
in (1) above will be allocated to each Participant's account in
the ratio that each Participant's Compensation for the Plan Year
in excess of the Integration level bears to the Excess
Compensation of all Participants, but not in excess of 3%.
(3) Any contributions and forfeitures (remaining after the allocation
in (2) above in the case of a Top Heavy Plan) will be allocated
to each Participant's account in the ratio that the sum of each
Participant's total Compensation and Compensation in excess of
the Integration Level bears to the sum of all Participants' total
Compensation and Compensation in excess of the Integration Level,
but not in excess of the Profit Sharing Maximum Disparity Rate.
(4) Any remaining Employer contributions or forfeitures will be
allocated to each Participant's account in the ratio that each
Participant's total Compensation for the Plan Year bears to all
Participant's total Compensation for that year.
12. EXCESS COMPENSATION SHALL MEAN COMPENSATION IN EXCESS:
12.1 / / of the Taxable Wage Base in effect as of the beginning of
the Plan Year.
12.2 / / of $__________ (a dollar amount less than the Taxable Wage
Base).
12.3 / / of __________% of the Taxable Wage Base (not to exceed
100%).
13. INDIVIDUAL INVESTMENT ACCOUNTS
13.1 / / Will not be used.
13.2 / / Will be used as follows:
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Each Participant will have a separate Individual Investment Account which
will contain the amount allocated to the Participant Account. Each
Participant will have the power to direct the investment with respect to
his Individual Investment Account subject to such rules as the
Administrator and the Trustee may deem necessary. Gains and losses of the
Account shall accrue to such Account only.
14. LIMITATION YEAR shall mean each 12 consecutive month period ending on
__________.
NOTE: A written resolution must be adopted by the Employer if the
Limitation Year is other than the calendar year.
15. LIMITATION IN BENEFITS - If the Employer maintains or has ever maintained,
in addition to this Plan, one or more plans which are either qualified
defined benefit plans or qualified defined contribution plans other than
paired plan:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreement 001, 002, 005, 009
in which any Participant in this Plan is (or was) a participant or could
possibly become a participant, the Employer must complete this Section.
The Employer must also complete this Section if it maintains a welfare
benefit fund, as defined in Code Section 419(e), or an individual medical
account, as defined in Code Section 415(1)(2) under which amounts are
treated as annual additions with respect to any Participant in this Plan.
If any Participant is covered under another qualified defined contribution
plan maintained by the Employer, other than a master or prototype plan:
15.1 / / The provisions of Section 5.5 (B) of the Plan will apply as
if the other plan were a master or prototype plan.
15.2 / / The total Annual Additions will be limited to the maximum
permissible amount and excess amounts will be reduced in a manner
that precludes Employer discretion, as follows:
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15.3 / / If the Participant is or has ever been a Participant in a
defined benefit plan maintained by the Employer, the benefits
under the plans will be limited as follows (this method must
preclude Employer discretion):
16. MINIMUM CONTRIBUTION FOR TOP HEAVY PLAN - If the Employer maintains one or
more defined benefit plans in which a Participant participates in addition
to this Plan and does not maintain any other defined contributions plans in
which a Participant participates, the minimum benefit requirement
applicable to Top Heavy Plans shall be met under this Plan.
If the minimum benefit requirement is met under this Plan, the additional
minimum benefit:
16.1 / / Shall be provided.
16.2 / / Shall not be provided.
17. YEAR OF SERVICE shall mean
17.1 / / 1000 Hours of Service
17.2 / / _____ Hours of Service (less than 1000 Hours of Service).
18. PREDECESSOR EMPLOYER - Service with the following Predecessor Employer(s):
shall be counted for purposes of :
18.1 / / eligibility Years of Service
18.2 / / vesting (Covered Years of Service)
19. ADMINISTRATOR shall mean:
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19.1 / / The Employer
19.2 / / Individuals specified in Item 23 below.
20. OTHER BENEFITS
20.1 / / Early Retirement Benefit (fully vested): Subject to the
Joint and Survivor Annuity requirements, any Participant may
retire and receive the entire amount in his Participant account
provided he has attained age _____ and has at least _____ Covered
Years of Service.
21. ACTUARIAL EQUIVALENT - For purposes of establishing present value to
compute the top heavy ratio, benefit payments shall be discounted only for
mortality and interest based on the following:
21.1 / / Pre-Retirement Interest Rate _____ %.
21.2 / / Post-Retirement Mortality Table __________ with _____ %
interest.
22. PARTICIPATING AFFILIATES - Each Affiliate (i.e., each member of a
controlled group of corporations, commonly controlled group of businesses,
or an affiliated service group within the meaning of section 414 of the
Code) must adopt this Plan as a Participating Affiliate. (Attach
additional signature pages if there is more than one Participating
Affiliate.)
Participating Affiliate Name Employer I. D.
Address Taxable Year
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By Title Date
23. ADMINISTRATOR - If Option 19.2 is elected the following named individuals
shall serve as Plan Administrator.
Signature by the Administrator ( if other than the Employer) is in
acknowledgment of acceptance of appointment.
Administrator(s) Name(s): Signature(s):
Optional Provision - To be elected if Plan Section 10.6(E) is not elected.
24. APPOINTMENT OF TRUSTEE - Signature by the Trustee is in acknowledgement of
acceptance of appointment.
Trustee Name: Signature:
25. APPOINTMENT OF TRUSTEE OR CUSTODIAN (Select 29.1 or 29.2)
Incorporated businesses must name a Trustee. Unincorporated businesses
covering one or more Self Employed Individuals may appoint a Custodian or a
Trustee.
25.1 / / Trustee - Signature by the Trustee is in acknowledgement of
acceptance of appointment.
Trustee Name: Signature:
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25.2 / / Custodian - _____________ is hereby appointed as Custodian.
Signature of Authorized Individual Accepting Appointment.
Optional Provision - To be elected if Plan Section 10.7 is elected.
26. INSURANCE TRUSTEE - Signature by the Trustee is in acknowledgement of
acceptance of appointment
Insurance Trustee Name: Signature:
26. < 25 >. ADOPTION AGREEMENT USAGE
This Adoption Agreement is only to be used with basic Defined Contribution
Plan document 02.
An Employer who has ever maintained or who later adopts any plan (including
a welfare benefit fund, as defined in Section 419(e) of the Code, which
provides post-retirement medical benefits allocated to separate accounts
for key employees as defined in Code Section 419A(d)(3), or an individual
medical account, as defined in Section 415(1)(2) of the code) in addition
to this Plan other than paired plans:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreement 001, 002, 006, 009, 010
may not rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Internal Revenue Code. If the Employer who adopts or
maintains multiple plans other than the paired plans identified above
wishes to obtain reliance that its plans are qualified, application for a
determination letter should be made to the appropriate Key District
Director of Internal Revenue.
Failure of the Employer to properly complete this Adoption Agreement may
result in the disqualification of this Plan.
27. < 26 >. SPONSORING ORGANIZATION
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The Sponsoring organization or its authorized representative identified
below will inform the adopting employer of any amendments made to the Plan
or of the discontinuance or abandonment of the Plan.
The organization sponsoring this Plan is ______________________________.
The authorized representative of the sponsoring organization is
________________________.
The Employer represents that the legal and tax aspects of this Plan and
Trust have been duly considered and passed upon by its attorney and/or tax
advisor who has determined that it is suitable and has been properly
completed and adopted.
ADOPTION FOR THE EMPLOYER
DATE OF EXECUTION SIGNATURE TITLE
Document #61735
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EX-99.B14(i)
PROTOTYPE STANDARD SIMPLE 401(k) PROFIT SHARING PLAN ADOPTION AGREEMENT
The undersigned employer(s) - **SAVE UNDER CLIENT #.adp IN INSTITUTION
DIRECTORY**, hereinafter referred to as the "Employer", hereby adopts the
_________ PROTOTYPE STANDARD SIMPLE 401(k) PROFIT SHARING PLAN AND TRUST. The
name of the Plan shall be _____________________________.
1. EMPLOYER TAX IDENTIFICATION NUMBER: _______________________.
2. The EFFECTIVE DATE of the initial adoption of the Plan is _______ (usually
the first day of the Plan Year).
3. If this is an amendment of an existing plan, the EFFECTIVE DATE of the
amendment is ________ (usually the first day of the Plan Year).
4. The LAST DAY of the PLAN YEAR, _______ shall be the ANNIVERSARY DATE.
5. The ENTRY DATE(S) of the Plan:
5.1 / / Shall be the first day of each PLAN YEAR and the first day
of each quarter thereafter.
5.2 / / Shall be the first day of each PLAN YEAR and the first day
of the seventh month of each Plan Year.
6. ELIGIBILITY REQUIREMENTS: Each Employee except the following shall be
eligible to participate in the Plan in accordance with Section 5 above.
6.1 / / Employees who have not attained the age of __________
(cannot exceed 21).
6.2 / / Employees who have not completed ______ Year of Service
(cannot exceed 1 year). If the Year of Service selected is
or includes a fractional
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year, an Employee will not be required to complete any specified
Hours of Service to receive credit for such fractional year.
6.3 / / Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and Employee
Representatives, if retirement benefits were the subject of good
faith bargaining, SHALL NOT be eligible to participate. For this
purpose, the term "Employee Representatives" does not include any
organization more than half of whose members are employees who
are owners, officers, or executives of the Employer.
6.4 / / Employees who are nonresident aliens (within the meaning of
Code section 7701(1)(B)) and who received no earned income
(within the meaning of Code Section 911(d)(2)) from the Employer
which constitutes income from sources within the United States
(within the meaning of Code Section 861(a)(3)).
7. COMPENSATION, for purposes of the qualified Cash or Deferred Arrangement,
and this plan generally, shall mean all money or value which is actually
paid to the Participant during the Plan Year, as represented in Sections
7.1 and 7.2 below, and SHALL INCLUDE Employer contributions made pursuant
to a salary reduction agreement which are not includible in the gross
income of the employee under Sections 125, 402(a)(8), 402(h) or 403(b) of
the Code.
7.1 / / W-2 earnings reported in the Wages, Tips, and Other
Compensation Box on Form W2.
7.2 / / Compensation (as that term is defined in Section 415(c)(3)
of the Code).
7.3 / / Compensation for purposes of the Cash or Deferred
Arrangement, SHALL NOT INCLUDE earnings paid prior to the date
the Employee became a Plan Participant.
8. NORMAL RETIREMENT AGE shall mean:
The later of age ______ (not to exceed age 65) or the __ (not to exceed
5th) anniversary of the first day of the first Plan Year in which the
Participant commenced participation in the Plan. If no age is elected and
this section is left blank, the Normal Retirement Age will be deemed to be
65.
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9. VESTING: If a Participant terminates prior to Normal Retirement Age he
shall receive a percentage of his Accrued Benefit according to the vesting
schedule checked below.
9.1 / / One hundred percent schedule - 100% at all times.
9.2 / / Twenty Percent Schedule - 20% after the second Covered Year
of Service and 20% for each additional year credited thereafter,
until 100% is reached at six years.
9.3 Variable Schedule:
Based on Covered Year of Service after Year:
1 _______________________________ 3 ____ 5 _____
7 ____ 100%
2 ________________________ 4 ____ 6 ____
This option 9.3 shall not be less favorable than the vesting schedules
contained in Internal Revenue Code Sections 411(a)(2)(A) and (B).
9. VESTING: (continued)
9.4 / / Years of Service for purposes of determining vesting shall
exclude Years of Service
a. / / prior to the Effective Date of this Plan or a
predecessor plan.
b. / / prior to the age of 18.
Note: Option 9.2 will automatically apply if and when this Plan shall
become top heavy provided that Option 9.1 has not been elected and Option
9.3 is not at least as favorable as Option 9.2.
If the vesting schedule under the Plan(s) shifts in or out of the above
vesting schedule for any Plan Year because of the Plan's top heavy status,
such shift is an amendment to the vesting schedule and the election in
Section 1.4 of the Plan applies.
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Notwithstanding the above, the Accrued Benefit shall become fully vested at
Normal Retirement Age.
10. CONTRIBUTIONS
10.1 EMPLOYER CONTRIBUTIONS: The Employer may make contributions to the
Plan without regard to current or accumulated earnings and profits for
the taxable year or years ending within the Plan Year.
10.2 ELECTIVE DEFERRALS: A Participant may elect to have his or her
Compensation reduced by the following percentage per pay period, or
for a specified pay period or periods, as designated in writing to the
Plan Administrator. The amount which may be elected shall not be in
excess of _________________ percent of a Participant's Compensation.
Unless elected otherwise by the Employer below, a Participant's
election regarding Elective Deferrals shall apply to his cash bonuses.
a. A Participant may elect to commence Elective Deferrals as of each
________ (i.e., each entry date). Such election shall
become effective as of the _______ pay period following the
pay period during which the Participant's election to commence
Elective Deferrals was made, or as soon as administratively
feasible thereafter.
b. / / A Participant's election regarding Elective
Deferrals SHALL NOT apply to Cash Bonuses.
c. No Participant shall be permitted to have Elective Deferrals made
under this plan during any calendar year in excess of $7,000,
multiplied by the Adjustment Factor.
d. A Participant's election to have Elective Deferrals made pursuant
to a salary reduction agreement shall remain in effect until
modified or terminated.
10. CONTRIBUTIONS
10.2 ELECTIVE DEFERRALS: (continued)
e. A Participant may modify the amount of Elective Deferrals as of
each entry date. Such modification shall become effective as of
the 2nd pay period following the pay period during which the
Participant's election to modify Elective Deferrals was made, or
as soon as administratively feasible thereafter.
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f. A Participant may CEASE Elective Deferrals at any time, effective
with the 2nd pay period following the pay period during which the
Participant's election to cease Elective Deferrals was made, or
as soon as administratively feasible thereafter.
10.3 EMPLOYER PROFIT SHARING CONTRIBUTIONS AND ALLOCATION OF EMPLOYER
PROFIT SHARING CONTRIBUTIONS:
a. In addition to Elective Deferrals, Qualified Non-elective
Contributions, Qualified Matching Contributions and Matching
Contributions, the Employer may make additional contributions
under the Plan which shall be made solely at the discretion of
the Employer but not in excess of 15% of Participant
Compensation, up to the maximum amount specified in Section 5.5
of the Plan. Forfeitures of Employer Profit Sharing
Contributions shall be added to the Employer's Contribution and
allocated therewith.
b. The Employer Profit Sharing Contribution to the Plan will be
allocated among the accounts of Participants as of the
Anniversary Date who have been credited with more than 500 Hours
of Service during the Plan Year. Such contribution shall be
allocated to the accounts of these Participants in the ratio that
each Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for such Plan Year.
11. QUALIFIED NON-ELECTIVE CONTRIBUTIONS
11.1 The Employer may make Qualified Non-elective Contributions to the Plan
in such amounts as determined by the Employer as appropriate.
11.2 If Qualified Non-elective Contributions are needed to meet the Actual
Deferral Percentage ("ADP") test described in Section 11.4 of the
Plan, such contribution shall be allocated as of the Anniversary Date
to the accounts of non-highly compensated Participants in the ratio
that each Participant's Compensation for the Plan Year bears to the
total Compensation of all non-highly compensated Participants for such
Plan Year.
11.3 If Qualified Non-elective Contributions are made to the Plan for a
purpose other than to meet the Actual Deferral Percentage test
described in Section 11.4 of the Plan (i.e., to meet a minimum
contribution requirement under the top heavy rules), the contribution
shall be allocated among the accounts of non-key employees who have
been credited with more than 500 hours of service during the Plan
Year, in the ratio in which each Participant's Compensation for the
Plan
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Year bears to the total Compensation of all non-key participants for
such Plan Year.
12. QUALIFIED MATCHING CONTRIBUTIONS (100% Vested)
12.1. / / The Employer will make Qualified Matching Contributions
to the plan on behalf of all Participants who make Elective
Deferrals, irrespective of their employment status on the
Anniversary Date. The contribution shall be 100% vested,
treated as a deferral for purposes of distribution, and
shall be allocated as of the Valuation Date following
deposit in the trust. The contribution shall be made in the
following amounts:
a. / / ___ percent of the Elective Deferral made for each
Plan Year.
b. / / The sum of ____ percent of the portion of the
Elective Deferral which does not exceed _______ percent
of the portion of the Participant's Compensation, plus
percent of the portion of the Elective Deferral which
exceeds ___ percent of the Participant's Compensation,
but does not exceed _____ percent of the Participant's
Compensation.
c. / / The Employer shall not match Elective Deferrals as
provided above in excess of $ _____ or in excess of
_____ percent of the Participant's compensation.
12.2 The level of contributions chosen by the Employer is subject to
the Code Section 401(m)(2) discrimination test and the Section
415 contribution limitations.
13. MATCHING CONTRIBUTIONS (May be subject to a vesting schedule under Section
9)
13.1 / / The Employer will make Matching Contributions to the Plan on
behalf of Participants defined below who make Elective Deferrals,
irrespective of their employment status on the last day of the
Plan Year. The contribution shall be allocated to all
Participants who make Elective Deferrals, may be subject to a
vesting schedule and treated as a non-elective Employer
contribution for purposes of distributions.
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13.2 Matching contributions will be:
a. / / Nonforfeitable when made.
b. / / Subject to the vesting schedule applicable to
Employer contributions, other than Elective Deferrals,
Qualified Non-elective Contributions and Profit Sharing
Contributions, under the Plan.
13. MATCHING CONTRIBUTIONS: (continued)
13.3 The amount of such Matching Contributions made on behalf of each
Participant shall be:
a. / / ___ percent of the Elective Deferral made for each
Plan Year.
b. / / The Employer shall not match Elective Deferrals as
provided in Section 13.1 above in excess of $______ or
in excess of _________ percent of the Participant's
Compensation.
13.4 / / The Employer may make Matching Contributions from time to
time as it deems advisable. Such contribution shall be equal to
a specified percentage of the Participant's Elective Deferral,
provided that the Employer may establish a limit on the amount of
the Elective Deferral which shall be matched. Such limit shall
be specified either as a dollar amount or as a percentage of
Compensation. This contribution shall be made on behalf of all
individuals who deferred during the Plan Year.
13.5 The level of contributions chosen by the Employer is subject to the
Code Section 401(m)(2) discrimination test and the Section 415
contribution limitations.
14. SPECIAL DISTRIBUTIONS AND MISCELLANEOUS RULES
14.1 Elective Deferrals, Qualified Matching Contributions, Qualified
Non-elective Contributions and income allocable to such amounts shall
be distributable upon separation from service, death, or disability,
as defined in the underlying Plan document. Further, such amounts may
be distributable on any of the following events:
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a. Termination of the Plan without the establishment of another
defined contribution plan.
b. As soon as would be administratively feasible after the
disposition by the Employer to an unrelated corporation of
substantially all of the assets (within the meaning of Code
Section 409(d)(2)) used in a trade or business of the Employer,
if the Employer continues to maintain this Plan after such
disposition, but only with respect to Employees who continue
employment with the corporation which acquired such assets.
c. As soon as would be administratively feasible after the
disposition by the Employer to an unrelated entity of the
Employer's interest in a subsidiary (within the meaning of Code
Section 409(d)(3)) if the Employer continues to maintain this
Plan, but only with respect to Employees who continue employment
with such subsidiary.
14.2 HARDSHIP DISTRIBUTIONS:
/ / Elective Deferrals and certain earnings thereon may be
distributed upon the hardship of the Participant, to the
extent provided for in Section 11.6 (c) of the Plan, and
subject to applicable regulations prescribed by the
secretary.
14. SPECIAL DISTRIBUTIONS AND MISCELLANEOUS RULES: (continued)
14.3 AGE 59 1/2:
/ / A Participant shall be permitted to withdraw all or a
portion of his vested account balance on or after the
attainment of age 59 1/2.
14.4 PARTICIPANT LOANS:
/ / Participant loans shall be permitted in this Plan.
14.5 CALENDAR YEAR ELECTION:
Irrespective of any other language, clause or provision in the Plan
and Trust or Adoption Agreement, for Plans that have elected to use
the calendar year (the twelve contiguous month period beginning
January 1 and ending December 31) as the Plan's Plan Year, the
Employer shall use the calendar year ending with the Plan Year in the
look back year (as defined in Treasury Regulations under Section
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414(q) of the Code) calculation for determining which Employees are
Highly Compensated Employees. The use of the calendar year as the
look-back year shall apply to all Plans, entities, and arrangements of
the Employer. The determination year shall be the twelve month
period ending with the Plan Year as well.
For all Plans not using the calendar year as their Plan Year, the
determination year shall be the same as the Plan Year and the Employer
shall use the twelve contiguous months immediately preceding the
determination year as the look back year.
14.6 VALUATION DATE(s) for DISTRIBUTIONS:
The Plan shall have the following interim Valuation Date(s) for
purposes of distributions:
a. / / Daily (each day of the Plan Year)
b. / / Quarterly (last day of each quarter of the Plan Year)
c. / / Other ______________________________________________________
15. CLAIMS FOR EXCESS ELECTIVE DEFERRALS: Participants who claim Excess
Elective Deferrals for the preceding calendar year must submit their claims
in writing to the Plan Administrator by March 1.
16. ACTUAL DEFERRAL AND CONTRIBUTION PERCENTAGES
16.1 Qualified Matching Contributions and Qualified Non-Elective
Contributions may be taken into account as Elective Deferrals for
purposes of calculating the Actual Deferral Percentages. In
determining Elective Deferrals for the purpose of the ADP test the
Employer shall include such Qualified Matching Contributions and such
Qualified Non-Elective Contributions under this Plan or any other Plan
of the Employer as necessary to meet the test and as provided for by
regulations under the Code.
16. ACTUAL DEFERRAL AND CONTRIBUTION PERCENTAGES: (continued)
16.2 The amount of such contributions taken into account as Elective
Deferrals for purposes of calculating the Actual Deferral Percentage,
subject to such other
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requirements as may be prescribed by the Secretary of the Treasury,
shall be those contributions as needed to meet the test.
16.3 Qualified Matching Contributions and Qualified Non-Elective
Contributions may be taken into account as Contributions for purposes
of calculating the Actual Contribution Percentages. In determining
which contributions shall be counted for the purpose of the ACP test
the Employer shall include such Qualified Matching Contributions and
such Qualified Non-Elective Contributions under this Plan or any other
Plan of the Employer as necessary to meet the test and as provided for
by regulations under the Code.
16.4 The amount of such contributions taken into account as Contributions
for purposes of calculating the Actual Contribution Percentage,
subject to such other requirements as may be prescribed by the
Secretary of the Treasury, shall be those contributions as needed to
meet the test.
17. FORFEITURES: Forfeitures of Matching Contributions shall be applied in the
current year of forfeiture to reduce employer contributions.
18. / / INDIVIDUAL INVESTMENT DIRECTION: If the Employer has elected
this Section, each Participant will have the right to direct the
investment of the amount allocated to his Plan account for each of the
contribution types which have also been checked below. Each
Participant will have the power to direct the investment with respect
to those contributions and the earning or losses thereon subject to
such rules as the Administrator and the Trustee may deem necessary.
Gains and losses of the funds so directed by the Participant shall
accrue solely to those funds. The Participant directing the
investment of amounts allocated to his account shall be solely
responsible for the investment results of such directions. This means
that the Participant shall be solely responsible for whatever gains
and/or losses are attributable to the amounts allocated to his account
for which he directs the investment. Contributions not checked below
will be held in a pooled trust and subject to the investment direction
and management of the Plan Administrator. If the Participant fails to
direct the investment of any contribution type checked below, the
failure will be deemed a direction by the Participant to invest said
funds in a money market, dollar-a-share fund or similar vehicle chosen
by the Plan for this purpose.
18.1 / / Elective Deferrals
18.2 / / Qualified Non-elective Contributions
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18.3 / / Matching Contributions
18.4 / / Qualified Matching Contributions.
18.5 / / Profit Sharing Contributions
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19. LIMITATION YEAR shall mean each 12 consecutive month period ending on
_____.
NOTE: A written resolution must be adopted by the Employer if the Limited
Year is other than the calendar year.
20. LIMITATION IN BENEFITS: If the Employer maintains or has ever maintained,
in addition to this Plan, one or more plans which are either qualified
defined benefit plans or qualified defined contribution plans other than
paired plans:
Plan #01 - Adoption Agreement 001
Plan #02 - 001, 002, 004, 003, 006, 009
in which any Participant in this Plan is (or was) a participant or could
possibly become a participant, the Employer must complete this Section.
The Employer must also complete this Section if it maintains a welfare
benefit fund, as defined in Code Section 419(e), or an individual medical
account, as defined in Code Section 415(l)(2) under which amounts are
treated as annual additions with respect to any participant in this Plan.
20.1 If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master or
prototype plan:
a. / / The provisions of Section 5.5 (B) of the Plan will
apply as if the other plan were a master or prototype plan.
b. / / The total Annual Additions will be limited to the
maximum permissible amount and excess amounts will be
reduced in a manner that precludes Employer discretion, as
follows:
20.2 If the Participant is or has ever been a Participant in a defined
benefit plan maintained by the Employer, the benefits under the plans
will be limited as follows (this method must preclude Employer
discretion):
21. MINIMUM CONTRIBUTION FOR TOP HEAVY PLAN: If the Employer maintains one or
more defined benefit plans in which a Participant participates in addition
to this Plan and does not maintain any other defined contribution plan in
which a
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Participant participates, the minimum benefit requirement applicable to Top
Heavy Plans shall be met under this Plan.
22. YEAR OF SERVICE: shall mean 1000 Hours of Service.
23. PREDECESSOR EMPLOYER: Service with the following Predecessor Employer(s):
Years of Service shall be counted for purposes of eligibility and vesting.
24. ADMINISTRATOR shall mean the Employer. The Administrator shall have the
sole and ultimate authority to interpret the Plan terms and provisions.
25. OTHER BENEFITS: Early Retirement Benefits are not provided by this Plan.
26. ACTUARIAL EQUIVALENT
For purposes of establishing present value to compute the top heavy ratio,
benefit payments shall be discounted only for mortality and interest based
on the following:
26.1 / / Pre-Retirement Interest Rate _____ %.
26.2 / / Post-Retirement Mortality Table: _____ with ______ %
interest.
27. PARTICIPATING AFFILIATES: Each Affiliate (i.e., each member of a
controlled group of corporations, commonly controlled group of businesses,
or an affiliated service group within the meaning of Section 414 of the
Code) must adopt this Plan as a Participating Affiliate. [Attach
additional signature pages if there are more Participating Affiliates.]
Participating Affiliate Name: _______________________________________
Employer Tax I. D.: ____________________________________________
Address: _______________________________________________________
Taxable Year: _______________________________________________________
By: _______________ Title: __________________ Date: _____________
Participating Affiliate Name: _______________________________________
Employer Tax I.D.: _____________________________________________
Address: _______________________________________________________
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Taxable Year: _______________________________________________________
By: ________________________ Title: ___________ Date: ___________
Participating Affiliate Name: _______________________________________
Employer Tax I.D.: _____________________________________________
Address: _______________________________________________________
Taxable Year: __________________________________________________
By: ________________________ Title: ____________ Date: ___________
28. ADMINISTRATOR: Signature by the Administrator is not required if the
Employer is the Administrator.
Optional Provision - To be elected if Plan Section 10.6 (E) is elected.
29. APPOINTMENT OF TRUSTEE OR CUSTODIAN (Select 29.1 or 29.2)
Incorporated businesses must name a Trustee. Unincorporated businesses
covering one or more Self Employed Individuals may appoint a Custodian or a
Trustee.
29.1 The following individual or entity shall be Trustee(s):
Name: _____________________________________________________
Address: __________________________________________________
Phone Number: _____________________________________________
Signature by the Trustee is in acknowledgment of acceptance of
appointment.
Signature: ________________________________________________
29.2 The following individual or entity shall be Custodian(s).
Name: _____________________________________________________
Address: __________________________________________________
Phone Number: _____________________________________________
Signature by the Custodian is in acknowledgment of acceptance of
appointment.
Signature: ________________________________________________
Optional Provision - To be elected if Plan Section 10.6 (E) is not elected
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30. INSURANCE TRUSTEE: Signature by the Trustee is in acknowledgement of
acceptance of appointment.
Insurance Trustee Name: _____________________________________________
Signature: ________________________________________________
31. ADOPTION AGREEMENT USAGE
This Adoption Agreement is only to be used with basic Defined Contribution
Plan document 02. An Employer who has ever maintained or who later adopts
any plan (including a welfare benefit fund, as defined in Section 419(e) of
the Code, which provides post-retirement medical benefits allocated to
separate accounts for key employees as defined in Code Section 419A(d)(3),
or an individual medical account, as defined in Section 415(l)(2) of the
Code) in addition to this Plan other than paired plans:
Plan #01 - Adoption Agreement 001
Plan #02 - 001, 002, 004, 003, 006, 009
may not rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Internal Revenue Code. If the Employer who adopts or
maintains multiple plans other than the paired plans identified above
wishes to obtain reliance that its plans are qualified, application for a
determination letter should be made to the appropriate Key District
Director of Internal Revenue. Failure of the Employer to properly complete
this Adoption Agreement may result in the disqualification of this Plan.
31. ADOPTION AGREEMENT USAGE: (continued)
The Employer may not rely on the opinion letter issued by the National
Office of the Internal Revenue Service as evidence that this Plan is
qualified under Section 401 of the Code unless the terms of the Plan, as
herein adopted or amended, that pertain to the requirements of Sections
401(a)(4), 401(a)(17), 401(l), 401(a)(5), 410(b) and 414(s) of the Code, as
amended by the Tax Reform Act of 1986 or later laws,
31.1 are made effective retroactively to the first day of the Plan Year
beginning after December 31, 1988 (or such other date on which these
requirements first become effective with respect to this Plan);
31.2 are made effective no later than the first day on which the Employer
is no longer entitled, under regulations, to rely on a reasonable good
faith interpretation of
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these requirements, and the prior provisions of the Plan constitute
such an interpretation.
32. SPONSORING ORGANIZATION: The Sponsoring organization or its authorized
representative identified below will inform the adopting employer of any
amendments made to the Plan or of the discontinuance or abandonment of the
Plan. The organization sponsoring this Plan is:
The authorized representative of the sponsoring organization is:
The Employer represents that the legal and tax aspects of this Plan and
Trust have been duly considered and passed upon by its attorney and/or tax
advisor who has determined that it is suitable and has been properly
completed and adopted.
ADOPTION FOR THE EMPLOYER
By ____________________________________ Date _______________
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