<PAGE>
As filed with the Securities and Exchange Commission on March 27, 1998
File No. 2-77092
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 17 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 17
GENERAL SECURITIES, INCORPORATED
(Exact Name of Registrant as Specified in Charter)
5100 EDEN AVENUE, SUITE 204, EDINA, MN 55435
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (612) 927-6799
Copy to:
JOHN P. ROBINSON JOHN R. HOUSTON
GENERAL SECURITIES, INCORPORATED LINDQUIST & VENNUM P.L.L.P.
5100 EDEN AVENUE, SUITE 204 4200 IDS CENTER
EDINA, MINNESOTA 55435 MINNEAPOLIS, MINNESOTA 55402
(Name and Address of Agent for Service)
-------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: It is proposed that the filing
will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/X/ on March 31, 1998 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
-------------------------
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<PAGE>
GENERAL SECURITIES, INCORPORATED
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER
- -----------
PROSPECTUS
PART A PROSPECTUS CAPTION PAGE NUMBER
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1. Cover Page . . . . . . . . . . . . . . . . . . . . . 1
2. Prospectus Summary . . . . . . . . . . . . . . . . . 2
3. Financial Highlights . . . . . . . . . . . . . . . . 4
4. Investment Objectives and Policies . . . . . . . . . 6
5.(a-c) Management of the Fund . . . . . . . . . . . . . . . 7
(d-e) Management of the Fund; General
Information - Investment Advisor, Manager,
Underwriter and Distributor;
General Information - Custodian and
Transfer Agent . . . . . . . . . . . . . . . . . . . 8, 16
(f-g) Management of the Fund . . . . . . . . . . . . . . . 7
5A. *
6.(a) General Information - Capital Stock. . . . . . . . . 15
(b) Management of the Fund . . . . . . . . . . . . . . . 7
(c-d) General Information - Capital Stock. . . . . . . . . 15
(e) Cover Page . . . . . . . . . . . . . . . . . . . . . 1
(f-g) Distribution Policy and Tax Status . . . . . . . . . 11
(h) *
7.(a-b) Purchase of Shares . . . . . . . . . . . . . . . . . 9
(c) Shareholder Services . . . . . . . . . . . . . . . . 13
(d) Purchase of Shares . . . . . . . . . . . . . . . . . 9
(e) *
(f) *
(g) *
8. Redemption of Shares . . . . . . . . . . . . . . . . 11
9. *
STATEMENT OF ADDITIONAL STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION INFORMATION PAGE NUMBER
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10. Cover Page . . . . . . . . . . . . . . . . . . . . . 1
11. Cover Page . . . . . . . . . . . . . . . . . . . . . 1
12. *
13. Investment Objectives and Policies . . . . . . . . . 2
<PAGE>
14.(a) Management of the Fund . . . . . . . . . . . . . . . 3
(b-c) Management of the Fund; Investment
Advisory, Management and Distribution
Services . . . . . . . . . . . . . . . . . . . . . . 3,5
15.(a-b) *
(c) Management of the Fund - Directors
and Officers . . . . . . . . . . . . . . . . . . . . 3
16.(a-d) Investment Advisory, Management and
Distribution Services. . . . . . . . . . . . . . . . 5
(e-g) *
(h) See Part A - General information . . . . . . . . . . -
(i) *
17. Brokerage. . . . . . . . . . . . . . . . . . . . . . 7
18. *
19.(a) See Part A - Purchase of Shares;
Shareholder Services. . . . . . . . . . . . . . . . 11
(b) Determination of Net Asset Value;. . . . . . . . . . 9
See Part A - Purchase of Shares
(c) *
20. *
21. *
22. Calculation of Performance Data. . . . . . . . . . . 10
23. Financial Statements . . . . . . . . . . . . . . . . 16
PART C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
- -------------------------
*Not Applicable.
<PAGE>
GENERAL SECURITIES INCORPORATED
5100 Eden Avenue, Suite 204, Edina, Minnesota 55436
Telephone (612) 937-6799
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LOGO General Securities, Incorporated (the "Fund") is a
FOCUS ON diversified open- end management investment company which seeks
---- possible long-term capital appreciation and preservation of
TQM capital for its shareholders with reasonable risk. The Fund
---- invests primarily, but not exclusively, in selected common
TOTAL QUALITY stocks of companies that have implemented Total Quality Man-
MANAGEMENT agement or Continuous Quality Improvement principles.
COMPANIES
This Prospectus sets forth concisely the information a
prospective investor should know before investing in the Fund.
Investors should read and retain this Prospectus for future
reference. A Statement of Additional Information dated March 31,
1998 (the "Statement of Additional Information"), containing
additional information about the Fund, has been filed with the
Securities and Exchange Commission (the "Commission") and is
hereby incorporated by reference into this Prospectus. A copy of
the Statement of Additional Information can be obtained without
charge by telephone or written request to the Fund at the
address and telephone number printed above. In addition, the
Commission maintains a Website at http://www.sec.gov that
contains this Prospectus, the Statement of Additional
Information and certain other electronic filings made by the
Fund with the Commission.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 31, 1998.
<PAGE>
GENERAL SECURITIES INCORPORATED
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS AND
THE STATEMENT OF ADDITIONAL INFORMATION.
THE FUND
The Fund is an open-end diversified management investment company which
continuously offers its shares of Common Stock to prospective purchasers and
also offers to redeem its shares at current net asset value.
INVESTMENT OBJECTIVES
The investment objective is to select securities with a view to possible
long-term capital appreciation and preservation of capital. Consistent with that
objective, the Investment Advisor believes companies implementing a Total
Quality Management ("TQM") approach or using Continuous Quality Improvement
("CQI") practices throughout the company are, in general, best positioned for
superior growth as a result of the internal disciplines imposed by TQM and CQI
principles. The Investment Advisor has and intends to invest most of the Fund's
assets in common stocks, particularly common stocks of companies that have
implemented TQM or CQI principles. However, investments in corporate bonds or
debentures, United States Government securities and other types of securities
have and will be made as economic conditions dictate. The Investment Advisor
attempts to diversify investments (subject to certain restrictions set forth
herein) as a matter of course as to individual companies and as to industries
most likely to achieve these objectives. No guarantee can be made that these
objectives will be achieved, and inherent in this policy are risks of
unpredictable market fluctuations. See "INVESTMENT OBJECTIVES AND POLICIES."
EXPENSES
The following table summarizes certain shareholder transaction and Fund
operating expenses.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases...................................... None
Maximum Deferred Sales Load.................................................. None
Maximum Sales Load Imposed on Reinvested Dividends........................... None
Redemption Fees.............................................................. None(1)
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees.............................................................. .60%
Administrative Fees.......................................................... .40%
Other Expenses............................................................... .44%
---------
Total Fund Operating Expenses.............................................. 1.44%
</TABLE>
- ------------------------
(1) The Fund charges $20 for wire transfer of redemption proceeds. See
"REDEMPTION OF SHARES -- EXPEDITED WIRE REDEMPTION."
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses (rounded) on
a $1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each time
period: ......................................... $ 15.00 $ 46.00 $ 79.00 $ 172.00
</TABLE>
2
<PAGE>
The table is intended to assist in assessing the various costs and expenses
which an investor will bear, directly or indirectly, with respect to an
investment in the Fund. For a complete description of these expenses, see
"MANAGEMENT OF THE FUND;" "PURCHASE OF SHARES;" "REDEMPTION OF SHARES" and
Statement of Additional Information. The table set forth above utilizes a 5%
annual rate of return as mandated by Commission regulations. The expenses or the
annual rate of return should not be considered a representation of past or
future expenses or the annual rate of return. Actual future expenses or the
annual rate of return may be greater or lesser than those shown.
MANAGEMENT OF THE FUND
Robinson Capital Management, Inc. ("Robinson Capital") serves as Investment
Advisor to the Fund pursuant to an Investment Advisory Agreement and manages the
Fund's business affairs pursuant to a Management Agreement. Robinson Capital is
an investment advisory firm controlled by John P. Robinson who has acted as the
Fund's President and has served on the Board of Directors since the Fund's
inception in 1951. The Fund currently acts as its own underwriter and
distributor in connection with the sale of the Fund's shares. See "MANAGEMENT OF
THE FUND" and "PURCHASE OF SHARES."
RISK FACTORS
There is no assurance that the investment objectives of the Fund will be
achieved or that a focus on investments in companies implementing TQM or CQI
principles will provide a greater return than investments in other companies.
The returns and per share net asset value of the Fund will regularly fluctuate,
as the Fund is subject to market and financial risks. Market risk is the
potential for fluctuations in the price of a security because of market factors.
For equity securities, market risk is the possibility of change in price caused
by stock market price changes; for debt securities, market risk is the
possibility that the price will fall because of changing interest rates.
Financial risk is based on the financial situation of the issuer. For equity
securities, financial risk is the possibility that the price of the security
will fall because of poor earnings performance by the issuer. For debt
securities, financial risk is the possibility that a bond issuer will fail to
make timely payments of interest or principal to the Fund. The Fund also invests
in U.S. Government securities, the market value of which is not guaranteed and
will fluctuate. Although investments in U.S. Government securities provide
protection against financial risk, they do not protect investors against price
changes due to market risk. See "INVESTMENT OBJECTIVES AND POLICIES."
PURCHASE OF SHARES
Shares of the Fund may be purchased directly from the Fund at a price equal
to the net asset value, as determined at the close of business immediately
following the receipt by the Fund of an application. The minimum purchase is
$1,500 initially with a $100 minimum for subsequent purchases. There are no
minimum amounts for reinvestment of dividends and capital gains distributions
and the Investment Advisor retains the right to waive the minimum purchase
amount in its sole discretion. See "PURCHASE OF SHARES."
REDEMPTION OR REPURCHASE OF SHARES
Shares may be redeemed at net asset value without charge. See "REDEMPTION OF
SHARES."
DISTRIBUTION POLICY
Distribution of substantially all income is made quarterly with distribution
of realized long- and short-term capital gains, if any, made in December. See
"DISTRIBUTION POLICY AND TAX STATUS."
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report appears in the Statement of Additional
Information. The performance discussion required by the Commission can be found
in the Fund's Annual Report to Shareholders and will be made available without
charge upon request.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994* 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................... $16.08 $14.61 $12.08 $12.23 $12.36 $12.23 $10.37 $11.43 $10.91 $10.05
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operations:
Investment income -- net..... .18 .17 .25 .20 .28 .49 .53 .38 .46 .25
Net realized and unrealized
gains (losses) on
investments................ 2.08 2.46 3.49 .40 .39 .78 3.01 (.58) 1.95 1.65
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from operations........... 2.26 2.63 3.74 .60 .67 1.27 3.54 (.20) 2.41 1.90
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions to shareholders:
From investment income --
net........................ (.18) (.17) (.25) (.21) (.27) (.46) (.56) (.49) (.39) (.22)
Excess distributions of net
investment income.......... -- (.01) -- (.02) -- -- -- -- -- --
From net realized gains...... (1.61) (.98) (.96) (.52) (.53) (.68) (1.12) (.37) (1.50) (.82)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions to
shareholders................... (1.79) (1.16) (1.21) (.75) (.80) (1.14) (1.68) (.86) (1.89) (1.04)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of year.... $16.55 $16.08 $14.61 $12.08 $12.23 $12.36 $12.23 $10.37 $11.43 $10.91
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total return**.................. 14.08% 18.15% 31.15% 4.89% 5.56% 9.65% 33.75% (1.56%) 23.07% 18.07%
Net assets, end of year (000's
omitted)....................... $46,006 $39,974 $32,541 $26,581 $26,331 $25,509 $21,957 $17,540 $16,980 $15,633
Ratio of expenses to average
daily net assets............... 1.44% 1.50% 1.50% 1.50% 1.31% 1.32% 1.39% 1.47% 1.39% 1.46%
Ratio of net investment income
to average daily net assets.... 1.02% 1.11% 1.79% 1.69% 2.26% 3.69% 4.18% 3.40% 3.71% 2.23%
Portfolio turnover rate......... 20% 18% 24% 42% 30% 39% 54% 17% 54% 78%
Average Brokerage Commission
Rate***........................ $ .0597 $ .0918 -- -- -- -- -- -- -- --
</TABLE>
* From March 23, 1994 through November 30, 1994, The Fund's Investment Advisor
was Alpha Source Asset Management, Inc., a wholly-owned subsidiary of
Hamilton Investments, Inc. From March 23, 1994 through November 30, 1994,
the Fund's Administrator was Hamilton Investments, Inc. Prior to March 23,
1994, the Fund's Investment Advisor and its Administrator was Craig-Hallum,
a division of Hamilton Investments, Inc.
** These are the Fund's total returns during the years, including reinvestment
of all dividend and capital gain distributions without adjustments for sales
charge.
*** Beginning in fiscal 1996, the Fund is required to disclose an average
brokerage commission rate. The rate is calculated by dividing the total
brokerage commissions paid on applicable purchases and sales of portfolio
securities for the period by the total number of related shares purchased
and sold.
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund was incorporated in Minnesota on February 27, 1951 and has been in
operation as a diversified, open-end management investment company since that
time.
INVESTMENT OBJECTIVES
The Fund's purpose is to provide a means for investors to combine their
capital, diversify their investments and secure the advantages of continuous and
informed management to obtain possible capital appreciation consistent with
reasonable risk. The investment objective is to select securities with a view to
possible long-term capital appreciation and preservation of capital. Consistent
with that objective the Fund believes companies implementing a TQM approach or
using CQI practices throughout the company are, in general, best positioned for
superior growth and are most likely to weather any economic downturn. Also, the
Fund's search for companies with a commitment to total quality management or
continuous quality improvement often yields strong companies poised for growth
which are relatively unnoticed because they may be outside the so-called
"glamour" industries. There can be no assurance that the objective of the Fund
will be realized.
When determining whether a company being considered as an investment
candidate implements TQM or CQI principles, the Investment Advisor reviews
public reports by the company and then, if necessary, interviews representatives
of the company to discuss TQM and CQI implementation within the company. As a
result of review, the Investment Advisor develops a judgment, principally
subjective, of the degree of commitment of the company to TQM and CQI principles
and the stage of full implementation of those principles. Once an investment is
made by the Fund, the Investment Advisor continually monitors, reviews and
evaluates the company's performance. If a portfolio company is determined to
have dropped its TQM or CQI focus, or otherwise to have ceased to meet
performance expectations, the policy of the Investment Advisor is to sell the
Fund's shares in that company.
From time to time the Fund may also invest in selected corporate bonds or
debentures rated at the time of purchase as A or above by Moody's Investors
Service or Standard & Poors. In addition, when the Investment Advisor believes
that market conditions warrant a temporary defensive position, the Fund
periodically invests in United States Treasury bills, notes and bonds and may in
the future consider investments in certificates of deposit and bank depository
accounts of banks which have total assets in excess of $500 million. Management
attempts to diversify investments (subject to certain restrictions) as a matter
of course as to individual companies and as to industries most likely to achieve
these objectives. No guarantee can be made that these objectives will be
achieved, and inherent in this policy are risks of unpredictable market
fluctuations.
The investment objective of the Fund is a fundamental policy of the Fund and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities.
MANAGEMENT OF THE FUND
The officers of the Fund, along with Robinson Capital, the Investment
Advisor and Administrator, manage the Fund's investment activities and
day-to-day operations, subject to supervision by the Board of Directors. The
Board of Directors sets broad policies for the Fund and chooses the Fund's
officers and the companies that provide the Fund with services. A team led by
John P. Robinson, Chairman of the Board and President of the Fund and the sole
director, President and controlling shareholder of Robinson Capital and
including Mark D. Billeadeau, Winfield S. Holland and Craig H.
5
<PAGE>
Robinson, each a Vice President of the Fund and an officer of Robinson Capital,
serve as the Fund's principal portfolio managers. Mr. John P. Robinson has
managed the Fund since 1951 and Messrs. Mark D. Billeadeau, Winfield S. Holland
and Craig H. Robinson have been involved in fund management since 1996, 1984 and
1996, respectively. Messrs. John P. Robinson and Winfield S. Holland were
employees of Craig-Hallum and then Hamilton Investments until November 30, 1994.
Robinson Capital is a Minnesota corporation with offices at 5100 Eden Avenue,
Suite 204, Edina, Minnesota 55436. Robinson Capital does not serve as investment
advisor to any other registered investment companies.
Pursuant to an Investment Advisory Agreement which was approved by the
Fund's shareholders on March 3, 1995. Robinson Capital provides the Fund all
necessary information, advice, recommendation services and determinations
relating to investments and portfolio management. Robinson Capital has acted as
Investment Advisor and Administrator for the Fund from December 1, 1994. Orders
for securities are placed by Robinson Capital with the view to obtaining the
best combination of price and execution available. Robinson Capital attempts to
evaluate the overall quality and reliability of the broker-dealers and the
services provided, including research services, general execution capability,
reliability and integrity, willingness to take a position in securities, general
operational capabilities and financial condition. Robinson Capital is authorized
to place orders with various broker-dealers, subject to all applicable legal
requirements. Robinson Capital may also place orders with broker-dealers that
sell the Fund's shares, provided Robinson Capital believes the price and
execution are comparable to other broker-dealers. A greater spread, discount or
commission may be paid to broker-dealers that provide research services, which
may be used by Robinson Capital in managing assets of its clients, including the
Fund. Although it is believed that research services received directly or
indirectly benefit all of Robinson Capital's clients, the degree of benefit
varies by account and is not directly related to the commissions or remuneration
paid by the account.
As compensation for its services under the Investment Advisory Agreement,
Robinson Capital is paid an investment advisory fee, payable monthly, at an
annual rate of 0.60% for average net assets up to and including $100 million,
0.35% for the next $150 million of average net assets and 0.10% for net assets
over $250 million. While the advisory fee paid Robinson Capital is comparable to
the advisory fee paid by other mutual funds, the total expenses of the Fund are
higher than total expenses paid by most mutual funds, many of which have net
assets that are substantially larger than the net assets of the Fund. For the
fiscal year ended November 30, 1997, the advisory fees paid Robinson Capital
were $289,638.
Robinson Capital also provides the Fund with non-investment advisory
management and administrative services necessary for the conduct of the Fund's
business pursuant to a Management Agreement which was approved by the Fund's
shareholders on March 3, 1995. Robinson Capital prepares and updates securities
registration statements and filings, shareholder reports and other documents. In
addition, Robinson Capital provides office space and facilities for the
management of the Fund and provides accounting, record-keeping and data
processing facilities and services. Robinson Capital also provides information
and certain administrative services for shareholders of the Fund. For managing
the business affairs and providing certain shareholder services pursuant to the
Management Agreement, the Fund pays Robinson Capital a management administration
fee, payable monthly, at an annual rate of 0.40% of the average daily net assets
of the Fund, plus out-of-pocket expenses incurred in connection with shareholder
servicing activities such as postage, data entry, stationery, tax forms
6
<PAGE>
and other printed material. Robinson Capital may subcontract with other entities
to provide certain shareholder servicing activities.
The Fund serves as its own underwriter and distributor of its shares.
Investors Fiduciary Trust Company ("IFTC"), 1004 Baltimore, 7th Floor, P.O.
Box 419249, Kansas City, Missouri 64105-6249, serves as the Fund's Transfer and
Dividend Paying Agent ("Transfer Agent") and Custodian. IFTC maintains the
Fund's shareholder records and assets and performs certain accounting services
for the Fund. Assets of the Fund may also be held by sub-custodians selected by
IFTC and approved by the Board of Directors.
The Fund pays the investment management advisory fee, administrative fee,
shareholder services expenses, transaction costs, interest, taxes, legal,
accounting, audit, transfer agent and custodial fees, brokerage commissions and
other costs incurred in buying and selling assets, fees paid to directors not
affiliated with Robinson Capital, the cost of stationery and envelopes, the cost
of qualification and registration of shares under state and federal laws, the
cost of solicitation of proxies and certain other operational expenses. However,
Robinson Capital is obligated to pay all Fund expenses (exclusive of brokerage
expenses and fees, interest and any federal or state income taxes) which exceed
1 1/2% of the Fund's average net assets for any fiscal year on the first $100
million of average net assets, 1 1/4% of the Fund's average net assets for any
fiscal year on the next $150 million of average net assets, and 1% of the Fund's
average net assets for any fiscal year on average net assets in excess of $250
million. During the fiscal year ended November 30, 1997, total expenses of the
Fund amounted to $696,963, or 1.44% of average net assets.
Preparing for the Year 2000 is a high priority for Robinson Capital, who
together with the Fund's Board of Directors, have begun studying procedures to
address this issue. Robinson Capital plans to upgrade its technology in 1998 to,
among other things, achieve Year 2000 compliance. In addition, IFTC, the Fund's
Transfer Agent, Custodian and Registrar, has developed a program to achieve Year
2000 compliance by December 31, 1998. Robinson Capital does not anticipate that
the move to the Year 2000 will have a material impact on its ability to continue
to provide the Fund with service at current levels, although there can be no
assurance of this.
PURCHASE OF SHARES
Shares of the Fund may be purchased directly from the Fund or through
authorized investment dealers. Initial investments in the Fund may be made by
mailing a completed application, together with a check for the total purchase
price, to General Securities, Incorporated, c/o IFTC, P.O. Box 419249, Kansas
City, Missouri 64105-6249, or by contacting an authorized investment dealer.
Initial investments may also be made by submitting a completed application and
check to an authorized investment dealer who will forward them to the Fund's
Transfer Agent. The dealer is responsible for transmitting the order promptly to
the Transfer Agent in order to permit the investor to obtain the current price.
Subsequent purchases in the Fund may be made by mailing a check directly to the
Transfer Agent at General Securities, Incorporated, c/o IFTC, P.O. Box 419249,
Kansas City, Missouri 64105-6249, or by contacting an authorized investment
dealer. Checks should be made payable to General Securities, Incorporated,
subsequent purchases should indicate the account number on the check and checks
must be drawn on a U.S. bank or its foreign branch or subsidiary and must be
payable in U.S. dollars. Third party checks, except those payable to an existing
shareowner who is a natural person (as opposed to a corporation or partnership),
credit cards and cash will not be accepted.
7
<PAGE>
When purchases are made by check or periodic automatic investment, redemptions
will not be allowed until the investment being redeemed has been in the account
for 15 days. Initial and subsequent investments may also be made by wiring
Federal Funds to Investors Fiduciary Trust Company; Routing #ABA 101003621;
Deposit Account: Bank Account 7523491; From: Shareholder Name, Address, Tax
Identification Number-For purchase of: General Securities, Incorporated shares.
In order for a wire investment to be processed on the same day, (1) the investor
must notify the Transfer Agent of his or her intention to make such investment
by 12:00 noon Eastern time on the day of his or her investment by calling the
Transfer Agent at 1-800-939-9990; and (2) the wire must be received by 4:00 p.m.
Eastern time that same day.
Shares of the Fund may also be purchased through a "Servicing Organization"
which is a broker-dealer, bank or other financial institution that purchases
shares for its customers. When shares are purchased this way, the Servicing
Organization, rather than its customer, may be the shareholder of record of the
shares. The minimum initial and subsequent investments in the Fund for
shareholders who invest through a Servicing Organization generally will be set
by the Servicing Organization. Servicing Organizations may also impose other
charges, restrictions or procedures in addition to or different from those
applicable to investors who remain the shareholder of record of their shares.
The procedures for purchases or redemptions through Servicing Organizations may
vary slightly from that which is described elsewhere in this Prospectus. Thus,
an investor contemplating investing with the Fund through a Servicing
Organization should read materials provided by the Servicing Organization in
conjunction with this Prospectus. Furthermore, the Fund may apply different
procedures and charge different costs to Servicing Organizations than as
described elsewhere in this Prospectus.
Although Servicing Organizations will sell and redeem shares at net asset
value, they may charge their customers a fee in connection with services offered
to customers. Shares held through a Servicing Organization may be transferred
into the investor's name following procedures established by the investor's
Servicing Organization and the Fund's Transfer Agent. Certain Servicing
Organizations may receive compensation from Robinson Capital.
The Fund reserves the right to withdraw all or any part of the offering made
by this Prospectus and to reject purchase orders in whole or in part. Also, from
time to time, the Fund may temporarily suspend the offering of its shares to new
investors. During the period of such suspension, persons who are already
shareholders of the Fund normally are permitted to continue to purchase
additional shares and to have dividends reinvested.
Shares may be purchased in any amount not less than $1,500 initially with a
$100 minimum on subsequent investments (reduced pursuant to the Low Minimum
Initial Investment Plan/Automatic Investment Plan described below and subject to
waiver at the discretion of the Investment Advisor). Dividends and capital gains
distributions, if any, will be reinvested regardless of amount at the net asset
value determined on the distribution date, unless requested in cash, although
they will be taxable in the manner set forth in the section of this Prospectus
entitled DISTRIBUTION POLICY AND TAX STATUS. When the dollar amount of a
purchase is not evenly divisible by the current price of shares, the purchaser
will receive a number of whole shares plus a fractional share which is
proportionately the same as a whole share. Investments may thus be made in any
dollar amount (subject to the minimum described above) regardless of the current
price of shares.
The Fund is offering its shares at a public offering price equal to the next
determined net asset value per share. Net asset value is based upon and varies
with changes in the market value of
8
<PAGE>
securities owned by the Fund and is determined for purposes of a purchase at the
close of business immediately following the receipt of a subscription by the
Fund. Subscription forms and other information concerning the purchase of shares
may be obtained from the Fund at the address and telephone number listed on the
cover page of this Prospectus or from securities dealers offering shares of the
Fund. Stock certificates will not be issued.
Shares of the Fund may be purchased at a price equal to their net asset
value. The net asset value of a Fund share is the proportionate interest of each
share (or a fractional share) in the net corporate assets. It is computed not
less frequently than once daily. For the purposes of determining the net
corporate assets, securities are valued, as of the market close New York time,
on the basis of the last sale (if a sale occurred that day). If no sale occurred
that day, securities traded on a national securities exchange are valued at the
last bid price, whereas securities traded on the Nasdaq National Stock Market,
Inc. or in the over-the-counter market are valued at the mean between the last
bid and asked price, in all cases excluding brokerage commissions and odd lot
premiums.
DISTRIBUTION POLICY AND TAX STATUS
The Fund follows a policy of distributing substantially all income on a
quarterly basis to shareholders; it distributes realized capital gains,
including both long-, mid- and short-term, if any, on an annual basis to
shareholders.
As an investment company, and so long as certain diversification of assets
and source of income requirements prescribed by the Internal Revenue Code are
met and at least 90% of its "investment company taxable income" plus certain
other amounts are distributed to its shareholders, the Fund is allowed to deduct
certain dividends paid to shareholders and "pass through" the tax character of
certain dividends and long-term and mid-term capital gains to shareholders who
receive dividend distributions. The Fund always has qualified for such tax
treatment (including with respect to the last fiscal year) and intends to
continue to do so.
Distributions from dividend and interest income, including short-term
capital gains, whether paid in cash or reinvested in shares, are taxable to
shareholders as ordinary income for federal income tax purposes.
Long-term and mid-term capital gains distributions, whether paid in cash or
reinvested, will be taxable, for federal income tax purposes, as long-term and
mid-term capital gains to shareholders regardless of the length of time Fund
shares have been owned by shareholders, but will not be eligible for the
dividends received deduction generally available to corporate shareholders. If
the net asset value of shares should be reduced below a shareholder's cost by
distribution of gain realized on sale of securities, such distribution would be
a return of investment, the shareholder's basis in the Fund's shares would
remain unchanged and the distribution would be taxable as stated above.
Accordingly, it may not necessarily be advantageous for a shareholder to
purchase shares in anticipation of the payment of dividends or of capital gain
distributions.
Pursuant to the Taxpayer Relief Act of 1997, an individual's net long-term
capital gains are taxed at a maximum rate of 20%, and an individual's net
mid-term capital gains on property owned for less than 18 months but more than
12 months are taxed at a maximum rate of 28%, while an individual's ordinary
income and net short-term capital gains on property held for less than 12 months
are taxed at a maximum rate of 39.6%. However, a corporation's net long-term
capital gains continue to be taxed at the corporate ordinary income tax rate,
which is 35%.
9
<PAGE>
The preceding discussion is based on the Internal Revenue Code of 1986, as
amended, regulations, rulings and decisions in effect on the date of this
Prospectus, all of which are subject to change. This summary does not discuss
any aspect of state, local or foreign taxation and does not discuss all the tax
considerations that may be relevant to particular shareholders in light of their
personal investment circumstances, or to certain types of shareholders that may
be subject to special tax rules. Shareholders should consult their own tax
advisors concerning the application to distributions of federal, state, local,
foreign or other tax laws.
REDEMPTION OF SHARES
SELLING YOUR SHARES. You may redeem all or a portion of your shares on any
day that the New York Stock Exchange is open. Your shares will be redeemed at
the next net asset value calculated after the Transfer Agent has received a
properly executed redemption request. Payment for shares will be made as
promptly as practicable but in no event later than seven days after receipt of a
properly executed request. When the Fund is requested to redeem shares for which
it may not have yet received good payment, it may delay the mailing of a
redemption draft until it has determined that collected funds have been received
for the purchase of such shares, which may take up to 15 days from the purchase
date.
SELLING BY TELEPHONE. If the proceeds of the redemption are $50,000 or less
and the proceeds are to be payable to the shareholder(s) of record and mailed to
the address of record, normally a telephone request by any one account owner is
sufficient for redemptions unless the account application has denied such
privilege. Telephone requests may be made by calling 1-800-939-9990.
Institutional account owners may exercise this special privilege of redeeming
shares by telephone request subject to the same conditions as individual account
owners provided that this privilege has been pre-authorized by the institutional
account owner by written instruction to the Transfer Agent with signatures
guaranteed. This privilege of redeeming shares by telephone request may not be
used if any address change for the shareholder's account has been effected
within 30 days of the redemption request. During periods when it is difficult to
contact the Transfer Agent by telephone, it may be difficult to implement the
telephone redemption privilege. The Fund reserves the right to terminate or
modify this privilege at any time. Additional information concerning telephone
redemptions appears under the section entitled "Important Information."
EXPEDITED WIRE REDEMPTION. If you give authorization for expedited wire
redemption, shares of the Fund can be redeemed and the proceeds sent by Federal
wire transfer to a single previously designated bank account. Requests received
by the Transfer Agent prior to the close of the Exchange (currently 4:00 p.m.
Eastern time) will result in shares being redeemed that day at the next
determined net asset value of the Fund and normally the proceeds being sent to
the designated bank account the following business day. Delivery of the proceeds
of a wire redemption request of $250,000 or more may be delayed by the Fund for
up to 7 days if the Investment Advisor deems it appropriate under then current
market conditions. Once authorization is on file, the Transfer Agent will honor
requests by telephone at 1-800-939-9990. The Fund cannot be responsible for the
efficiency of the Federal wire system or the shareholder's financial
institution. The Fund currently charges $20 for wire transfer of redemption
proceeds. The shareholder is responsible for any charges imposed by the
shareholder's bank. The minimum amount that may be wired is $2,500. The Fund
reserves the right to change this minimum or to terminate the wire redemption
privilege. To change the name of the
10
<PAGE>
single designated bank account to receive wire redemption proceeds, it is
necessary to send a written request with signatures guaranteed to the Transfer
Agent. During periods when it is difficult to contact the Transfer Agent by
telephone, it may be difficult to implement the expedited redemption privilege.
SELLING BY MAIL. When shares are held for the account of a shareholder by
the Transfer Agent, the shareholder may redeem them by making a written request
to the Transfer Agent, Attention: Redemption Department, PO. Box 419249, Kansas
City, Missouri 64105-6249. If the proceeds of the redemption are $50,000 or less
on an account, no signature guarantee will be required, unless a change in
address for the shareholder's account has been effected within 30 days of the
redemption request. For all other redemptions, signatures must be guaranteed by
a bank, broker/dealer, municipal securities broker, government securities dealer
or broker, credit union, savings association, national securities exchange,
registered securities association or clearing agency. The purpose of a signature
guarantee is to protect shareholders against the possibility of fraud. The
Transfer Agent may reject redemption instructions if the guarantor is neither a
member of nor a participant in a signature guarantee program (currently known as
"STAMP-SM-"). Guarantees from institutions or individuals who do not provide
reimbursement in case of fraud, such as notaries public, will not be accepted.
Further documentation may be requested from institutional or fiduciary accounts,
such as corporations, custodians (e.g., under the Uniform Gifts to Minors Act),
executors, administrators, trustees or guardians ("institutional account
owners"). The redemption request must be signed by all registered owners exactly
as the account is registered, including any special capacity of the registered
owner. The Fund currently charges for actual costs of special delivery service
of redemption proceeds.
IMPORTANT INFORMATION. The Transfer Agent employs procedures designed to
confirm that instructions communicated by telephone are genuine, including
requiring certain identifying information prior to acting upon instructions,
recording all telephone instructions and sending written confirmations of
telephone instructions. To the extent such procedures are reasonably designed to
prevent unauthorized or fraudulent instructions, neither the Transfer Agent nor
the Fund would be liable for any losses from unauthorized or fraudulent
instructions. However, if such reasonable procedures are not followed, the
Transfer Agent and the Fund may be liable for losses due to unauthorized
telephone transactions.
MINIMUM ACCOUNT BALANCE REQUIREMENT. Because of the high cost of
maintaining small accounts, the Fund reserves the right to redeem a shareholder
account that falls below the minimum investment level, currently $1,500, unless
the shareholder account falls below the minimum due to changes in the market
value of the portfolio. Currently, Individual Retirement Accounts, employee
benefit plan accounts, Employer Sponsored Payroll Deduction Plans and other
accounts with respect to which the Investment Advisor, in its sole discretion,
has waived the minimum purchase amount, are not subject to this procedure. You
will be notified in writing and will be allowed 60 days to make additional
purchases to bring the account value up to the minimum investment level before
the Fund redeems the account.
SHAREHOLDER SERVICES
The following shareholder services are offered by the Fund. For further
information regarding the details of these services, see the Statement of
Additional Information or contact the Fund.
11
<PAGE>
LOW MINIMUM INITIAL INVESTMENT PLAN/AUTOMATIC INVESTMENT PLAN. A
shareholder may automatically purchase additional shares of the Fund through the
Low Minimum Initial Investment Plan or Automatic Investment Plan. The minimum
initial investment in the Fund is $1,500. However, the Low Minimum Initial
Investment Plan allows an account to be opened with an initial investment of
$100 and subsequent monthly investments of $100 or more for a one year period.
Under these Plans, monthly investments (minimum $100, except where reduced in
certain cases by the Fund) are made automatically from the shareholder's account
at a bank, savings and loan or credit union into the shareholder's account. By
enrolling in either Plan, the shareholder authorizes the Fund and its agents to
either draw checks or initiate Automated Clearing House debits against the
designated account at a bank or other financial institution. Such account must
have check or draft writing privileges. This privilege may be selected by
completing the appropriate section on the Account Application or by contacting
the Transfer Agent for appropriate forms. If the shareholder also has expedited
wire transfer redemption privileges, the same bank, savings and loan or credit
union account must be designated for both the Automatic Investment Plan and the
wire redemption programs. You may terminate your Plan by sending written notice
to the Transfer Agent. Termination by a shareholder will become effective within
five days after the Transfer Agent has received the written request. The Fund
may immediately terminate a shareholder's Plan in the event that any item is
unpaid by the shareholder's financial institution. The payment of proceeds from
the redemption of Fund shares purchased through the Automatic Investment Plan
may be delayed to allow the check or transfer of funds for payment of the
purchase to clear, which may take up to 15 calendar days from the purchase date.
If a shareholder cancels the Low Minimum Initial Investment Plan before a one
year period, the Fund reserves the right to redeem the shareholder's account if
the balance is below the minimum investment level, currently $1,500. The Fund
may terminate or modify this privilege at any time.
IRA PLAN, ROTH IRA, SEP-IRA PLAN, AND SIMPLE IRA PLANS. An Individual
Retirement Account ("IRA") is available for all working individuals who receive
compensation for services rendered. The so-called "Roth IRA" is also available
to individuals within certain income limits, which allows nondeductible
contributions to be made to the IRA and thereafter, all accumulations in the IRA
(earnings, dividends and appreciation) to be withdrawn tax free. A $12 per year
maintenance fee is imposed on IRA accounts. In addition, individuals covered by
an employer sponsored Savings Incentive Match Plan for employees ("SIMPLE Plan")
or Simplified Employee Pension-IRA Plan ("SEP-IRA Plan") may establish an IRA to
which the employer can make tax deductible contributions as a uniform percentage
of compensation. SIMPLE Plans are a form of qualified retirement plan authorized
by tax law changes in 1996 that are available to employers who employ 100 or
fewer employees and replaces a salary reduction SEP-IRA ("SARSEP") and may be
established after January 1, 1997. No new SARSEP Plans may be established after
December 31, 1996. A SIMPLE Plan also permits employees to make tax deductible
contributions out of their compensation. An IRA established pursuant to a SARSEP
Plan or SIMPLE Plan may invest in the Fund.
EMPLOYER SPONSORED QUALIFIED RETIREMENT PLANS. Employer sponsored pension
and profit sharing plans and their related trusts that are qualified under the
Internal Revenue Code, including so-called Section 401(k) salary reduction
plans, may invest in the fund.
AUTOMATIC WITHDRAWAL PLAN. The owner of $10,000 or more of Fund shares at
net asset value may provide for the payment from the owner's account of any
requested dollar amount of $100 or more to be paid to the owner or a designated
payee monthly, quarterly, semi-annually or annually. Shares are redeemed on the
5th business day from the end of the month so that the payee will receive
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<PAGE>
payment approximately the first week of the following month. When receiving
payments under the Automatic Withdrawal Plan, any income and capital gain
dividends will be automatically reinvested at net asset value on the
reinvestment date. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may reduce or even exhaust
the account.
The Fund reserves the right to amend the Automatic Withdrawal Plan on thirty
days written notice and to terminate this privilege at any time. The plan may be
changed or terminated at any time by you in writing, with all registered owners'
signatures guaranteed. Additional information concerning signature guarantees
appears under the section entitled "REDEMPTION OF SHARES -- SELLING BY MAIL."
GENERAL INFORMATION
CAPITAL STOCK
General Securities, Incorporated is authorized to issue 10 million shares of
the nominal par value of one cent per share. On March 2, 1998, there were
2,942,623 shares outstanding. All shares are fully paid, nonassessable, and
transferable and have equal rights in earnings, in voting and on liquidation.
There are no junior or senior securities and no preemptive rights. No securities
senior to the shares of common stock can be issued.
The shares have noncumulative voting rights which means that the holders of
more than 50% of the shares voting for the election of directors can elect 100%
of the directors if they choose to do so, and, in such event, the holders of the
remaining less than 50% of the shares voting for the election of directors will
not be able to elect any person or persons to the Board of Directors.
INVESTMENT ADVISOR, MANAGER, UNDERWRITER AND DISTRIBUTOR
Robinson Capital Management, Inc. acts as the Fund's Investment Advisor and
its Administrator. The Fund acts as its own underwriter and distributor of its
shares.
CUSTODIAN AND TRANSFER AGENT
All securities and cash are deposited with Investors Fiduciary Trust
Company, as Custodian. The Custodian has no supervision over management in such
matters as the purchase and sale of securities and the payment of dividends.
IFTC also acts as the Fund's Registrar and Transfer Agent.
LEGAL COUNSEL
Lindquist & Vennum PLLP, Minneapolis, Minnesota, are counsel for the Fund.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors of the
Fund. The selection of independent auditors is subject to annual ratification by
the Fund's Board of Directors.
13
<PAGE>
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on November 30 of each year. The Fund will
send to its shareholders, at least semiannually, reports showing its portfolio
securities and other information. An annual report containing financial
statements audited by the Fund's independent auditors will be sent to
shareholders each year.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
ADDITIONAL INFORMATION
The Fund has filed with the Securities and Exchange Commission in
Washington, D.C. a Registration Statement under the Securities Act of 1933 and
the Investment Company Act of 1940 with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, as permitted by the rules and regulations of the
Commission. The Statement of Additional Information included in the Registration
Statement may be obtained by calling or writing the Fund or Robinson Capital at
the address and telephone number set forth on the cover page of this Prospectus.
For further information pertaining to the Fund and the shares offered hereby,
reference is made to the Registration Statement and the exhibits thereto, which
may be examined without charge at the Public Reference Room of the Commission at
450 Fifth Street, N.W, Washington, D.C. 20549, and copies thereof may be
obtained from the Commission upon payment of the prescribed fees. In addition,
the Commission maintains a Website at http://www.sec.gov that contains this
Prospectus, the Statement of Additional Information and certain other electronic
filings made by the Fund with the Commission.
14
<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------
CONTENTS
<TABLE>
<S> <C>
Prospectus Summary........................................................ 2
Financial Highlights...................................................... 4
Investment Objectives and Policies........................................ 5
Management of the Fund.................................................... 5
Purchase of Shares........................................................ 7
Distribution Policy and Tax Status........................................ 9
Redemption of Shares...................................................... 10
Shareholder Services...................................................... 11
General Information....................................................... 13
</TABLE>
- --------------------------------------------------------------------------------
GENERAL SECURITIES is the registered service mark of General Securities,
Incorporated
PRESIDENT John P. Robinson
VICE PRESIDENTS Mark D. Billeadeau
Winfield S. Holland III
Craig H. Robinson
SECRETARY John R. Houston
DIRECTORS John P. Robinson,
CHAIRMAN
M. Michelle Coady, Ph.D.
Gary D. Floss
David W. Preus
LaVerne W. Rees
Oscar Victor
Charles J. Walton
Arnold M. Weimerskirch
James S. Womack
----------
INVESTMENT Robinson Capital
ADVISOR AND Management, Inc.
MANAGER
CUSTODIAN, REGISTRAR Investors Fiduciary Trust
AND TRANSFER AGENT Company
GENERAL COUNSEL Lindquist & Vennum PLLP
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
LOGO
GENERAL SECURITIES
INCORPORATED
5100 EDEN AVENUE, SUITE 204, EDINA, MINNESOTA 55436
PROSPECTUS
-------------------------------------------
LOGO
FOCUS ON
----
TQM
----
TOTAL QUALITY
MANAGEMENT
COMPANIES
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 31, 1998
GENERAL SECURITIES, INCORPORATED
5100 Eden Avenue, Suite 204, Edina, Minnesota 55436
Telephone (612) 927-6799
General Securities, Incorporated (the "Fund") is a diversified open-end
management investment company which seeks possible long-term capital
appreciation and preservation of capital for its shareholders with reasonable
risk. The Fund invests primarily, but not exclusively, in selected common
stocks. Shares of the Fund may be purchased directly from the Fund at a price
equal to the net asset value, as determined at the close of business immediately
following receipt by the Fund of a subscription.
This Statement of Additional Information provides certain detailed
information concerning the Fund. It is not a prospectus and should be read in
conjunction with the Fund's current Prospectus, a copy of which may be obtained
by telephone or written request to the Fund at the address and telephone number
printed above.
This Statement of Additional Information relates to the Fund's Prospectus
dated March 31, 1998.
-------
TABLE OF CONTENTS
Page
----
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . 2
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Advisory, Management and Distribution
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . 9
Calculation of Performance Data. . . . . . . . . . . . . . . . . . . . 10
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . 11
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 15
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
As described in the Fund's Prospectus, the Fund's investment objective is
to select securities with a view to possible long-term capital appreciation and
preservation of capital. Consistent with that objective, the Fund believes
companies implementing a Total Quality Management ("TQM") approach or using
Continuous Quality Improvement ("CQI") practices throughout the company are, in
general, best positioned for superior growth. The Fund intends to invest most
of its assets in common stocks, although investments in corporate bonds,
debentures or preferred stocks and United States Government Securities, in
addition to certificates of deposit, bank depository accounts and other
short-term investments, have and will be made as economic conditions dictate.
In order to define its investment policies, the Fund has established
certain rules and guidelines. Some have been voluntarily adopted and others
have been required to meet either federal or state statutes. As indicated, some
policies are in the form of fundamental policies or charter restrictions which
may be changed only with the approval of a majority of the Fund's outstanding
voting securities while others are subject to change by the Board of Directors.
Without the affirmative vote of the lesser of (i) a majority of all outstanding
shares of the Company, or (ii) 67% or more of the Company's shares represented
at a meeting if more than 50% of all outstanding shares of the Company are
represented in person or by proxy at such meeting, the Fund may not, among other
things,:
1. Buy "on margin" or sell "short";
2. Borrow money;
3. Issue securities senior to the outstanding shares of common stock;
4. Act as underwriter;
5. Invest more than 5% of the value of its total assets (taken at cost)
in the securities of any one company, or purchase more than 10% of any
class of voting securities or more than 10% of any class of securities
of any one company;
6. Invest more than 25% of the value of its total assets (taken at cost)
in the securities of companies all of which conduct their principal
business activities in the same industry;
7. Invest in commodities or commodity contracts, or interests in real
estate;
8. Lend money or assets;
2
<PAGE>
9. Purchase or retain the securities of any issuer if those officers and
directors of the Fund or the advisor owning beneficially more than
1/2 of 1% of the securities of such issuer together own more than 5%
of the securities of such issuer;
10. Purchase the securities of any other investment company; or
11. Invest in companies for the purpose of exercising control or
management.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The directors and officers of the Fund are listed below together with their
addresses and information as to their principal business occupations during the
last five years (if other than their present business occupations) and other
current business affiliations, including affiliation with the investment
advisor.
*JOHN P. ROBINSON, age 77, Chairman of the Board of Directors and President
of the Fund, 5100 Eden Avenue, Suite 204, Edina, Minnesota 55436. He is
President and Treasurer of Robinson Capital. He is the father of Craig H.
Robinson.
M. MICHELLE COADY, Ph.D., age 39, Director of the Fund, 3236 48th Avenue
South, Minneapolis, Minnesota 55406. She is Director of Client Services, Major
Markets, at St. Paul Fire and Marine Companies, a St. Paul-based property and
casualty insurer. From 1991 to 1994, Dr. Coady was Senior Director of
Continuous Quality Improvement at HealthPartners, Inc., Minneapolis, Minnesota.
She is also the proprietor of a consulting business since 1985.
GARY D. FLOSS, age 56, Director of the Fund, 1444 18th Street, N.W., New
Brighton, Minnesota 55112. He is Director of Customer-Focused Quality for
Medtronic Corporation, a Minneapolis, Minnesota manufacturer of medical
devices. From 1990-1997 he was Vice President, Quality & Productivity for
Consulting Devices International, a business unit of Ceridian Corporation.
Ceridian Corporation is a Minneapolis, Minnesota provider of information
services in the human resources and transportation areas.
DAVID W. PREUS, age 75, Director of the Fund, 60 Seymour Avenue S.E.,
Minneapolis, Minnesota 55414. He is the Presiding Bishop Emeritus of The
American Lutheran Church and a Distinguished Visiting Professor at Luther
Northwestern Theological Seminary, St. Paul, Minnesota.
- ------------------------------
*Designates director who is an "interested person" with respect to the Fund
as defined in the Investment Company Act of 1940.
3
<PAGE>
LAVERNE W. REES, age 77, Director of the Fund, 13 Lily Pond Road, North
Oaks, Minnesota 55110. He is a business consultant.
OSCAR VICTOR, age 78, Director of the Fund, 3917 W. 24th Street,
Minneapolis, Minnesota 55416. He is currently retired and the former President
of Vic Research and Development Incorporated, a Minneapolis, Minnesota provider
of consulting services. He is also the former Chief Executive Officer of Vic
Manufacturing Co. Incorporated, a manufacturer of commercial dry cleaning and
air pollution control equipment. He serves on the Board of Directors of Check
Technology Corporation and Fidelity Bank.
CHARLES J. WALTON, age 74, Director of the Fund, 653 S.W. Thorn Hill Lane,
Palm City, Florida 34990. He is President of Walton Enterprise Leasing Co., a
Minneapolis, Minnesota automobile, truck and equipment leasing corporation.
ARNOLD M. WEIMERSKIRCH, age 61, Director of the Fund, 2831 Sandpiper Trail,
Excelsior, Minnesota 55331. He is Vice President for Corporate Quality for
Honeywell, Inc., a Minneapolis, Minnesota manufacturer of temperature control
systems and avionics.
JAMES S. WOMACK, age 69, Director of the Fund, 9905 Oak Shore Drive,
Lakeville, Minnesota 55044. He is Chairman of the Board of Sheldahl, Inc., a
Northfield, Minnesota manufacturer of electronic materials and circuitry.
MARK D. BILLEADEAU, age 41, Vice President of the Fund, 5100 Eden Avenue,
Suite 204, Edina, Minnesota 55436. He has served as a Vice President of
Robinson Capital since February 1995. From September 1990 to February 1995, he
was a Manager of Consulting Service of Craig-Hallum and its successor, Principal
Financial Services, Inc.
WINFIELD S. HOLLAND III, age 53, Vice President of the Fund, 5100 Eden
Avenue, Suite 204, Edina, Minnesota 55436. He was a registered representative
of Hamilton Investments, Inc. from July 1993 through November 1994 and prior to
July 1993 was a registered representative and Vice President of Craig-Hallum,
Inc.
JOHN R. HOUSTON, age 45, Secretary of the Fund, 4200 IDS Center,
Minneapolis, Minnesota 55402. He is a partner of Lindquist & Vennum P.L.L.P.,
legal counsel for the Fund.
CRAIG H. ROBINSON, age 40, Vice President of the Fund, 5100 Eden Avenue,
Suite 204, Edina, Minnesota 55436. He has worked in sales and marketing at
Robinson Capital since August 1995 and is Vice President of Robinson Capital
since February 1997. From August 1994 to August 1995, he worked as an Account
Executive at Paine Webber Incorporated. From 1990 to August 1994, he worked as
a Sales Manager at Comprehensive Loss Management, Inc. He is the son of John P.
Robinson.
4
<PAGE>
On March 2, 1998, the officers and directors owned 66,420 shares, or 2.2%
of the total number of the Fund shares outstanding.
REMUNERATION OF OFFICERS AND DIRECTORS
The Fund does not pay any remuneration directly to its officers, but
compensation of officers and employees is paid by Robinson Capital
Management, Inc., its current investment advisor, and fees for legal services
to the Fund are paid by the Fund to the law firm in which the Fund's
Secretary is a partner. During the last fiscal year, the Fund paid Robinson
Capital Management, Inc., a Minnesota corporation, its investment advisor for
the year, $289,638 for investment advisory services.
The directors who have no substantial interest in the investment advisor or
its affiliates (Dr. Coady and Messrs. Floss, Preus, Rees, Victor, Walton,
Weimerskirch and Womack) receive a nominal honorarium from the Fund for each
directors' meeting attended (an aggregate of $9,147 during the last fiscal
year).
INVESTMENT ADVISORY, MANAGEMENT AND DISTRIBUTION SERVICES
Robinson Capital Management, Inc. ("Robinson Capital"), a Minnesota
corporation with offices at 5100 Eden Avenue, Suite 204, Edina, Minnesota 55436,
is the Investment Advisor for the Fund and provides the Fund with professional
investment supervision and management. Robinson Capital is an investment
advisory firm controlled by John P. Robinson who has acted as the Fund's
President and has served on the Board of Directors since the Fund's inception in
1951.
Pursuant to an Investment Advisory Agreement which was approved by the
Fund's shareholders on March 3, 1995, Robinson Capital provides the Fund all
necessary information, advice, recommendation services and determinations
relating to investments and portfolio management. Orders for securities are
placed by Robinson Capital with the view to obtaining the best combination of
price and execution available. Robinson Capital attempts to evaluate the
overall quality and reliability of the broker-dealers and the services provided,
including research services, general execution capability, reliability and
integrity, willingness to take a position in securities, general operational
capabilities and financial condition. Robinson Capital is authorized to place
orders with various broker-dealers, subject to all applicable legal
requirements. Robinson Capital may also place orders with broker-dealers that
sell the Fund's shares, provided Robinson Capital believes the price and
execution are comparable to other broker-dealers. A greater spread, discount or
commission may be paid to broker-dealers that provide research services which
may be used by Robinson Capital in managing assets of its clients, including the
Fund. Although it is believed that research services received directly or
indirectly benefit all of Robinson Capital's clients, the degree of benefit
varies by account and is not directly related to the commissions or remuneration
paid by the account.
5
<PAGE>
As compensation for its services under the Investment Advisory
Agreement, Robinson Capital is paid an investment advisory management fee,
payable monthly, at an annual rate of 0.60% for average net assets up to and
including $100 million, 0.35% for the next $150 million of average net assets
and 0.10% for net assets over $250 million. For the fiscal years ended
November 30, 1997, 1996 and 1995, the advisory fees paid Robinson Capital
were $289,638 and $225,164, and $183,570 respectively.
Robinson Capital also provides the Fund with non-investment advisory
management and administrative services necessary for the conduct of the Fund's
business pursuant to a Management Agreement which was approved by the Fund's
shareholders on March 3, 1995. Robinson Capital prepares and updates securities
registration statements and filings, shareholder reports and other documents.
In addition, Robinson Capital provides office space and facilities for the
management of the Fund and provides accounting, record-keeping and data
processing facilities and services. Robinson Capital also provides information
and certain administrative services for shareholders of the Fund. For managing
the business affairs and providing certain shareholder services pursuant to the
Management Agreement, the Fund pays Robinson Capital an administrative fee,
payable monthly, at an annual rate of 0.40% of the average daily net assets of
the Fund, plus out-of-pocket expenses incurred in connection with shareholder
servicing activities such as postage, data entry, stationery, tax forms and
other printed material. Robinson Capital may subcontract with other entities to
provide certain shareholder servicing activities.
During the fiscal year ended November 30, 1997 the Fund paid total fees
to Robinson Capital amounting to $482,730. Of this amount, $289,638 was paid
for investment advisory services and $193,092 was paid for non-investment
management or administrative services. For the fiscal year ended November
30, 1996, Robinson Capital received $375,273 in total advisory and management
fees from the Fund. Of this amount, $225,164 was paid for investment
advisory services and $150,109 was paid for non-investment management or
administrative services. For the fiscal year ended November 30, 1995,
Robinson Capital received $305,950 in total advisory and management fees from
the Fund. Of this amount, $183,570 was paid for investment advisory services
and $122,380 was paid for non-investment management or administrative
services.
The Fund's total net assets at the beginning and end of fiscal 1997 were
$39,974,254 and $46,005,599, respectively. The combined advisory management
fees and non-investment management and administrative fees of 1% on the first
$100 million of the Fund's net assets and 3/4 of 1% on the next $150 million of
the Fund's net assets are higher than similar fees paid by most mutual funds,
many of which have net assets that are substantially larger than the net assets
of the Fund.
6
<PAGE>
The Fund pays the investment advisory management fee, administrative fee,
shareholder services expenses, transaction costs, interest, taxes, legal,
accounting, audit, transfer agent and custodial fees, brokerage commissions and
other costs incurred in buying and selling assets, fees paid to directors not
affiliated with Robinson Capital, the cost of stationery and envelopes, the cost
of qualification and registration of shares under state and federal laws, the
cost of solicitation of proxies and certain other operational expenses.
However, Robinson Capital is obligated to pay all Fund expenses (exclusive of
brokerage expenses and fees, interest and any federal or state income taxes)
which exceed 1-1/2% of the Fund's average net assets for any fiscal year on the
first $100 million of average net assets, 1-1/4% of the Fund's average net
assets for any fiscal year on the next $150 million of average net assets, and
1% of the Fund's average net assets for any fiscal year on average net assets in
excess of $250 million. For the fiscal year ended November 30, 1997, total
expenses of the Fund amounted to $696,963, or 1.44% of average net assets. For
the fiscal year ended November 30, 1996, total expenses of the Fund amounted to
$571,297 of which $8,514 was reimbursed by Robinson Capital. Net expenses to
the Fund for the year ended November 30, 1996 were $562,783, or 1.50% of average
net assets. Net expenses to the Fund for the year ended November 30, 1995 were
$459,419, or 1.50% of average net assets.
Each of the Investment Advisory Agreement and Management Agreement will
continue in force from year to year so long as the continuance is specifically
approved at least annually (1) by the Board of Directors of the Fund or (2) by a
vote of the majority of the outstanding voting securities of the Fund, provided
that in either event the continuance is also approved by the vote of a majority
of directors who are not interested persons of the Fund or Robinson Capital,
cast in person at a meeting called for the purpose of voting on such approval.
Each of the Investment Advisory Agreement and Management Agreement may be
terminated at any time, without the payment of any penalty, by the Board of
Directors of the Fund, by a vote of the majority of the Fund's outstanding
voting securities, or by Robinson Capital on 60 days' written notice. They each
terminate automatically in the event of an assignment.
The Fund serves as its own underwriter and distributor of its shares.
Investors Fiduciary Trust Company ("IFTC"), 1004 Baltimore, 7th Floor, P.O.
Box 419249, Kansas City, Missouri 64105-6249, currently serves as the Fund's
Transfer Agent and Dividend Paying Agent and Custodian. IFTC, which is not
affiliated with either the Fund or Robinson Capital, maintains the Fund's
shareholder records and assets and performs certain accounting services for the
Fund. Assets of the Fund may also be held by sub-custodians selected by IFTC
and approved by the Board of Directors.
BROKERAGE
During the past fiscal year, the Fund had total purchases of portfolio
securities, other than short-term securities, of $7,179,162 and sales of such
securities of $12,455,518, resulting in portfolio turnover in that year of 20%,
compared with 18% during fiscal 1996 and 24% during fiscal 1995. The Fund's
total net assets at the beginning of fiscal 1997 were $39,974,254 and
$46,005,599 at the
7
<PAGE>
end of the year. The total amount of brokerage fees for handling portfolio
transactions of the Fund during the three fiscal years ended November 30, 1997,
1996, and 1995 were $23,060, $24,420 and $51,082, respectively.
The Fund's brokerage business is distributed among various brokers and
dealers, and the allocation is determined primarily at the discretion of the
investment advisor. The Fund always seeks to effect its transactions in
portfolio securities where it can get prompt execution of orders at the most
favorable prices ("best execution"). The commissions charged by brokers and
dealers vary and the Fund is not required by law to utilize the services of
national securities exchange members or other brokers or dealers charging the
lowest commission for any particular transaction.
It is the practice of the Fund and its Investment Advisor to consider
statistical and factual information, as well as reports on general market
conditions, industry analysis and analysis of particular companies whose
securities are publicly traded, furnished to them by investment banking firms as
a factor in connection with allocation of brokerage business to such firms,
provided the best execution is still obtained. Such services are generally
provided to the investment advisor, to the extent that such services are used by
it in rendering investment advice to the Fund, they tend to reduce the advisor's
expenses. During fiscal 1997, certain brokers rendered research services to the
Fund and in exchange for such services the Fund directed brokerage transactions
to them. However, such placement of brokerage transactions was not pursuant to
binding written agreement with such brokers. The aggregate amount of such
transactions was $16,367,396; the aggregate amount of related commissions was
$23,060.
Where the concept of best execution is satisfied by two brokers and one
broker charges a lower commission but does not provide such services, the
advisor has indicated that it may place its orders with the broker charging a
higher commission where the amount of such commission is reasonable in relation
to the value of the brokerage and research services provided. If the investment
advisor purchases such information its expenses will increase without
reimbursement from the Fund. If it is concluded that it would be impractical
for the advisor to attempt to provide the full range of services which are
available from brokerage firms or if the advisor deems that it cannot afford
purchasing such information and services, it may become necessary to pay a
higher level of commissions to firms offering these services. The advisor will
not institute such a policy without the prior authorization of its Board of
Directors, however, and any such payments will be reviewed by the directors on
at least a quarterly basis.
The Fund made no allocation of brokerage business during the last fiscal
year to those dealers and brokers who were sellers of the Fund's shares and no
reciprocal brokerage business was received by the advisor. When appropriate,
the advisor may make brokerage allocation to sellers of Fund shares in the
current fiscal year. Purchases and sales of securities which are not listed or
traded on a securities exchange will ordinarily be executed with primary market
makers acting as principals, except where best execution may otherwise be
obtained.
8
<PAGE>
Robinson Capital is not registered as a broker/dealer and, consequently,
did not in either fiscal 1996 or 1997, and will not in fiscal 1998, be acting as
broker in the execution of any orders for the Fund. The prior Investment
Advisory Agreement permitted Hamilton Investments to act as broker in executing
orders for the purchase and sale of securities in the Fund's portfolio but only
if commissions charged did not exceed customary charges for such services. Such
charges, if made, would not exceed the minimum charges for similar services
provided to its most favored customers. In the past, most of the portfolio
transactions have been executed by members of stock exchanges.
DETERMINATION OF NET ASSET VALUE
Shares of the Fund may be purchased at a price equal to their net asset
value. The net asset value of a Fund share is the proportionate interest of
each share (or fractional share) in the net corporate assets. Net asset value
varies as prices of portfolio securities fluctuate. It is computed not less
frequently than once daily. For the purposes of determining the net corporate
assets, securities are valued, as of the market close New York time, on the
basis of the last sale (if a sale occurred that day). If no sale occurred that
day, securities traded on a national securities exchange are valued at the last
bid price, whereas securities traded on the Nasdaq Stock Market, Inc. or in the
over-the-counter market are valued at the mean between the last bid and asked
price, in all cases excluding brokerage commissions and odd lot premiums.
Securities having no readily available market quotation and all other assets are
valued in good faith at fair value under the direction of the Board of
Directors.
Computation of net asset value as of November 30, 1997 is illustrated
below:
<TABLE>
<CAPTION>
<S> <C>
Market value of portfolio securities. . . . . . . . $50,298,783
Cash and receivables less liabilities . . . . . . . (4,293,184)
Net assets. . . . . . . . . . . . . . . . . . . . . 46,005,599
Number of shares outstanding. . . . . . . . . . . . 2,799,611
Net asset value per share (net assets
divided by shares outstanding) . . . . . . . . . . $ 16.55
</TABLE>
The net asset value used by General Securities, Incorporated in selling and
redeeming shares is that of the computation at the close of business immediately
following the receipt of a subscription for shares or of a request for
redemption.
9
<PAGE>
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Fund may refer to
"average annual total return" and "cumulative total return." Average annual
total return is computed by finding the average annual compounded rates of
return over the periods indicated in the advertisement that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
n
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period.
The average annual compounded total return on investments in the Fund for
the one, five and ten year periods ended December 31, 1997 were 13.2%, 14.3 %
and 14.4%, respectively.
Cumulative total return figures are computed by finding the cumulative
compounded rate of return over the period indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
(ERV - P)
CTR = --------100
P
Where:
CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period; and
P = initial payment of $1,000
The cumulative total return on investments in the Fund for the one, five
and ten year periods ended December 31, 1997 were 13.2%, 95.1% and 284.4%,
respectively.
The calculations for both average annual total return and cumulative total
return assume all dividends and all capital gain distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectus and include all recurring fees, such as investment advisory and
management fees, charged as expenses to all shareholder accounts.
10
<PAGE>
SHAREHOLDER SERVICES
LOW MINIMUM INITIAL INVESTMENT PLAN/AUTOMATIC INVESTMENT PLAN. A
shareholder may automatically purchase additional shares of the Fund through the
Low Minimum Initial Investment Plan or Automatic Investment Plan. The minimum
initial investment in the Fund is $1,500. However, the Low Minimum Initial
Investment Plan allows an account to be opened with an initial investment of
$100 and subsequent monthly investments of $100 or more for a one year period.
Under these Plans, monthly investments (minimum $100, except where reduction in
certain cases by the Fund) are made automatically from the shareholder's account
at a bank, savings and loan or credit union into the shareholder's account. By
enrolling in either Plan, the shareholder authorizes the Fund and its agents to
either draw checks or initiate Automated Clearing House debits against the
designated account at a bank or other financial institution. Such account must
have check or draft writing privileges. This privilege may be selected by
completing the appropriate section on the Account Application or by contacting
the Transfer Agent for appropriate forms. If the shareholder also has expedited
wire transfer redemption privileges, the same bank, savings and loan or credit
union account must be designated for both the Automatic Investment Plan and the
wire redemption programs. You may terminate your Plan by sending written notice
to the Transfer Agent. Termination by a shareholder will become effective
within five days after the Transfer Agent has received the written request. The
Fund may immediately terminate a shareholder's Plan in the event that any item
is unpaid by the shareholder's financial institution. The payment of proceeds
from the redemption of Fund shares purchased through the Automatic Investment
Plan may be delayed to allow the check or transfer of funds for payment of the
purchase to clear, which may take up to 15 calendar days from the purchase date.
If a shareholder cancels the Low Minimum Initial Investment Plan before a one
year period, the Fund reserves the right to redeem the shareholder's account if
the balance is below the minimum investment level, currently $1,500. The Fund
may terminate or modify this privilege at any time.
INDIVIDUAL RETIREMENT ACCOUNT (IRA PLAN), ROTH IRA, SEP-IRA PLANS AND
SIMPLE IRA PLANS. Any individual with earned income can establish an individual
retirement account (IRA) to provide retirement benefits to the individual. The
Fund offers an IRA Plan funded with shares of the Fund. The Fund's IRA Plan
follows the basic format of the Internal Revenue Service model plan, and
accordingly, upon submission to the Service for approval, the Fund was advised
that no further qualifying action was required by individuals adopting the IRA
Plan. Any person with earned income may establish his or her own IRA by
adopting the IRA Plan and may make annual contributions in an amount not
exceeding the lesser of 100% of his or her adjusted gross income or $2,000. An
individual can make an additional contribution of up to $2,000 to an IRA for a
nonworking spouse if the combined contributions for both the individual's and
his or her spouse's IRAs do not exceed 100% of the individual's or spouse's
adjusted gross income. Such contributions are tax deductible by all individuals
except those who are active participants, or whose spouses are active
participants, in a qualified employer sponsored profit sharing or pension plan.
For these individuals, the tax deduction is reduced or eliminated but income on
such contributions continues to be currently tax deferred. Minimum annual
distributions from the IRA are required beginning no later than April 1, of the
year following the year in which the individual attains age 70-1/2. Substantial
tax penalties
11
<PAGE>
exist for premature distributions from the IRA Plan prior to age 59-1/2 or for
failure to make timely distributions. The adoption of the IRA Plan should be
reviewed by the individual and his or her attorney prior to investing.
For tax years beginning after December 31, 1997, the IRA Plan may be used
by individuals to establish a so-called "Roth IRA." Contributions to a Roth IRA
are nondeductible; however, the accumulations on the contributions may be
withdrawn tax-free, provided the Roth IRA has been maintained for at least five
years and distributions are made only after the individual attains the age 59
1/2, dies, becomes disabled, or to pay for first time homebuying expenses. The
annual limit on contributions to a Roth IRA is $2,000; this limit is phased out
for single taxpayers with an adjusted gross income between $95,000 and $110,000,
or joint filers with adjusted gross income between $150,000 and $160,000.
Individuals with adjusted gross income of less than $100,000 may also contribute
to a Roth IRA, amounts distributed from a regular IRA that have been included in
the taxpayer's gross income, and a portion of the income tax payable on a
regular IRA distribution transferred to a Roth IRA during 1998 may be deferred
into the subsequent three years. Contributions to a Roth IRA may be made after
age 70-1/2 and distributions are not required to begin at age 70-1/2.
The IRA Plan may also be utilized by any person under age 70-1/2 to
maintain the tax-sheltered treatment of benefits distributed from an employer's
tax qualified pension plan because of the employee's termination of employment.
Benefits distributed in a lump sum or installments for a period less than ten
years can be invested in the IRA Plan, provided the employee elects either to
make a direct rollover from the trustee of the employee's plan to the IRA Plan,
or of the employee receives the distribution directly and invests in the IRA
Plan within 60 days of such receipt. In this manner, assets from the previous
employer's pension plan are reinvested, the tax consequences stemming from the
distribution are deferred, and the assets deposited in the IRA Plan, at the
option of the holder, may in the future be "rolled over" to a tax qualified
pension plan of a subsequent employer.
In addition, individuals covered by an employer sponsored Savings Incentive
Match Plan for employees ("SIMPLE Plan") or Simplified Employee Pension-IRA
Plan ("SEP-IRA Plan") may establish an IRA to which the employer can make tax
deductible contributions as a uniform percentage of compensation. The employer
sponsoring a SIMPLE Plan is required to make either a matching contribution of
100% of the employee's contributions up to 3% of the employee's compensation (1%
for certain years) or a uniform contribution to all eligible employees equal to
2% of compensation. The employer sponsoring the SEP-IRA may contribute up to
the lesser of $30,000 or 15% of the employee's compensation, up to a maximum
compensation of $160,000 for 1997. SIMPLE Plans are a form of qualified
retirement plan authorized by tax law changes in 1996 that are available to
employers who employ 100 or less employees. SIMPLE Plans are exempt from many of
the testing and other requirements imposed on qualified retirement plans. SIMPLE
Plans and certain salary reduction SEP-IRA Plans (SARSEP) in existence prior to
January 1, 1997 also permit employees to elect to contribute portions of their
pre-tax compensation to such plans in addition to the employer's contribution,
subject to the above limitations. No new SARSEP's may be established
12
<PAGE>
after December 31, 1996. Generally, such individual contributions are limited
to a maximum dollar amount of compensation each year ($6,000 for SIMPLE Plans
and $10,000 for SARSEP Plans for 1997). The employee covered by a SEP-IRA Plan
that prohibits individual pre-tax contributions may make additional
contributions of the lesser of $2,000 or 100% of compensation either to the
SEP-IRA Plan or to a separate IRA which may be deductible. An IRA established
pursuant to a SEP-IRA Plan or SIMPLE Plan may invest in the Fund.
Under the Fund's IRA Plan, IFTC serves as custodian of the assets. IFTC
will charge an annual maintenance fee of $12 for its custodial services. In
addition, there will be a fee of $15 for a lump sum benefit distribution, but no
fee for each periodic cash distribution received from the Fund. This fee
schedule may be altered at any time by IFTC on 60 days' written notice. Persons
opening an IRA Plan may rescind it upon written notice to the custodian on or
before the seventh day following acceptance of the IRA Plan by the custodian.
Any individual rescinding an IRA Plan during the seven-day period will be fully
reimbursed even though it is the Fund's practice to invest all proceeds
immediately upon receipt. If the proceeds so invested depreciate prior to
rescission, the investment advisor will absorb the loss. If the proceeds
invested appreciate, the Fund will realize the gain. To date there has not been
any rescission of an IRA Plan by any investor in the Fund. Shares held in an
IRA Plan may be redeemed at any time pursuant to a proper redemption request.
See "Redemption of Shares" in the Prospectus.
EMPLOYER SPONSORED QUALIFIED RETIREMENT PLANS. Employer sponsored pension
plans and their related trusts that are qualified under the Internal Revenue
Code, including so-called Section 401(k) salary reduction plans, may invest in
mutual funds such as General Securities, Incorporated. A SIMPLE Plan may be
established by an employer with 100 or less employees under which contributions
are made to a tax exempt trust (rather than individual IRAs as described above)
may also invest in the Fund. The employer sponsoring a SIMPLE Plan is required
to make either a matching contribution of 100% of the employee's contributions
up to 3% of the employee's compensation or a uniform contribution to all
eligible employees equal to 2% of compensation. Certain retirement plans permit
employees to elect to contribute portions of their compensation pre-tax to such
plans in addition to the employer's contribution, subject to the above limits.
Generally, such individual contributions are limited to a maximum dollar amount
of compensation each year ($6,000 for SIMPLE Plans and $10,000 for other
qualified profit sharing plans for 1998). Such qualified retirement plans may
also be established by self employed individuals for themselves and their
eligible employees, if any. These individuals may make annual tax deductible
contributions out of earned income to their self-employed plan, in amounts up to
the lesser of $30,000 or 15% of earned income (after such contributions) if the
contribution is discretionary (e.g., a profit sharing plan) or $30,000 or 25% of
earned income (after such contribution) if the contribution is fixed (e.g., a
pension plan) to purchase shares of the Fund. Prior to 1997, the Fund provided
a Self-Employed Retirement Plan document and Custodial Agreement for adoption by
self-employed individuals. After 1996, self-employed individuals are
responsible for amending the documents to maintain compliance with tax and other
laws, or adopting new documents to maintain compliance with such laws. Initial
and annual maintenance fees, withdrawal, termination and distribution fees are
charged by IFTC, the custodian bank, according to a schedule of fees established
in the Custodial Agreement.
13
<PAGE>
The fees are the same as the fees IFTC charges for IRA Plan services. The
custodian has reserved the right to increase fees for its services on 60 days'
written notice.
It is recommended that interested persons consult with an attorney and a
qualified trustee regarding the nature of such plans, including their tax
consequences and dollar limitations. Since such a retirement investment program
involves commitments covering future years and tax penalties for premature
distributions, it is important that the investor consider the investment
objectives of the Fund as described in the Prospectus and this Statement. The
Fund may elect to provide quarterly statements containing information regarding
transactions for the period covered in lieu of confirming each transaction to
persons making purchases pursuant to the IRA Plan, SEP-IRA, SIMPLE IRA or
employer sponsored qualified retirement plans.
AUTOMATIC WITHDRAWAL PLAN. The owner of $10,000 or more of Fund shares at
net asset value may provide for the payment from the owner's account of any
requested dollar amount of $100 or more to be paid to the owner or a designated
payee monthly, quarterly, semi-annually or annually. Shares are redeemed on the
5th business day from the end of the month so that the payee will receive
payment approximately the first week of the following month. When receiving
payments under the Automatic Withdrawal Plan, any income and capital gain
dividends will be automatically reinvested at net asset value on the
reinvestment date. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may reduce or even exhaust
the account.
The Fund reserves the right to amend the Automatic Withdrawal Plan on
thirty days' written notice and to terminate this privilege at any time. The
plan may be changed or terminated at any time by you in writing, with all
registered owners' signatures guaranteed. Additional information concerning
signature guarantees appears under the section entitled "Redemption of Shares -
Selling by Mail."
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
General Securities, Incorporated:
We have audited the accompanying statement of net assets of General
Securities, Incorporated as of November 30, 1997, and the related statement
of operations for the year then ended, the statements of changes in net
assets for each of the years in the two-year period then ended and the
financial highlights presented on page 4 of the prospectus for each of the
years in the ten-year period ended November 30, 1997. These financial
statements and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered,
we request confirmations from brokers and, where replies are not received, we
carry out other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of General Securities, Incorporated at November 30, 1997 and the
results of its operations for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the ten-year period ended November 30,
1997, in conformity with generally accepted accounting principles.
Minneapolis, Minnesota /s/ KPMG Peat Marwick LLP
December 29, 1997 -------------------------
KPMG Peat Marwick LLP
<PAGE>
TO THE SHAREHOLDERS OF
GENERAL SECURITIES
INCORPORATED
The recent market volatility has tested the mettle of many an investor. We've
talked to a number of clients over the past 6 months who wonder if they should
"get out" of the market. Of course, common sense tells us that selling when the
market is down is exactly the WRONG thing to do, but sometimes our emotions get
the better of us.
Even as professional money managers, we're not immune to "nerves." But if
experience has taught us anything, it's the time-tested value of maintaining a
firm long-term perspective, rather than responding emotionally to short-term
market swings. These hard-won lessons have been ingrained throughout our
Management Team, through consistent exposure to the philosophies and practices
of Jack Robinson, who has more than 40 years' experience managing money.
Multiple factors have contributed to the recent volatility of the markets: from
the Asian financial "crisis"; to profit-taking encouraged by the new capital
gains tax laws; to the impact of momentum investors. As we see it, market swings
caused by such factors (both up and down) are largely "irrational" - they have
little or no basis in the underlying strength of the companies we like to own.
Companies with strong underlying fundamentals (low debt, good cash flow, order
backlogs, etc.) will survive and thrive in the long run. In fact, when the
market takes an emotional downward swing, we are busy looking for stocks with
strong fundamentals that are surprisingly - and irrationally - underpriced. Down
markets often present buying opportunities - a sort of "Bargain Days" for fund
managers!
Looking back over the years, market corrections like the current one are not
uncommon - they tend to occur every 3 - 4 years. As an investor in GSI, you rely
on our firm to set emotions aside and evaluate GSI's holdings according to their
financial prospects - their ability to weather the "storm," to rebound from the
"artificial" price depression, and to continue strong growth.
For example, during the 1990 recession GSI took advantage of falling prices to
increase its holdings in stocks such as Hewlett Packard and Xerox. Both stocks
recovered and continued their strong growth. Today we still have them on our
books at a profit of more than $1.1 million each.
What are we doing in response to the current market correction? Again we're
increasing our holdings, this time in such companies as Zygo and Honeywell; and
we're also making new invest-
2
<PAGE>
ments in companies such as ADAC Laboratories. For a long-term investor, this is
what a "buying opportunity" looks like!
General Securities declared a fourth quarter dividend of $1.61 a share of which
$1.467 was from net long-term gains, and $.143 from net short-term capital gains
bringing total distributions for 1997 to $1.79. This is our One Hundred
Eighty-Sixth consecutive quarterly dividend paid.
John P. Robinson
President
PERFORMANCE
November 30, 1997
General Securities, Incorporated
The following graph was prepared assuming a hypothetical investment of $10,000
on December 1, 1987. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
[GRAPH] GENERAL SECURITIES, INC
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Nov-87 Nov-88 Nov-89 Nov-90 Nov-91 Nov-92 Nov-93 Nov-94 Nov-95 Nov-96 Nov-97
S&P 500 Index** $10,000 $12,321 $16,122 $15,564 $18,722 $22,175 $24,405 $24,660 $33,768 $43,170 $55,477
GSI* $10,000 $11,807 $14,531 $14,304 $19,132 $20,978 $22,144 $23,227 $30,463 $35,992 $41,059
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C>
+14.1% +14.4% +15.2%
</TABLE>
Past Perfomance is not indicative of future perfomance.
*These are the portfolios total returns during the period including reinvestment
of all dividend and capital gains distributions.
**This is an unmanaged index.
3
<PAGE>
STATEMENT OF NET ASSETS NOVEMBER 30, 1997
ASSETS
<TABLE>
<CAPTION>
Number of Market
shares value (a)
------------ -------------
INVESTMENT SECURITIES (percentages repre-
sent value of investments compared to total
net assets):
<S> <C> <C>
Common Stocks (76.93%):
Automotive (2.80%):
Ford Motor Company (d) . . . . . . . . . . . . . . . 30,000 $ 1,290,000
-------------
Auto Parts - Original Equipment (6.14%):
Dana Corp. (c) . . . . . . . . . . . . . . . . . . . 35,000 1,636,250
Tower Automotive (e) . . . . . . . . . . . . . . . . 30,000 1,188,750
-------------
2,825,000
-------------
Banking (3.35%):
Banc One (c) . . . . . . . . . . . . . . . . . . . . 30,000 1,541,250
-------------
Chemicals (2.62%):
Eastman Chemical Company (c) . . . . . . . . . . . . 20,000 1,207,500
-------------
Communications Equipment (2.72%):
Ortel Corp. (d), (e) . . . . . . . . . . . . . . . . 70,000 1,251,250
-------------
Electrical Machinery, Equipment
and Supplies (6.11%):
Grainger (W.W.), Inc. (d). . . . . . . . . . . . . . 30,000 2,808,750
-------------
Electronics (13.57%):
Intel Corp. (d). . . . . . . . . . . . . . . . . . . 20,000 1,552,500
Motorola, Inc. (c) . . . . . . . . . . . . . . . . . 8,000 503,000
Solectron Corp. (d), (e) . . . . . . . . . . . . . . 40,000 1,457,500
Xerox Corp. (c). . . . . . . . . . . . . . . . . . . 20,000 1,553,750
Zygo Corp. (d), (e). . . . . . . . . . . . . . . . . 55,000 1,175,625
-------------
6,242,375
-------------
Hospital Suppliers (2.05%):
Johnson & Johnson (c). . . . . . . . . . . . . . . . 15,000 944,062
-------------
Household Appliances (1.79%):
Whirlpool Corp. (c). . . . . . . . . . . . . . . . . 15,000 822,188
-------------
Information Services (2.92%):
Hewlett-Packard. . . . . . . . . . . . . . . . . . . 22,000 1,343,375
-------------
Instruments and Related Products (4.27%):
Honeywell, Inc. (b). . . . . . . . . . . . . . . . . 30,000 1,965,000
-------------
Medical Instruments and Supplies (1.36%):
Adac Laboratories (b), (e) . . . . . . . . . . . . . 30,000 626,250
-------------
Paper & Forest Products (6.83%):
Mead Corp. . . . . . . . . . . . . . . . . . . . . . 20,000 1,291,250
Weyerhauser Co.. . . . . . . . . . . . . . . . . . . 35,000 1,848,437
-------------
3,139,687
-------------
Pharmaceuticals (2.67%):
Merck (c). . . . . . . . . . . . . . . . . . . . . . 13,000 1,229,312
-------------
Photography (1.05%):
Eastman Kodak. . . . . . . . . . . . . . . . . . . . 8,000 485,000
-------------
Printing & Publishing (1.63%):
Banta Corp.. . . . . . . . . . . . . . . . . . . . . 30,000 750,000
-------------
Retail & Wholesale (1.60%):
Corning, Inc. (c). . . . . . . . . . . . . . . . . . 10,000 424,375
Raven Industries . . . . . . . . . . . . . . . . . . 15,000 310,313
-------------
734,688
-------------
Service Agency (3.65%):
Manpower (c) . . . . . . . . . . . . . . . . . . . . 50,000 1,681,250
-------------
Steel/Producers (6.50%):
Inland Steel (c) . . . . . . . . . . . . . . . . . . 20,000 382,500
LTV Corp. (c). . . . . . . . . . . . . . . . . . . . 55,000 611,875
Worthington Industries (b) . . . . . . . . . . . . . 110,000 1,993,750
-------------
2,988,125
-------------
</TABLE>
4
<PAGE>
STATEMENT OF NET ASSETS NOVEMBER 30, 1997
ASSETS (Cont.)
<TABLE>
<CAPTION>
Number of Market
shares value (a)
------------ -------------
<S> <C> <C>
Common Stocks (Cont.):
Utilities (3.30%):
GTE. . . . . . . . . . . . . . . . . . . . . . . . . 30,000 1,516,875
-----------
Total common stock (cost $22,529,228). . . . . . . 35,391,937
-----------
U.S. Treasury Bills (29.17%):
$3,000,000, 4.94%, due 12/04/97 (f). . . . . . . . . . . . . . . . . . . 2,998,765
$1,500,000, 5.02%, due 01/08/98 (f). . . . . . . . . . . . . . . . . . . 1,492,257
$6,500,000, 5.05%, due 01/22/98 (f). . . . . . . . . . . . . . . . . . . 6,453,957
$1,500,000, 5.15%, due 02/05/98 (f). . . . . . . . . . . . . . . . . . . 1,485,838
$1,000,000, 5.11%, due 02/19/98 (f). . . . . . . . . . . . . . . . . . . 988,645
-----------
Total U.S. Treasury Bills (cost $13,419,462) . . . . . . . . . . . . . 13,419,462
-----------
Money Market Instrument (3.23%)
State Street Capital Markets Sweep Account
Variable Rate, 4.25%
(cost $1,487,384). . . . . . . . . . . . . . . . . . . . . . . . . . . 1,487,384
-----------
Total investment securities
(cost $37,436,074) (g). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,298,783
Receivable for securities sold . . . . . . . . . . . . . . . . . . . . . . . . . 305,352
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
Receivable for capital shares sold . . . . . . . . . . . . . . . . . . . . . . . 18,569
Dividends receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,770
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50,713,252
-----------
LIABILITIES
Disbursements in excess of cash. . . . . . . . . . . . . . . . . . . . . . . . . 9,804
Payable for securities purchased . . . . . . . . . . . . . . . . . . . . . . . . 104,375
Accrued investment advisory fees . . . . . . . . . . . . . . . . . . . . . . . . 42,577
Accrued management administration fees . . . . . . . . . . . . . . . . . . . . . 28,384
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,146
Dividend payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,473,367
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,707,653
-----------
Net assets applicable to outstanding capital stock . . . . . . . . . . . . . . . $46,005,599
-----------
Represented by:
Capital stock - authorized 10,000,000 shares of $.01
par value per share; outstanding 2,779,611 shares . . . . . . . . . . . . . . . 27,796
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,174,715
Distributions in excess of net investment income. . . . . . . . . . . . . . . . (55,873)
Excess distribution of realized gain. . . . . . . . . . . . . . . . . . . . . . (3,748)
Unrealized appreciation of investments. . . . . . . . . . . . . . . . . . . . . 12,862,709
-----------
Net assets applicable to outstanding capital stock . . . . . . . . . . . . . . . $46,005,599
-----------
-----------
Net asset value per share of outstanding capital stock . . . . . . . . . . . . . $16.55
-----------
-----------
</TABLE>
See accompanying notes to investment securities list and financial statements.
NOTES TO INVESTMENT SECURITIES LIST:
November 30, 1997
(a) Investment securities are valued by the procedures described in note 1 to
the financial statements.
(b) New holding in fiscal 1997.
(c) Holding decreased in fiscal 1997.
(d) Holding increased in fiscal 1997.
(e) Currently non-income producing.
(f) Rate shown is annualized yield on date of purchase.
(g) At November 30, 1997 the cost of securities for federal income tax purposes
was $37,436,074, and the aggregate unrealized appreciation and depreciation
based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . $13,191,993
Unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . (329,284)
-----------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,862,709
-----------
-----------
</TABLE>
5
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . $ 611,510
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . 577,887
-----------
Total income. . . . . . . . . . . . . . . . . . . . . . . 1,189,397
-----------
Expenses (note 2):
Investment advisory fees. . . . . . . . . . . . . . . . . . 289,638
Management administration fees. . . . . . . . . . . . . . . 193,092
Shareholder notices and reports . . . . . . . . . . . . . . 17,953
Auditing and tax services . . . . . . . . . . . . . . . . . 20,766
Custodian and portfolio accounting fees . . . . . . . . . . 48,780
Transfer agent, registrar and disbursing agent fees . . . . 73,282
Legal services. . . . . . . . . . . . . . . . . . . . . . . 20,888
Directors fees . . . . . . . . . . . . . . . . . . . . . . 9,147
Federal and state registration fees and expenses. . . . . . 18,572
Other . . . . . . . . . . . . . . . . . . . . . . 4,845
-----------
Total expenses. . . . . . . . . . . . . . . . . . . . . . 696,963
-----------
Investment income - net . . . . . . . . . . . . . . . . . . 492,434
-----------
Realized and unrealized gains from Investments - net:
Net realized gains on securities
transactions (note 3). . . . . . . . . . . . . . . . . . . 4,472,429
Net change in unrealized appreciation
or depreciation of investments . . . . . . . . . . . . . . 1,097,239
-----------
Net gain on investments . . . . . . . . . . . . . . . . . . 5,569,668
-----------
Net increase in net assets resulting
from operations. . . . . . . . . . . . . . . . . . . . . . $6,062,102
-----------
-----------
</TABLE>
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED NOVEMBER 30, 1997
AND YEAR ENDED NOVEMBER 30, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . $ 492,434 $ 415,118
Net realized gains on investments . . . . . . . . . . . 4,472,429 2,418,144
Net change in unrealized appreciation
or depreciation of investments . . . . . . . . . . . 1,097,239 3,654,851
----------- -----------
Net increase in assets from
operations . . . . . . . . . . . . . . . . . . . . . 6,062,102 6,488,113
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income. . . . . . . . . . . . . . . . (488,882) (415,118)
Excess distributions of net
investment income. . . . . . . . . . . . . . . . . (26,412)
Net realized gains on investments. . . . . . . . . . (4,473,367) (2,435,785)
----------- -----------
Total distributions. . . . . . . . . . . . . . . . . (4,962,249) (2,877,315)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of 371,799 and
282,594 shares, respectively . . . . . . . . . . . . 6,495,168 4,314,439
Net asset value of 163,381 and 168,361
shares, respectively, issued in
reinvestment of net investment income
and net realized gain distributions. . . . . . . . . 2,674,214 2,476,566
Payments for redemptions of 241,119 and
192,906 shares, respectively . . . . . . . . . . . . (4,237,890) (2,968,285)
----------- -----------
Increase in net assets from capital share
transactions, representing net increase of
294,061 and 258,049 shares,
respectively . . . . . . . . . . . . . . . . . . . . 4,931,492 3,822,720
----------- -----------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . 6,031,345 7,433,518
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . 39,974,254 32,540,736
----------- -----------
End of period (Including distributions in
excess of net investment income of
$55,873 and $59,425 respectively). . . . . . . . . . $46,005,599 $39,974,254
----------- -----------
----------- -----------
</TABLE>
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Securities, Incorporated (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a diversified open end
management investment company. The Fund invests primarily in common stocks
of companies believed to be undervalued.
The significant accounting policies followed by the Fund are summarized as
follows:
INVESTMENTS IN SECURITIES
Securities listed on national securities exchanges are valued on the basis
of the last reported sale each day, or if no sale is made, at the mean of
the last reported bid and asked price for such securities. Short-term
securities are valued at amortized cost which approximates market value.
Security transactions are recorded on the date securities are purchased or
sold. Realized gains or losses and unrealized appreciation or depreciation
of investments are determined on the basis of identified cost. Dividend
income is recorded on the ex-dividend date. Interest is recognized on the
accrual basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
FEDERAL INCOME TAXES
It is the Fund s policy to continue meeting the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute taxable income to its shareholders in amounts which will relieve
it from all, or substantially all, federal income and excise taxes.
Therefore, the Fund does not provide for federal income or excise taxes.
DISTRIBUTIONS
Distributions to shareholders from investment income are made quarterly and
realized capital gain distributions, if any, are made annually. These
distributions are recorded on the record date and are payable in cash or
reinvested in additional shares of the Fund's capital stock.
Due to the timing of dividend distributions, the fiscal year in which
amounts are distributed for tax purposes may differ from the year that
income or realized gains were recorded by the Fund. The effect on
distributions of this book-to-tax difference is presented as "excess
distributions of net investment income" in the statement of changes in net
assets and the financial highlights.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Robinson Capital Management, Inc. is the Fund's investment advisor and
administrator. As compensation for its services under the Investment
Advisory Agreement, Robinson Capital is paid an investment management
advisory fee, payable monthly, at an annual rate of 0.60% for average net
assets up to and including $100 million, 0.35% for next $150 million of
average net assets and 0.10% for net assets over $250 million. Robinson
Capital is obligated to pay all Fund expenses (exclusive of brokerage
expenses and fees, interest and any federal or state income taxes) which
exceed 1.50% of the Fund s average net assets for any fiscal year on the
first $100 million of average net assets, 1.25% of the Fund s average net
assets for any
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1997
fiscal year on the next $150 million of average net assets, and 1% of the
Fund s average net assets for any fiscal year on average net assets in
excess of $250 million. For managing the business affairs and providing
certain shareholder services pursuant to the Management Agreement, the Fund
pays Robinson Capital an administrative fee, payable monthly, at an annual
rate of 0.40% of the average daily assets of the Fund, plus out-of-pocket
expenses incurred. Robinson Capital may subcontract with other entities to
provide certain shareholder servicing activities.
Legal service fees were paid to a law firm in which the secretary of the
Fund is a partner.
(3) SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $7,179,162 and $12,455,518,
respectively, for the year ended November 30, 1997.
9
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and exhibits have been filed as part of
the Registration Statement:
a. FINANCIAL STATEMENTS:
1. Independent Auditors' Report dated December 29, 1997 (included in
Part B);
2. Statement of Net Assets as of November 30, 1997 (included in
Part B);
3. Statement of Operations for the year ended November 30, 1997
(included in Part B);
4. Statements of Changes in Net Assets for each of the years in the
two-year period ended November 30, 1997(included in Part B);
5. Notes to Financial Statements (included in Part B);
Other schedules have been omitted since they are not applicable or are not
required by Regulation S-X.
b. EXHIBITS:
1. Articles of Incorporation of the Fund now in effect, filed as
Exhibit 1 to initial Form N-1 Registration Statement, File No.
2-77092, are incorporated herein by reference.
2. By-Laws of the Fund, filed as Exhibit 2 to initial Form N-1
Registration Statement, File No. 2-77092, are incorporated herein
by reference.
3. Not Applicable.
4. Not Applicable.
5.1 Investment Advisory Agreement between the Fund and Robinson
Capital Management, Inc., filed as Exhibit 5.1 to Form N-1A
Registration Statement, Amendment No. 14, File No. 2-77092, is
incorporated herein by reference.
<PAGE>
5.2 Management Agreement between the Fund and Robinson Capital
Management, Inc., filed as Exhibit 5.2 to Form N-1A Registration
Statement, Amendment No. 14, File No. 2-77092, is incorporated
herein by reference.
6. Not Applicable.
7. Not Applicable.
8. Custodian Agreement between the Fund and Investors Fiduciary Trust
Company, filed as Exhibit 8 to Form N-1A Registration Statement,
Amendment No. 13, File No. 2-77092, is incorporated herein by
reference.
9. Transfer Agency Agreement between the Fund and Investors Fiduciary
Trust Company, filed as Exhibit 9 to Form N-1A Registration
Statement, Amendment No. 13, File No. 2-77092, is incorporated
herein by reference.
10. Opinion of Counsel as to the legality of the securities being
registered, filed as Exhibit 7 to initial Form N-1 Registration
Statement, File No. 2-77092, is incorporated herein by reference.
11. Independent Auditors' Consent.
12. Not Applicable.
13. Not Applicable.
14. General Securities, Incorporated Prototype Individual Retirement
Account Adoption Agreement Custodial Account (including
Transmittal Letter, Disclosure Statement, Membership Agreement,
Master Plan and Trust, and Request for Transfer of IRA account),
filed as Exhibit 9 to initial Form N-1 Registration Statement,
File No. 2-77092, is incorporated herein by reference.
14.(a) General Securities, Incorporated Application Individual
Retirement Account Adoption Agreement (including
Authorization to Add an IRA, Authorization for IRA Transfer,
Direct Rollover & Conversion, Universal Individual
Retirement Account Information Kit).
15. Not Applicable.
16. Schedule of Computation of Performance Quotations in Calculation
of Performance Data.
17. Financial Data Schedule.
C-2
<PAGE>
18. Not Applicable.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
All of the officers and one of the directors of the Fund are employees of
Robinson Capital Management, Inc., the Fund's investment advisor.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF
TITLE OF CLASS HOLDERS OF RECORD
-------------- -----------------
Common Stock par value $.01 per
share as of March 2, 1998 2,942,623
ITEM 27. INDEMNIFICATION
Minnesota Statutes Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines, including, without limitation, excise taxes
assessed against such person with respect to an employee benefit plan,
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan; (2) acted in good faith; (3) received no
improper personal benefit and Section 302A.255 (with respect to director
conflicts of interest), if applicable, has been satisfied; (4) in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful; and (5) reasonably believed that the conduct was in the best interest
of the corporation in the case of acts or omissions in such person's official
capacity for the corporation, or reasonably believed that conduct was not
opposed to the best interests of the corporation in the case of acts or
omissions in such person's official capacity for other affiliated organizations.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
Robinson Capital Management, Inc., the Fund's Investment Advisor, was
organized in 1994. Its activities are limited to acting as an investment
advisor.
The officers and directors of Robinson Capital Management, Inc., together
with a description of their business, profession, vocation or employment during
the past two fiscal years, is listed below. The principal business address of
all such persons, except Mr. Houston, is 5100 Eden Avenue, Suite 204, Edina,
Minnesota 55436.
C-3
<PAGE>
JOHN P. ROBINSON, President and Treasurer of Robinson Capital Management,
Inc., November 1994 to present; Chairman of the Board of Directors and President
of the Registrant.
MARK D. BILLEADEAU, Vice President of Robinson Capital Management, Inc.,
from February 1995 to present; Vice President of the Registrant from February
1997 to present; Manager (Consulting Service) of Craig-Hallum, Inc., and its
successor, Principal Financial Services, Inc., from September 1990 to February
1995.
WINFIELD S. HOLLAND III, Vice President of Robinson Capital Management,
Inc., December 1994 to present; Vice President of the Registrant; registered
representative of Hamilton Investments, Inc. from July 1993 to December 1994;
registered representative and Vice President of Craig-Hallum, Inc. prior to July
1993.
CRAIG H. ROBINSON, sales and marketing position at Robinson Capital
Management, Inc., from August 1995 to present; Vice President of Robinson
Capital since February 1997; Vice President of the Registrant from February 1997
to present; Account Executive with Paine Webber Incorporated from August 1994 to
August 1995.
JOHN R. HOUSTON, 4200 IDS Center, Minneapolis, Minnesota 55402, Secretary
of Robinson Capital Management, Inc., and the Registrant from December 1994 to
present; Partner of Lindquist & Vennum P.L.L.P.
RENEE A. RASMUSSON, Assistant Treasurer of Robinson Capital Management,
Inc., December 1994 to present; employee of Hamilton Investments, Inc. from July
1993 to July 1994; Vice President of Craig-Hallum, Inc. prior to July 1993.
LORY M. HASSLER, Assistant Secretary of Robinson Capital Management, Inc.,
December 1994 to present; registered representative of Hamilton Investments,
Inc. from July 1993 to December 1994; registered representative and Vice
President of Craig-Hallum, Inc. prior to July 1993.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) None; the Registrant acts as its own underwriter.
(b) None; the Registrant acts as its own underwriter.
(c) None; the Registrant acts as its own underwriter.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
rules promulgated thereunder
C-4
<PAGE>
are in the possession of Robinson Capital Management, Inc. at its offices at
5100 Eden Avenue, Suite 204, Edina, Minnesota 55436 except those books, records
and other documents maintained by the custodian, transfer agent and registrar,
Investors Fiduciary Trust Company, which are located at its offices at 1004
Baltimore, 7th Floor, Kansas City, Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to furnish to each person to whom the
Prospectus included in this Registration Statement is delivered with a copy of
the Registrant's latest Annual Report to Shareholders, upon request and without
charge.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
post-effective amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Edina,
State of Minnesota, on the 27th day of March, 1998.
GENERAL SECURITIES, INCORPORATED
By /s/ John P. Robinson
----------------------------------
John P. Robinson, President
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to the Registration Statement has been signed below on
the 27th day of March, 1998, by the following persons in the capacities
indicated.
Signature Title
--------- -----
/s/ John P. Robinson President (principal executive, financial
- ---------------------------- and accounting officer) and Director
John P. Robinson
/s/ M. Michelle Coady, Ph.D. Director
- ----------------------------
M. Michelle Coady
/s/ Gary D. Floss Director
- ----------------------------
Gary D. Floss
/s/ David W. Preus Director
- ----------------------------
David W. Preus
/s/ LaVerne W. Rees Director
- ----------------------------
LaVerne W. Rees
/s/ Oscar Victor Director
- ----------------------------
Oscar Victor
7
<PAGE>
/s/ Charles J. Walton Director
- ----------------------------
Charles J. Walton
/s/ Arnold M. Weimerskirch Director
- ----------------------------
Arnold M. Weimerskirch
/s/ James S. Womack Director
- ----------------------------
James S. Womack
8
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
General Securities, Incorporated:
We consent to the use of our report included herein and to the reference to our
Firm under the headings "FINANCIAL HIGHLIGHTS" and "GENERAL INFORMATION -
Independent Auditors" in the prospectus.
/s/ KMPG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 26, 1998
9
<PAGE>
Exhibit 14(a)
GENERAL SECURITIES, INCORPORATED
APPLICATION
INDIVIDUAL RETIREMENT ACCOUNT ADOPTION AGREEMENT
USE THIS FORM TO OPEN A NEW IRA, IRA R/O (CONDUIT), ROTH IRA, ROTH CONVERSION
IRA, SEP IRA, AND/OR SAR SEP. If you have an existing IRA of one of the types
listed above invested in General Securities, Inc., you may open an add'l IRA of
a different type by completion of a shorter form, "AUTHORIZATION TO ADD AN IRA".
(Do not use this application to open a SIMPLE IRA or Education IRA.) You may use
this form to establish only one type of IRA. For Roth IRAs, only annual
contributions may be accepted in a non-deductible Contribution Roth IRA account.
If a conversion, rollover or transfer from a regular IRA to a Roth IRA is being
made, only amounts converted, rolled over or transferred during the same year
(not annual contributions) will be accepted in the Roth IRA account.
For information or to request forms call 1-800-577-9217.
Send all completed documentation to: General Securities, Inc., c/o IFTC, P.O.
Box 419249, Kansas City, MO 64179-0001
PARTICIPANT INFORMATION:
- ------------------------------ ------------------------------
Name Social Security Number
- ------------------------------ ------------------------------
Address Daytime phone number & Home phone #
- ------------------------------ ------------------------------
City State Zip Date of Birth
- ---------------------------------- ----------------------------------
Name and firm of representative Representative's phone number
NEW ACCOUNT INFORMATION
PLEASE CHECK-MARK IRA TYPE, CHECK-MARK INVESTMENT TYPE, AND COMPLETE REQUESTED
INVESTMENT INFORMATION.
<TABLE>
<CAPTION>
- - IRA TYPE
-------- DOLLARS CONTRIBUTION SPECIAL
- INVESTMENT TYPE INVESTED TAX YEAR FORM
--------------- ------- -------- ----
<S> <C> <C> <C>
- - 1) Regular IRA
- IRA deductible or non-deductible Contribution $______ ______
- Direct Transfer from existing IRA $______ *
- Rollover within 60 days of receipt from a regular IRA $______
- - 2) Rollover IRA (Conduit)
- Direct Rollover payable to General Securities, Inc. from 403(b) or employer
qualified plan $______ *
- Direct Transfer from existing Conduit IRA $______ *
- Rollover within 60 days of receipt from 403(b) or qualified plan $______
- employer qualified plan
- - 3) Roth IRA
- Contributory Roth IRA non-deductible Contribution $______ ______
- Direct Transfer from existing Roth IRA with original start date _______ $______ *
- Rollover within 60 days from Roth IRA with original start date _______ $______
- - 4) Roth Converted IRA
- Convert my existing GSI regular IRA to a Roth Converted IRA. I
elect not to have income tax withheld unless this box is checked:
______withhold at 10% (or _______%) $______
- Convert my existing regular IRA with another custodian
to a GSI Roth Converted IRA $______ *
- Direct Transfer from existing Roth Converted IRA
with original start date of ________ $______ *
- Rollover within 60 days from Roth Converted IRA
with original start date of ________ $______
- - 5) SEP IRA
- SEP Employer (or self employed) Contribution $______ ______
- Direct Transfer from existing SEP IRA $______ *
- Rollover within 60 days of receipt from a SEP IRA $______
- - 6) SAR SEP IRA plan established before 1997
- SEP Employee Salary Reduction $______ ______
- Direct Transfer from existing SAR SEP IRA $______ *
- Rollover within 60 days of receipt from a SAR SEP IRA $______
CUSTODIAN'S FEE: $12.00 PER YEAR. THIS AMOUNT MAY BE DEDUCTED FROM
YOUR IRA IF NOT PAID SEPARATELY. MAKE CHECK PAYABLE TO GENERAL
SECURITIES, INC.
*Complete and Enclose "Authorization for IRA Transfer, Direct Rollover & Conversion".
</TABLE>
<PAGE>
DESIGNATION OF BENEFICIARY(IES):
I designate the individual(s) named below the Beneficiary(ies) of this IRA. I
revoke all prior IRA beneficiary designations, if any, made by me for these
assets. I understand that I may change or add Beneficiaries at any time by
written notice to the Custodian. If I am not survived by any Beneficiary, my
Beneficiary shall be my estate. (If no percentage is specified, primary
beneficiaries will share the account balance equally.)
<TABLE>
<CAPTION>
<S> <C>
Primary Name________________________________ % of acct.____% SS#_________
Beneficiary(ies) Birthdate __________ Relationship: ______________________
Address____________________________________
Name________________________________ % of acct.____% SS#_________
Birthdate __________ Relationship: ______________________
Address____________________________________
Contingent Name________________________________ % of acct.____% SS#_________
Beneficiary(ies) Birthdate __________ Relationship: ______________________
Address____________________________________
Name________________________________ % of acct.____% SS#_________
Birthdate __________ Relationship: ______________________
Address____________________________________
</TABLE>
SPOUSAL CONSENT:
(This section should be reviewed if the accountholder is married, is a resident
of a community property or marital property state, and designates a beneficiary
other than the spouse. It is the accountholder's responsibility to determine
if this section applies. The accountholder may need to consult with legal
counsel. Neither the Custodian nor the Sponsor are liable for any consequences
resulting from a failure of the accountholder to provide proper spousal
consent.)
I am the spouse of the above named accountholder. I acknowledge that I
have received a full and reasonable disclosure of my spouse's property and
financial obligations. Due to any possible consequences of giving up my
community property interest in this IRA, I have been advised to see a tax
professional or legal advisor.
I hereby consent to the beneficiary designation(s) indicated above. I
assume full responsibility for any adverse consequence that may result. No
tax or legal advice was given to me by the Custodian or Sponsor.
_________________________________________ ___________
SIGNATURE OF SPOUSE DATE
_________________________________________ ___________
SIGNATURE OF WITNESS FOR SPOUSE DATE
<PAGE>
CERTIFICATION AND SIGNATURES
If the Depositor has indicated a Regular IRA Rollover or Direct Rollover
above, Depositor certifies that the contribution does not include any
employee contributions to any qualified plan (other than accumulated
deductible employee contributions) or 403(b) arrangement; that any assets
transferred in kind by Depositor are the same assets received by the
Depositor in the distribution being rolled over; if the distribution is
from another Regular IRA, that Depositor has not made another rollover
within the one-year period immediately preceding this rollover; that such
distribution was received within 60 days of making the rollover to this
Account; and that no portion of the amount rolled over is a required
minimum distribution under the required distribution rules.
If Depositor has indicated a Conversion, Transfer or Rollover of an
existing Regular IRA to a Roth IRA, Depositor acknowledges that the amount
converted will be treated as taxable income (except for prior nondeductible
contributions) for federal income tax purposes. If Depositor has indicated
a Rollover from another Roth IRA, Depositor certifies that the information
given above is correct and acknowledges that adverse tax consequences or
penalties could result from giving incorrect information.
Depositor has received and read the applicable sections of the Disclosure
Statement relating to this Account (including the Custodian's fee
schedule), the Custodial Account document, and the "Instructions"
pertaining to this Adoption Agreement.
Depositor acknowledges and understands that the beneficiaries named herein
may be changed or revoked at any time by filing a new designation in
writing with the Custodian. All forms must be acceptable to the Custodian
and dated and signed by the Depositor.
___________________________________ CUSTODIAN ACCEPTANCE. Investors
Signature of Depositor Fiduciary Trust Company will accept
appointment as Custodian of the
Depositor's Account. However, this
Agreement is not binding upon the
Date ______________________________ Custodian until the Depositor has
received a statement of the
transaction. Receipt by the
Depositor of a confirmation of the
purchase of the Fund shares
indicated above will serve as
notification of Investors Fiduciary
Trust Company's acceptance of
appointment as Custodian of the
Depositor's Account.
INVESTORS FIDUCIARY TRUST COMPANY,
CUSTODIAN
Signature of Custodian
If the Depositor is a minor under the laws of the Depositor's state of
residence, a parent or guardian must sign the Adoption Agreement. Until the
Depositor reaches the age of majority, the parent or guardian will exercise the
powers and duties of the Depositor. (If guardian, provide a copy of letters of
appointment.)
RETAIN A PHOTOCOPY OF THE COMPLETED ADOPTION AGREEMENT FOR YOUR RECORDS
<PAGE>
GENERAL SECURITIES, INCORPORATED
AUTHORIZATION TO ADD AN IRA
USE THIS FORM TO OPEN AN ADDITIONAL IRA IF YOU HAVE AN EXISTING IFTC IRA
INVESTED IN GENERAL SECURITIES, INC.
YOU MAY USE THIS FORM TO ESTABLISH ONLY ONE TYPE OF IRA. FOR ROTH IRAS, ONLY
ANNUAL CONTRIBUTIONS MAY BE ACCEPTED IN A NON-DEDUCTIBLE CONTRIBUTION ROTH IRA
ACCOUNT. IF A CONVERSION, ROLLOVER OR TRANSFER FROM A REGULAR IRA TO A ROTH IRA
IS BEING MADE, ONLY AMOUNTS CONVERTED, ROLLED OVER OR TRANSFERRED DURING THE
SAME YEAR (NOT ANNUAL CONTRIBUTIONS) WILL BE ACCEPTED IN THE ROTH IRA ACCOUNT.
REQUEST FOR ADDITIONAL IRA
PLEASE OPEN AN ADDITIONAL INDIVIDUAL RETIREMENT ACCOUNT (IRA) FOR WHICH I
AUTHORIZE THE IDENTICAL MUTUAL FUND FOR INVESTMENT, ADDRESS, ACCOUNTHOLDER
BIRTHDATE, SOCIAL SECURITY NUMBER, AND BENEFICIARY INFORMATION AS THAT SHOWN ON
THE EXISTING ACCOUNT REFERENCED BELOW. FOR INFORMATION ON HOW TO MAKE FUTURE
CHANGES TO YOUR IRA, CALL 1-800-577-9217.
EXISTING ACCOUNT INFORMATION
EXISTING IRA ACCOUNT NUMBER __________________ FUND: GENERAL SECURITIES,
INCORPORATED
NAME (ON EXISTING IRA)___________________ SOCIAL SECURITY # ____________
TELEPHONE #_______________
IF CONVERTING A REGULAR IRA TO A ROTH IRA, I ELECT NOT TO HAVE FEDERAL INCOME
TAX WITHHELD UNLESS THIS BOX IS CHECKED:
____ WITHHOLD AT 10% (OR _____% {INSERT PERCENTAGE})
NEW ACCOUNT INVESTMENT INFORMATION
PLEASE CHECK-MARK IRA TYPE, CHECK-MARK INVESMENT TYPE, AND COMPLETE REQUESTED
INVESTMENT INFORMATION.
<TABLE>
<CAPTION>
- - IRA TYPE
-------- DOLLARS CONTRIBUTION SPECIAL
- INVESTMENT TYPE INVESTED TAX YEAR FORM
--------------- ------- -------- ----
<S> <C> <C> <C>
- - Regular IRA
- IRA deductible or non-deductible Contribution $______ ______
- Direct Transfer from existing IRA $______ *
- Rollover from a regular IRA $______ ______
- - Rollover IRA (Conduit)
- Direct Rollover payable to General Securities, Inc. from 403(b) or qualified plan $______ *
- Direct Transfer from existing Conduit IRA $______ *
- Rollover from 403(b) or employer qualified plan $______
- - Roth Contributory IRA
- Roth IRA non-deductible Contribution $______ ______
- Direct Transfer from existing Roth Contributory IRA with original start date _________ $______ *
- Rollover within 60 days from Roth Contributory IRA with original start date _________ $______
- - Roth Converted IRA
- Convert my existing General Securities, Inc. regular IRA to a Roth Converted IRA $______ *
- Convert my existing regular IRA with another custodian
to a General Securities, Inc. Roth Converted IRA $______ *
- Direct Transfer from existing Roth Converted IRA with $______ *
original start date of _________
- Rollover within 60 days from Roth Converted IRA with $______
original start date of _________
- - SEP IRA
- SEP Employer (or self employed) Contribution $______ ______
- Direct Transfer from existing SEP IRA $______ *
- Rollover within 60 days of receipt from a SEP IRA $______
- - SAR SEP IRA plan established before 1997
- SEP Employee Salary Reduction $______ ______
- Direct Transfer from existing SAR SEP IRA $______ *
- Rollover within 60 days of receipt from a SAR SEP IRA $______
Custodian's Fee: $12.00 PER YEAR. This amount may be deducted from
your IRA if not paid separately. Make check payable to General $______
Securities, Inc.
* Complete and enclose "Authorization for IRA Transfer, Direct Rollover & Conversion".
</TABLE>
<PAGE>
CERTIFICATION AND SIGNATURES
If Depositor has indicated a Regular IRA Rollover or Direct Rollover above,
Depositor certifies that the contribution does not include any employee
contributions to any qualified plan (other than accumulated deductible
employee contributions) or 403(b) arrangement; that any assets rolled over by
Depositor are the same assets received by the Depositor in the distribution
being rolled over; if the distribution is from another Regular IRA, that
Depositor has not made another rollover within the one-year period
immediately preceding this rollover; that such distribution was received
within 60 days of making the rollover to this Account; and that no portion of
the amount rolled over is a required minimum distribution under the required
distribution rules.
If Depositor has indicated a Conversion, Transfer or Rollover of an
existing Regular IRA to a Roth IRA, Depositor acknowledges that the amount
converted will be treated as taxable income (except for prior nondeductible
contributions) for federal income tax purposes. If Depositor has indicated a
Rollover from another Roth IRA, Depositor certifies that the information given
above is correct and acknowledges that adverse tax consequences or penalties
could result from giving incorrect information.
Depositor has received and read the applicable sections of the
Disclosure Statement relating to this Account (including the Custodian's fee
schedule), the Custodial Account document, and the "Instructions" pertaining to
this Adoption Agreement.
Depositor acknowledges and understands that the beneficiaries named
herein may be changed or revoked at any time by filing a new designation in
writing with the Custodian. All forms must be acceptable to the Custodian and
dated and signed by the Depositor.
CUSTODIAN ACCEPTANCE. Investors
Fiduciary Trust Company will
accept appointment as Custodian of
________________________________________ the Depositor's Account. However,
Signature of Depositor this Agreement is not binding upon
the Custodian until the Depositor
has received a statement of the
transaction. Receipt by the
Depositor of a confirmation of the
purchase of the Fund shares
indicated above will serve as
notification of Investors Fiduciary
Trust Company's acceptance of
appointment as Custodian of the
Depositor's Account.
Date _________________________ INVESTORS FIDUCIARY TRUST COMPANY,
CUSTODIAN
Signature of Custodian
If the Depositor is a minor under the laws of the Depositor's state of
residence, a parent or guardian must sign the Adoption Agreement. Until the
Depositor reaches the age of majority, the parent or guardian will exercise
the powers and duties of the Depositor. (If guardian, provide copy of letters
of appointment.)
RETAIN A PHOTOCOPY OF THE COMPLETED ADOPTION AGREEMENT FOR YOUR RECORDS
<PAGE>
GENERAL SECURITIES, INCORPORATED
AUTHORIZATION FOR IRA TRANSFER, DIRECT ROLLOVER & CONVERSION
You may use this form to effect a direct transfer from an existing IRA to an IRA
with General Securities, Inc.; a direct rollover from a Qualified Plan or 403(b)
to an IRA; or a conversion from a regular IRA to a Roth IRA. The assets may be
from another fund family. Make sure you attach a copy of your existing account
statement, any other forms required by your current custodian/trustee, and an
IRA Application or an Authorization to Add an IRA form if you do not have an
existing IRA of the type necessary to receive the assets. Send all completed
documentation to: General Securities, Inc., P.O. Box 419249, Kansas City, MO
64179-0001.
PARTICIPANT INFORMATION:
___________________________________ ______________________________
Name Social Security Number
___________________________________ ______________________________
Address Daytime phone number
___________________________________ ______________________________
Representative's phone number
_____________________________________________________________________
Name and firm of representative
CURRENT CUSTODIAN ACCOUNT INFORMATION:
___________________________________ ______________________________
___________________________________ ______________________________
Custodian Name Current Fund Name/Class
_____________________________________________________________________
Custodian Address Current Account Number
_____________________________________________________________________
Additional Fund Name/Class
_____________________________________________________________________
Custodian Telephone Number Additional Account Number
INSTRUCTIONS TO MY CURRENT CUSTODIAN
I have established a General Securities, Inc. Individual Retirement Account with
Investors Fiduciary Trust Company as Custodian. Please transfer-in-kind or
withdraw assets from my account in your custody in the following manner and send
a check payable to Investors Fiduciary Trust Company (IFTC) Individual
Retirement Account FBO my name and social security number. Mail to IFTC, C/O
General Securities, Inc., P. O. Box 419249, Kansas City, MO 64179-0001.
TYPE OF ACCOUNT TO BE TRANSFERRED (CHECK ONE)*
_IRA
_Conduit IRA (direct rollover from my current qualified plan or 403(b))
_Roth Contributory Account (Account start date __________ )
_Roth Conversion Account (Account start date ___________ )
_SEP IRA
_SAR-SEP IRA (For plans established prior to 1/1/97)
_Employer Qualified Plan, 403(b), 401(k), etc.
*Note: You may not transfer from a Roth IRA to a Regular IRA or a simplified
employee pension (SEP) or SAR-SEP IRA. Transfers to a Regular IRA or SEP IRA
may be made from another Regular IRA or SEP IRA or a SIMPLE IRA account (but not
until at least 2 years after the first contribution to your SIMPLE IRA account).
Transfers to a Roth IRA are possible only from another Roth IRA or from a
Regular IRA, not from other types of tax-deferred accounts. A conversion from a
Regular IRA will trigger federal income tax on the taxable amount converted from
the Regular IRA. If a conversion, rollover or transfer from a Regular IRA to a
Roth IRA is being made, only amounts converted, rolled over or transferred
during the same year (not annual contributions) will be accepted in the Roth IRA
account. A separate Roth IRA must be established to hold such amounts from a
different tax year. Annual contributions may not be deposited in a Roth IRA
holding such converted, rolled over or transferred amounts.
<PAGE>
PORTION OF ACCOUNT TO BE TRANSFERRED (CHECK ONE):
__All of the assets in my account OR $___________ or ___ % of my account.
__Transfer of General Securities, Inc. shares in kind. Check here to
authorize a transfer-in-kind of General Securities, Inc. shares only from your
existing trustee/custodian to Investors Fiduciary Trust Company.
IF YOU ARE TRANSFERRING A CERTIFICATE OF DEPOSIT IRA CHOOSE ONE OPTION:
_Liquidate prior to maturity date. I am aware that I may incur a penalty for
early withdrawal.
_Liquidate at maturity. (Maturity date must be within 60 days. If the maturity
date is less than 15 days from the date of this request, you may want to contact
your custodian bank to prevent automatic reinvestment of the account.)
INSTRUCTIONS TO INVESTORS FIDUCIARY TRUST COMPANY:
Invest my assets into the IRA and investment type indicated below.
IRA TYPES: (CHOOSE ONE) INVESTMENT TYPES: (CHOOSE ONE)
__Regular IRA
__Direct Transfer from existing IRA
__Rollover IRA (Conduit)
__Direct Rollover payable to IRTC from 403(b)
or employer qualified plan
__Direct Transfer from existing Conduit IRA
__Roth Contributory IRA
__Direct Transfer from existing Roth IRA--
original start date __________
__Roth Converted IRA
__Convert my existing regular IRA to a Roth
Converted IRA. I elect not to have federal
income taxes withheld unless this box is
checked: _______withhold at 10% (or ____%)
__Direct Transfer from existing Roth
Converted IRA--original start date ________
__SEP IRA
__Direct Transfer from existing SEP IRA
__SAR SEP IRA plan established before 1997
__Direct Transfer from existing SAR SEP IRA
SIGNATURE OF DEPOSITOR
The undersigned certifies to the present IRA custodian or trustee that the
undersigned has established a successor Individual Retirement Custodial Account
meeting the requirements of Internal Revenue Code Section 408(a) or 408A (as the
case may be) to which assets will be transferred, and certifies to Investors
Fiduciary Trust Company that the IRA from which assets are being transferred
meets the requirements of Internal Revenue Code Section 408(a) or 408A (as the
case may be).
_________________________________ ___________________________________
Date Signature of Depositor
SIGNATURE GUARANTEE (only if required by current Custodian or Trustee)
Signature guaranteed by:___________________________________________________
Name of Bank or Dealer Firm
___________________________________________________
Signature of Officer and Title
ACCEPTANCE BY NEW CUSTODIAN
Investors Fiduciary Trust Company agrees to accept transfer of the above amount
for deposit to the Depositor's Investors Fiduciary Trust Company Individual
Retirement Custodial Account, and requests the liquidation and transfer of
assets as indicated above.
INVESTORS FIDUCIARY TRUST COMPANY
Signature of Custodian
<PAGE>
GENERAL SECURITIES,
INCORPORATED
UNIVERSAL INDIVIDUAL RETIREMENT ACCOUNT
INFORMATION KIT
(EFFECTIVE JANUARY 1, 1998)
CAREFULLY READ ALL THE ENCLOSED INFORMATION INCLUDING THE DISCLOSURE STATEMENT
INSTRUCTIONS FOR -
NEW APPLICATION:
1. Complete Application - Individual Retirement Account Adoption
Agreement
2. Attach Custodian's Fee of $12.00
3. Return in the self-addressed envelope provided
TRANSFER OF FUNDS
1. Complete Application - Individual Retirement Account Adoption
Agreement
2. Complete Authorization for IRA Transfer, Direct Rollover &
Conversion
3. Attach Custodian's Fee of $12.00
4. Return in the enclosed self-addressed envelope
AN EXISTING GENERAL SECURITIES, INC. IRA CLIENT
1. Complete Authorization to ADD an IRA
2. Complete Authorization for IRA Transfer, Direct Rollover &
Conversion if specified on Authorization to Add an IRA form
3. Attach Custodian's Fee of $12.00
4. Return in the enclosed self-addressed envelope
<PAGE>
GENERAL SECURITIES,
INCORPORATED
UNIVERSAL IRA INFORMATION KIT
INTRODUCTION
WHAT'S NEW IN THE WORLD OF IRAS?
An Individual Retirement Account ("IRA") has always provided an
attractive means to save money for the future on a tax-advantaged basis.
Recent changes to Federal tax law have now made the IRA an even more flexible
investment and savings vehicle. Among the new changes is the creation of the
Roth Individual Retirement Account ("Roth IRA"), which will be available for
use after January 1, 1998. Under a Roth IRA, the earnings and interest on an
individual's nondeductible contributions grow without being taxed, and
distributions may be tax-free under certain circumstances. Most taxpayers
(except for those with very high income levels) will be eligible to
contribute to a Roth IRA. A Roth IRA can be used instead of a Regular IRA,
to replace an existing Regular IRA, or complement a Regular IRA you wish to
continue maintaining.
Taxpayers with adjusted gross income of up to $100,000 are eligible
to convert existing IRAs into Roth IRAs. The details on conversion are found
in the description of Roth IRAs in this booklet.
Congress has also made significant changes to Regular IRAs. First,
Congress increased the income levels at which IRA holders who participate in
employer-sponsored retirement plans can make deductible Regular IRA
contributions. Also the rules for deductible contributions by an IRA holder
whose spouse is a participant in an employer-sponsored retirement plan have
been liberalized. Second, the 10% penalty tax for premature withdrawals
(before age 59 1/2) will no longer apply in the case of withdrawals to pay
certain higher education expenses or certain first-time homebuyer expenses.
WHAT'S IN THIS KIT?
In this Kit you will find detailed information about Roth IRAs and
about the changes that have been made to Regular IRAs. You will also find
everything you need to establish and maintain either a Regular or Roth IRA,
or to convert all or part of an existing Regular IRA to a Roth IRA.
The first section of this Kit contains the instructions and forms
you will need to open a new Regular or Roth IRA, to transfer from another IRA
to a General Securities, Incorporated (GSI) IRA, or to convert a Regular IRA
to a Roth IRA.
The second section of this Kit contains our Universal IRA
Disclosure Statement. The Disclosure Statement is divided into three parts:
-Part One describes the basic rules and benefits which are
specifically applicable to your Regular IRA.
-Part Two describes the basic rules and benefits which are
specifically applicable to your Roth IRA.
-Part Three describes important rules and information applicable to
all IRAs.
The third section of this Kit contains the Universal IRA Custodial
Agreement. The Custodial Agreement is also divided into three parts:
-Part One contains provisions specifically applicable to Regular IRAs.
-Part Two contains provisions specifically applicable to Roth IRAs.
-Part Three contains provisions applicable to all IRAs (Regular and
Roth).
This Universal Individual Retirement Custodial Account Kit contains
information and forms for both Regular IRAs and Roth IRAs. However, you may
use the Adoption Agreement in this Kit to establish only one Regular IRA or
one Roth IRA; separate Adoption Agreements must be completed if you want to
establish multiple (Roth or Regular) IRA accounts.
1
<PAGE>
WHAT'S THE DIFFERENCE BETWEEN A REGULAR IRA AND A ROTH IRA?
With a Regular IRA, an individual can contribute up to $2,000 per
year and may be able to deduct the contribution from taxable income, reducing
income taxes. Taxes on investment growth and dividends are deferred until the
money is withdrawn. Withdrawals are taxed as additional ordinary income when
received. Nondeductible contributions, if any, are withdrawn tax-free.
Withdrawals before age 59 1/2 are assessed a 10% penalty in addition to
income tax, unless an exception applies.
With a Roth IRA, the contribution limits are essentially the same as
Regular IRAs, but there is no tax deduction for contributions. All dividends
and investment growth in the account are tax-free. Most important with a Roth
IRA: there is NO INCOME TAX on qualified withdrawals from your Roth IRA.
Additionally, unlike a Regular IRA, there is no prohibition on making
contributions to Roth IRAs after turning age 70 1/2, and there's no requirement
that you begin making minimum withdrawals at that age.
The following chart highlights some of the major differences between a
Regular IRA and a Roth IRA:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CHARACTERISTICS REGULAR ROTH
IRA IRA
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ELIGIBILITY Individuals (and their spouses) who Individuals (and their spouses) who
receive compensation receive compensation
Individuals age 70 1/2 and over MAY NOT Individuals age 70 1/2 and over
contribute MAY contribute
- -----------------------------------------------------------------------------------------------------------------------------
TAX TREATMENT OF CONTRIBUTIONS Subject to limitations, contributions No deduction permitted for
are deductible amounts contributed
- -----------------------------------------------------------------------------------------------------------------------------
CONTRIBUTION LIMITS Individuals may contribute up to $2,000 Individuals may generally contribute up to
annually (or 100% of compensation, if $2,000 (or 100% of compensation, if less)
less) Ability to contribute phases out at income
Deductibility depends on income level for levels of $95,000 to $110,000 (individual
individuals who are active participants taxpayer) and $150,000 to $160,000
in an employer-sponsored retirement plan (married taxpayers)
Overall limit for contributions to ALL
IRAs (Regular and Roth combined) is
$2,000 annually (or 100% of compensation,
if less)
- -----------------------------------------------------------------------------------------------------------------------------
EARNINGS Earnings and interest are not taxed when Earnings and interest are not taxed when
received by your IRA received by your IRA
- -----------------------------------------------------------------------------------------------------------------------------
ROLLOVER/CONVERSIONS Individual may rollover amounts held in Rollovers from other Roth IRAs or Regular
employer-sponsored retirement IRAs ONLY
arrangements (401(k), SEP IRA, etc.) Amounts rolled over (or converted) from
tax free to Regular IRA another Regular IRA are subject to
income tax in the year rolled over or
converted
Tax on amounts rolled over or converted in
1998 is spread over four year period
(1998-2001)
- -----------------------------------------------------------------------------------------------------------------------------
WITHDRAWALS Total (principal + earnings) taxable as Not taxable as long as a QUALIFIED
income in year withdrawn (except for any DISTRIBUTION--generally, account open for
prior non-deductible contributions) 5 years, and age 59 1/2
Minimum withdrawals must begin after age Minimum withdrawals NOT REQUIRED after
70 1/2 age 70 1/2
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
IS A ROTH OR A REGULAR IRA RIGHT FOR ME?
We cannot act as your legal or tax advisor and so we cannot tell you
which kind of IRA is right for you. The information contained in this Kit is
intended to provide you with the basic information and material you will need if
you decide whether a Regular or Roth IRA is better for you, or if you want to
convert an existing Regular IRA to a Roth IRA. We suggest that you consult with
your accountant, lawyer or other tax advisor, or with a qualified financial
planner, to determine whether you should open a Regular or Roth IRA or convert
any or all of an existing Regular IRA to a Roth IRA. Your tax advisor can also
advise you as to the state tax consequences that may affect whether a Regular or
Roth IRA is right for you.
2
<PAGE>
SEPS AND SIMPLES.
The GSI Regular IRA may be used in connection with a simplified
employee pension (SEP) plan maintained by your employer. To establish a Regular
IRA as part of your Employer's SEP plan, complete the Adoption Agreement for a
Regular IRA, indicating in the proper box that the IRA is part of a SEP plan. A
Roth IRA should NOT be used in connection with a SEP plan.
A Roth IRA may NOT be used as part of an employer SIMPLE IRA plan. A
Regular IRA may be used, but only after an individual has been participating for
two or more years (for the first two years, only a special SIMPLE IRA may be
used). SIMPLE IRA plans were added by the 1996 tax law to provide an easy and
inexpensive way for small employers to provide retirement benefits for their
employees. If you are interested in a SIMPLE IRA plan at your place of
employment, call or write to the number or address given at the end of the
Disclosure Statement portion of this Kit.
OTHER POINTS TO NOTE.
The Disclosure Statement in this Kit provides you with the basic
information that you should know about GSI Regular IRAs and Roth IRAs. The
Disclosure Statement provides general information about the governing rules for
these IRAs and the benefits and features offered through each type of IRA.
However, the Adoption Agreement and the Custodial Agreement, are the primary
documents controlling the terms and conditions of your personal Regular or Roth
IRA, and these shall govern in the case of any difference with the Disclosure
Statement.
YOU or YOUR when used throughout this Kit refer to the person for whom
the Regular or Roth IRA is established. A ROTH IRA is either a GSI Roth IRA or
any Roth IRA established by any other financial institution. A REGULAR IRA is
any non-Roth IRA offered by GSI or any other financial institution.
3
<PAGE>
GENERAL SECURITIES, INCORPORATED
UNIVERSAL IRA DISCLOSURE STATEMENT
PART ONE: DESCRIPTION OF REGULAR IRAS
SPECIAL NOTE
Part One of the Disclosure Statement describes the rules applicable
to Regular IRAs beginning January 1, 1998. IRAs described in these pages are
called "Regular IRAs" to distinguish them from the new "Roth IRAs" first
available starting in 1998. Roth IRAs are described in Part Two of this
Disclosure Statement.
For Regular IRA contributions for 1997 (including contributions
made up to April 15, 1998 but designated as contributions for 1997), there
are different rules for determining the deductibility of your contribution on
your federal tax return. For contributions for 1997, the "active
participant" limits on deductibility (described below) apply if EITHER spouse
is an active participant in an employer-sponsored plan. Also, the adjusted
gross income ("AGI") levels for partially deductible or nondeductible Regular
IRA contributions (described below) are lower for 1997 ($25,000 for single
taxpayers, with no deduction if your AGI is above $35,000; and $40,000 for
married taxpayers filing jointly, with no deduction if your AGI is above
$50,000). Also, the exceptions to the 10% early withdrawal penalty for
withdrawals to pay certain higher education or first-time homebuyer
expenses do not apply to withdrawals in 1997.
This Part One of the Disclosure Statement describes Regular IRAs.
It does not describe Roth IRAs, a new type of IRA available starting in 1998.
Contributions to a Roth IRA are not deductible (regardless of your AGI), but
withdrawals that meet certain requirements are not subject to federal income
tax, so that dividends and investment growth on amounts held in the Roth IRA
can escape federal income tax. Please see Part Two of this Disclosure
Statement if you are interested in learning more about Roth IRAs.
Regular IRAs described in this Disclosure Statement may be used as
part of a simplified employee pension (SEP) plan maintained by your employer.
Under a SEP your employer may make contributions to your Regular IRA, and
these contributions may exceed the normal limits on Regular IRA
contributions. This Disclosure Statement does not describe IRAs established
in connection with a SIMPLE IRA program maintained by your employer.
Employers provide special explanatory materials for accounts established as
part of a SIMPLE IRA program. Regular IRAs may be used in connection with a
SIMPLE IRA program, but for the first two years of participation a special
SIMPLE IRA (not a Regular IRA) is required.
YOUR REGULAR IRA
This Part One contains information about your Regular Individual
Retirement Custodial Account with Investors Fiduciary Trust Company as
Custodian. A Regular IRA gives you several tax benefits. Earnings on the
assets held in your Regular IRA are not subject to federal income tax until
withdrawn by you. You may be able to deduct all or part of your Regular IRA
contribution on your federal income tax return. State income tax treatment
of your Regular IRA may differ from federal treatment; ask your state tax
department or your personal tax advisor for details.
Be sure to read Part Three of this Disclosure Statement for
important additional information, including information on how to revoke your
Regular IRA, investments and prohibited transactions, fees and expenses, and
certain tax requirements.
ELIGIBILITY
WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR A REGULAR IRA?
You are eligible to establish and contribute to a Regular IRA for a
year if:
-You received compensation (or earned income if you are self employed)
during the year for personal services you rendered. If you received
taxable alimony, this is treated like compensation for IRA purposes.
-You did not reach age 70 1/2 during the year.
CAN I CONTRIBUTE TO A REGULAR IRA FOR MY SPOUSE?
For each year before the year when your spouse attains age 70 1/2,
you can contribute to a separate Regular IRA for your spouse, regardless of
whether your spouse had any compensation or earned income in that year. This
is called a "spousal IRA." To make a contribution to a Regular IRA for your
spouse, you must file a joint tax return for the year with your spouse. For
a spousal IRA, your spouse must set up a different Regular IRA, separate from
yours, to which you contribute.
CONTRIBUTIONS
WHEN CAN I MAKE CONTRIBUTIONS TO A REGULAR IRA?
You may make a contribution to your existing Regular IRA or
establish a new Regular IRA for a taxable year by the due date (NOT including
any extensions) for your federal income tax return for the year. Usually
this is April 15 of the following year.
HOW MUCH CAN I CONTRIBUTE TO MY REGULAR IRA?
For each year when you are eligible (see above), you can contribute
up to the lesser of $2,000 or 100% of your compensation (or earned income, if
you are self-employed). However, under the tax laws, all or a portion of
your contribution may not be deductible.
If you and your spouse have spousal Regular IRAs, each spouse may
contribute up to $2,000 to his or her IRA for a year as long as the combined
compensation of both spouses for the year (as shown on your joint income tax
return) is at least $4,000. If the combined compensation of both spouses is
less than $4,000, the spouse with the higher amount of compensation may
contribute up to that spouse's compensation amount, or $2,000 if less. The
spouse with the lower compensation amount may contribute any amount up to
that spouse's compensation plus any excess of the other spouse's compensation
over the other spouse's IRA contribution. However, the maximum contribution
to either spouse's Regular IRA is $2,000 for the year.
4
<PAGE>
If you (or your spouse) establish a new Roth IRA and make
contributions to both your Regular IRA and a Roth IRA, the combined limit on
contributions to both your (or your spouse's) Regular IRA and Roth IRA for a
single calendar year is $2,000.
HOW DO I KNOW IF MY CONTRIBUTION IS TAX DEDUCTIBLE?
The deductibility of your contribution depends upon whether you are
an active participant in any employer-sponsored retirement plan. If you are
not an active participant, the entire contribution to your Regular IRA is
deductible.
If you are an active participant in an employer-sponsored plan,
your Regular IRA contribution may still be completely or partly deductible on
your tax return. This depends on the amount of your income (see below).
Similarly, the deductibility of a contribution to a Regular IRA for
your spouse depends upon whether your spouse is an active participant in any
employer-sponsored retirement plan. If your spouse is not an active
participant, the contribution to your spouse's Regular IRA will be
deductible. If your spouse is an active participant, the Regular IRA
contribution will be completely, partly or not deductible depending upon your
combined income.
An exception to the preceding rules applies to high-income married
taxpayers, where one spouse is an active participant in an employer-sponsored
retirement plan and the other spouse is not. A contribution to the
non-active participant spouse's Regular IRA will be only partly deductible at
an adjusted gross income level on the joint tax return of $150,000, and the
deductibility will be phased out as described below over the next $10,000 so
that there will be no deduction at all with an adjusted gross income level of
$160,000 or higher.
HOW DO I DETERMINE MY OR MY SPOUSE'S "ACTIVE PARTICIPANT" STATUS?
Your (or your spouse's) Form W-2 should indicate if you (or your
spouse) were an active participant in an employer-sponsored retirement plan
for a year. If you have a question, you should ask your employer or the plan
administrator.
In addition, regardless of income level, your spouse's "active
participant" status will not affect the deductibility of your contributions
to your Regular IRA if you and your spouse file separate tax returns for the
taxable year and you lived apart at all times during the taxable year.
WHAT ARE THE DEDUCTION RESTRICTIONS FOR ACTIVE PARTICIPANTS?
If you (or your spouse) are an active participant in an employer
plan during a year, the contribution to your Regular IRA (or your spouse's
Regular IRA) may be completely, partly or not deductible depending upon your
filing status and your amount of adjusted gross income ("AGI"). If AGI is
any amount up to the lower limit, the contribution is deductible. If your
AGI falls between the lower limit and the upper limit, the contribution is
partly deductible. If your AGI falls above the upper limit, the contribution
is not deductible.
FOR ACTIVE PARTICIPANTS - 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
IF YOU ARE IF YOU ARE THEN YOUR REGULAR
SINGLE MARRIED FILING JOINTLY IRA CONTRIBUTION IS
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to Up to FULLY
Lower Limit Lower Limit DEDUCTIBLE
($30,000 for 1998) ($50,000 for 1998)
-----------------------------------------------------------------------------------
ADJUSTED More than Lower Limit More than Lower Limit PARTLY
GROSS but less than but less than DEDUCTIBLE
INCOME Upper Limit Upper Limit
(AGI) LEVEL ($40,000 for 1998) ($60,000 for 1998)
-----------------------------------------------------------------------------------
Upper Limit or more Upper Limit or more NOT
DEDUCTIBLE
-----------------------------------------------------------------------------------
</TABLE>
The Lower Limit and the Upper Limit will change for 1999 and later years.
The Lower Limit and Upper Limit for these years are shown in the following
table. Substitute the correct Lower Limit and Upper Limit in the table above
to determine deductibility in any particular year. (Note: if you are married
but filing separate returns, your Lower Limit is always zero and your Upper
Limit is always $10,000).
5
<PAGE>
<TABLE>
<CAPTION>
TABLE OF LOWER AND UPPER LIMITS
- --------------------------------------------------------------------------------
YEAR SINGLE MARRIED
FILING JOINTLY
- --------------------------------------------------------------------------------
LOWER LIMIT UPPER LIMIT LOWER LIMIT UPPER LIMIT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $31,000 $41,000 $51,000 $61,000
2000 $32,000 $42,000 $52,000 $62,000
2001 $33,000 $43,000 $53,000 $63,000
2002 $34,000 $44,000 $54,000 $64,000
2003 $40,000 $50,000 $60,000 $70,000
2004 $45,000 $55,000 $65,000 $75,000
2005 $50,000 $60,000 $70,000 $80,000
2006 $50,000 $60,000 $75,000 $85,000
2007 and $50,000 $60,000 $80,000 $100,000
later
- --------------------------------------------------------------------------------
</TABLE>
HOW DO I CALCULATE MY DEDUCTION IF I FALL IN THE "PARTLY DEDUCTIBLE" RANGE?
If your AGI falls in the partly deductible range, you must calculate
the portion of your contribution that is deductible. To do this, multiply your
contribution by a fraction. The numerator is the amount by which your AGI
exceeds the lower limit (for 1998: $30,000 if single, or $50,000 if married
filing jointly). The denominator is $10,000 (note that the denominator for
married joint filers is $20,000 starting in 2007). Subtract this from your
contribution and then round down to the nearest $10. The deductible amount is
the greater of the amount calculated or $200 (provided you contributed at least
$200). If your contribution was less than $200, then the entire contribution is
deductible.
For example, assume that you make a $2,000 contribution to your
Regular IRA in 1998, a year in which you are an active participant in your
employer's retirement plan. Also assume that your AGI is $57,555 and you are
married, filing jointly. You would calculate the deductible portion of your
contribution this way:
1. The amount by which your AGI exceeds the lower limit of the
partly - deductible range:
($57,555-$50,000) = $7,555
2. Divide this by $10,000: $ 7,555 = 0.7555
-------
$10,000
3. Multiply this by your contribution limit:
0.7555 x $2,000 = $1,511
4. Subtract this from your contribution:
($2,000 - $1,511) = $489
5. Round this down to the nearest $10: = $480
6. Your deductible contribution is the greater of this amount or
$200.
Even though part or all of your contribution is not deductible, you may still
contribute to your Regular IRA (and your spouse may contribute to your spouse's
Regular IRA) up to the limit on contributions. When you file your tax return
for the year, you must designate the amount of non-deductible contributions to
your Regular IRA for the year. See IRS Form 8606.
HOW DO I DETERMINE MY AGI?
AGI is your gross income minus those deductions which are available
to all taxpayers even if they don't itemize. Instructions to calculate your
AGI are provided with your income tax Form 1040 or 1040A.
WHAT HAPPENS IF I CONTRIBUTE MORE THAN ALLOWED TO MY REGULAR IRA?
The maximum contribution you can make to a Regular IRA generally
is $2,000 or 100% of compensation or earned income, whichever is less. Any
amount contributed to the IRA above the maximum is considered an "excess
contribution." The excess is calculated using your CONTRIBUTION limit, not
the DEDUCTIBLE limit. An excess contribution is subject to excise tax of 6%
for each year it remains in the IRA.
HOW CAN I CORRECT AN EXCESS CONTRIBUTION?
Excess contributions may be corrected without paying a 6% penalty.
To do so, you must withdraw the excess and any earnings on the excess before
the due date (including extensions) for filing your federal income tax return
for the year for which you made the excess contribution. A deduction should
not be taken for any excess contribution. The earnings must be included in
your income for the tax year for which the contribution was made and may be
subject to a 10% premature withdrawal tax if you have not reached age 59 1/2.
6
<PAGE>
WHAT HAPPENS IF I DON'T CORRECT THE EXCESS CONTRIBUTION BY THE TAX RETURN DUE
DATE?
Any excess contribution not withdrawn by the tax return due date
(including any extensions) for the year for which the contribution was made
will be subject to the 6% excise tax. There will be an additional 6% excise
tax for each subsequent year the excess remains in your account.
Under limited circumstances, you may correct an excess contribution
after tax filing time by withdrawing the excess contribution (leaving the
earnings in the account). This withdrawal will not be includable in income
nor will it be subject to any premature withdrawal penalty if (1) your
contributions to all Regular IRAs do not exceed $2,000 and (2) you did not
take a deduction for the excess amount (or you file an amended return (Form
1040X) which removes the excess deduction).
HOW ARE EXCESS CONTRIBUTIONS TREATED IF NONE OF THE PRECEDING RULES APPLY?
Unless an excess contribution qualifies for the special treatment
outlined above, the excess contribution and any earnings on it withdrawn
after tax filing time will be includable in taxable income and may be subject
to a 10% premature withdrawal penalty. No deduction will be allowed for the
excess contribution for the year in which it is made.
Excess contributions may be corrected in a subsequent year to the
extent that you contribute less than your maximum amount. As the prior
excess contribution is reduced or eliminated, the 6% excise tax will become
correspondingly reduced or eliminated for subsequent tax years. Also, you
may be able to take an income tax deduction for the amount of excess that was
reduced or eliminated, depending on whether you would be able to take a
deduction if you had instead contributed the same amount.
ARE THE EARNINGS ON MY REGULAR IRA FUNDS TAXED?
Any dividends on or growth of the investments held in your Regular
IRA are generally exempt from federal income taxes and will not be taxed
until withdrawn by you, unless the tax exempt status of your Regular IRA is
revoked (this is described in Part Three of this Disclosure Statement).
TRANSFERS/ROLLOVERS
CAN I TRANSFER OR ROLL OVER A DISTRIBUTION I RECEIVE FROM MY EMPLOYER'S
RETIREMENT PLAN INTO A REGULAR IRA?
Almost all distributions from employer plans or 403(b) arrangements
(for employees of tax-exempt employers) are eligible for rollover to a
Regular IRA. The main exceptions are payments over the lifetime or life
expectancy of the participant (or participant and a designated beneficiary),
installment payments for a period of 10 years or more, required
distributions (generally the rules require distributions starting at age 70
1/2 or for certain employees starting at retirement, if later), and payments
of employee after-tax contributions.
If you are eligible to receive a distribution from a tax qualified
retirement plan as a result of, for example, termination of employment, plan
discontinuance, or retirement, all or part of the distribution may be
transferred directly into your Regular IRA. This is a called a "direct
rollover." Or, you may receive the distribution and make a regular rollover
to your Regular IRA within 60 days. By making a direct rollover or a regular
rollover, you can defer income taxes on the amount rolled over until you
subsequently make withdrawals from your IRA.
The maximum amount you may roll over is the amount of employer
contributions and earnings distributed. You may not roll over any after-tax
employee contributions you made to the employer retirement plan. If you are
over age 70 1/2 and are required to take minimum distributions under the tax
laws, you may not roll over any amount required to be distributed to you
under the minimum distribution rules. Also, if you are receiving periodic
payments over your or your and your designated beneficiary's life expectancy
or for a period of at least 10 years, you may not roll over these payments.
A rollover to a regular IRA must be completed within 60 days after the
distribution from the employer retirement plan to be valid.
NOTE: A qualified plan administrator or 403(b) sponsor MUST
WITHHOLD 20% OF YOUR DISTRIBUTION for federal income taxes UNLESS you elect a
direct rollover. Your plan or 403(b) sponsor is required to provide you with
information about direct and traditional rollovers and withholding taxes
before you receive your distribution and must comply with your directions to
make a direct rollover.
The rules governing rollovers are complicated. Be sure to consult
your tax advisor or the IRS if you have a question about rollovers.
ONCE I HAVE ROLLED OVER A PLAN DISTRIBUTION INTO A REGULAR IRA, CAN I
SUBSEQUENTLY ROLL OVER INTO ANOTHER EMPLOYER'S QUALIFIED RETIREMENT PLAN?
Yes. Part or all of an eligible distribution received from a
qualified plan may be transferred from the Regular IRA holding it to another
qualified plan. However, the IRA must have no assets other than those which
were previously distributed to you from the qualified plan. Specifically,
the IRA cannot contain any contributions by you (or your spouse). Also, the
new qualified plan must accept rollovers. Similar rules apply to Regular
IRAs established with rollovers from 403(b) arrangements.
CAN I MAKE A TRADITIONAL ROLLOVER FROM MY REGULAR IRA TO ANOTHER REGULAR IRA?
You may make a rollover from one Regular IRA to another Regular IRA
you have or you establish to receive the rollover. Such a rollover must be
completed within 60 days after the withdrawal from your first Regular IRA.
After making a traditional rollover from one Regular IRA to another, you must
wait a full year (365 days) before you can make another such rollover.
(However, you can instruct a Regular IRA custodian to transfer amounts
directly to another Regular IRA custodian; such a direct transfer does not
count as a rollover.)
WHAT HAPPENS IF I COMBINE ROLLOVER CONTRIBUTIONS WITH MY NORMAL CONTRIBUTIONS IN
ONE IRA?
If you wish to make both a normal annual contribution and a
rollover contribution, you may wish to open two separate Regular IRAs by
completing two Adoption Agreements and two sets of forms. You should consult
a tax advisor before making your annual contribution to the IRA you
established with rollover contributions (or make a rollover contribution to
the IRA to which you make your annual contributions). This is because
combining your annual contributions and rollover contributions originating
from an employer plan distribution would prohibit the future rollover out of
the IRA into another qualified plan. If despite this, you still wish to
combine a rollover contribution and the IRA holding your annual
contributions, you should establish the account as a Regular IRA on the
Adoption Agreement (not a Rollover IRA or Direct Rollover IRA) and make the
contributions to that account.
7
<PAGE>
HOW DO ROLLOVERS AFFECT MY CONTRIBUTION OR DEDUCTION LIMITS?
Rollover contributions, if properly made, do not count toward the
maximum contribution. Also, rollovers are not deductible and they do not
affect your deduction limits as described above.
WHAT ABOUT CONVERTING MY REGULAR IRA TO A ROTH IRA?
The rules for converting a Regular IRA to a new Roth IRA, or making
a rollover from a Regular IRA to a new Roth IRA, are described in Part Two
below.
WITHDRAWALS
WHEN CAN I MAKE WITHDRAWALS FROM MY REGULAR IRA?
You may withdraw from your Regular IRA at any time. However,
withdrawals before age 59 1/2 may be subject to a 10% penalty tax in addition
to regular income taxes (see below).
WHEN MUST I START MAKING WITHDRAWALS?
If you have not withdrawn your entire IRA by the April 1 following
the year in which you reach 70 1/2, you must make minimum withdrawals in
order to avoid penalty taxes. The rule allowing certain employees to
postpone distributions from an employer qualified plan until actual
retirement (even if this is after age 70 1/2) does NOT apply to Regular IRAs.
The minimum withdrawal amount is determined by dividing the balance
in your Regular IRA (or IRAs) by your life expectancy or the combined life
expectancy of you and your designated beneficiary. The minimum withdrawal
rules are complex. Consult your tax advisor for assistance.
The penalty tax is 50% of the difference between the minimum
withdrawal amount and your actual withdrawals during a year. The IRS may
waive or reduce the penalty tax if you can show that your failure to make the
required minimum withdrawals was due to reasonable cause and you are taking
reasonable steps to remedy the problem.
HOW ARE WITHDRAWALS FROM MY REGULAR IRA TAXED?
Amounts withdrawn by you are includable in your gross income in the
taxable year that you receive them, and are taxable as ordinary income. Lump
sum withdrawals from a Regular IRA are not eligible for averaging treatment
currently available to certain lump sum distributions from qualified employer
retirement plans.
Since the purpose of a Regular IRA is to accumulate funds for
retirement, your receipt or use of any portion of your Regular IRA before you
attain age 59 1/2 generally will be considered as an early withdrawal and
subject to a 10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if:
-The distribution was a result of your death or disability.
-The purpose of the withdrawal is to pay certain higher education expenses
for yourself or your spouse, child, or grandchild. Qualifying expenses
include tuition, fees, books, supplies and equipment required for
attendance at a post-secondary educational institution. Room and board
expenses may qualify if the student is attending at least half-time.
-The withdrawal is used to pay eligible first-time homebuyer expenses.
These are the costs of purchasing, building or rebuilding a principal
residence (including customary settlement, financing or closing costs).
The purchaser may be you, your spouse, or a child, grandchild, parent or
grandparent of you or your spouse. An individual is considered a "first-
time homebuyer" if the individual (or the individual's spouse, if married)
did not have an ownership interest in a principal residence during the two-
year period immediately preceding the acquisition in question. The
withdrawal must be used for eligible expenses within 120 days after the
withdrawal. (If there is an unexpected delay, or cancellation of the home
acquisition, a withdrawal may be redeposited as a rollover).
There is a lifetime limit on eligible first-time homebuyer
expenses of $10,000 per individual.
-The distribution is one of a scheduled series of substantially equal
periodic payments for your life or life expectancy (or the joint lives
or life expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments,
the 10% penalty tax may apply. The 10% penalty will not apply if you
make no change in the series of payments until the end of five years
or until you reach age 59 1/2, whichever is later. If you make a
change before then, the penalty will apply. For example, if you begin
receiving payments at age 50 under a withdrawal program providing for
substantially equal payments over your life expectancy, and at age 58
you elect to receive the remaining amount in your Regular IRA in a
lump-sum, the 10% penalty tax will apply to the lump sum and to the
amounts previously paid to you before age 59 1/2.
-The distribution does not exceed the amount of your deductible
medical expenses for the year (generally speaking, medical expenses
paid during a year are deductible if they are greater than 71/2% of
your adjusted gross income for that year).
-The distribution does not exceed the amount you paid for health
insurance coverage for yourself, your spouse and dependents. This
exception applies only if you have been unemployed and received
federal or state unemployment compensation payments for at least 12
weeks; this exception applies to distributions during the year in
which you received the unemployment compensation and during the
following year, but not to any distributions received after you have
been reemployed for at least 60 days.
HOW ARE NONDEDUCTIBLE CONTRIBUTIONS TAXED WHEN THEY ARE WITHDRAWN?
A withdrawal of nondeductible contributions (not including
earnings) will be tax-free. However, if you made both deductible and
nondeductible contributions to your Regular IRA, then each distribution will
be treated as partly a return of your nondeductible contributions (not
taxable) and partly a distribution of deductible contributions and earnings
(taxable). The nontaxable amount is the portion of the amount withdrawn
which bears the same ratio as your total nondeductible Regular IRA
contributions bear to the total balance of all your Regular IRAs (including
rollover IRAs and SEPs, but not including Roth IRAs).
For example, assume that you made the following Regular IRA
contributions:
8
<PAGE>
<TABLE>
<CAPTION>
Year Deductible Nondeductible
---- ---------- -------------
<S> <C> <C>
1995 $2,000
1996 $2,000
1997 $1,000 $1,000
1998 $1,000
------ ------
$5,000 $2,000
</TABLE>
In addition assume that your Regular IRA has total investment
earnings through 1998 of $1,000. During 1998 you withdraw $500. Your total
account balance as of 12-31-98 is $7,500 as shown below.
<TABLE>
<CAPTION>
<S> <C>
Deductible Contributions $5,000
Nondeductible Contributions $2,000
Earnings On IRA $1,000
Less 1998 Withdrawal $ 500
------
Total Account Balance as of 12/31/98 $7,500
</TABLE>
To determine the nontaxable portion of your 1998 withdrawal, the
total 1998 withdrawal ($500) must be multiplied by a fraction. The numerator
of the fraction is the total of all nondeductible contributions remaining in
the account before the 1998 withdrawal ($2,000). The denominator is the
total account balance as of 12-31-98 ($7,500) plus the 1998 withdrawal ($500)
or $8,000. The calculation is:
Total Remaining
Nondeductible Contributions $2,000 x $500 = $125
--------------------------- ------
Total Account Balance $8,000
Thus, $125 of the $500 withdrawal in 1998 will not be included in
your taxable income. The remaining $375 will be taxable for 1998. In
addition, for future calculations the remaining nondeductible contribution
total will be $2,000 minus $125, or $1,875.
A loss in your Regular IRA investment may be deductible. You
should consult your tax advisor for further details on the appropriate
calculation for this deduction if applicable.
IS THERE A PENALTY TAX ON CERTAIN LARGE WITHDRAWALS OR ACCUMULATIONS IN MY IRA?
Earlier tax laws imposed a "success" penalty equal to 15% of
withdrawals from all retirement accounts (including IRAs, 401(k) or other
employer retirement plans, 403(b) arrangements and others) in a year
exceeding a specified amount (initially $150,000 per year). Also, there was
a 15% estate tax penalty on excess accumulations remaining in IRAs and other
tax-favored arrangements upon your death. These 15% penalty taxes have been
REPEALED.
IMPORTANT: Please see Part Three below which contains important information
applicable to ALL GSI IRAs.
9
<PAGE>
PART TWO: DESCRIPTION OF ROTH IRAS
SPECIAL NOTE
Part Two of the Disclosure Statement describes the rules generally
applicable to Roth IRAs beginning January 1, 1998.
Roth IRAs are a new kind of IRA available for the first time in 1998.
Contributions to a Roth IRA for 1997 are NOT permitted. Contributions to a Roth
IRA are not tax-deductible, but withdrawals that meet certain requirements are
not subject to federal income taxes. This makes the dividends on and growth of
the investments held in your Roth IRA tax-free for federal income tax purposes
if the requirements are met.
Regular IRAs, which have existed since 1975, are still available.
Contributions to a Regular IRA may be tax-deductible. Earnings and gains on
amounts while held in a Regular IRA are tax-deferred. Withdrawals are subject
to federal income tax (except for prior after-tax contributions which may be
recovered without additional federal income tax).
This Part Two does not describe Regular IRAs. If you wish to review
information about Regular IRAs, please see Part One of this Disclosure
Statement.
This Disclosure Statement also does not describe IRAs established in
connection with a SIMPLE IRA program or a Simplified Employee Pension (SEP) plan
maintained by your employer. Roth IRAs may not be used in connection with a
SIMPLE IRA program or a SEP plan.
YOUR ROTH IRA
Your Roth IRA gives you several tax benefits. While contributions to
a Roth IRA are not deductible, dividends on and growth of the assets held in
your Roth IRA are not subject to federal income tax. Withdrawals by you from
your Roth IRA are excluded from your income for federal income tax purposes if
certain requirements (described below) are met. State income tax treatment of
your Roth IRA may differ from federal treatment; ask your state tax department
or your personal tax advisor for details.
Be sure to read Part Three of this Disclosure Statement for important additional
information, including information on how to revoke your Roth IRA, investments
and prohibited transactions, fees and expenses and certain tax requirements.
ELIGIBILITY
WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR A ROTH IRA?
Starting with 1998, you are eligible to establish and contribute to a
Roth IRA for a year if you received compensation (or earned income if you are
self employed) during the year for personal services you rendered. If you
received taxable alimony, this is treated like compensation for IRA purposes.
In contrast to a Regular IRA, with a Roth IRA you may continue making
contributions after you reach age 70 1/2.
CAN I CONTRIBUTE TO A ROTH IRA FOR MY SPOUSE?
Starting with 1998, if you meet the eligibility requirements you can
not only contribute to your own Roth IRA, but also to a separate Roth IRA for
your spouse out of your compensation or earned income, regardless of whether
your spouse had any compensation or earned income in that year. This is called
a "spousal Roth IRA." To make a contribution to a Roth IRA for your spouse, you
must file a joint tax return for the year with your spouse. For a spousal Roth
IRA, your spouse must set up a different Roth IRA, separate from yours, to which
you contribute.
Of course, if your spouse has compensation or earned income, your
spouse can establish his or her own Roth IRA and make contributions to it in
accordance with the rules and limits described in this Part Two of the
Disclosure Statement.
CONTRIBUTIONS
WHEN CAN I MAKE CONTRIBUTIONS TO A ROTH IRA?
You may make a contribution to your Roth IRA or establish a new Roth
IRA for a taxable year by the due date (NOT including any extensions) for your
federal income tax return for the year. Usually this is April 15 of the
following year. For example, you will have until April 15, 1999 to establish
and make a contribution to a Roth IRA for 1998.
CAUTION: Since Roth IRAs are available starting January 1, 1998, you
may NOT make a contribution by April 15, 1998 to a Roth IRA for 1997.
HOW MUCH CAN I CONTRIBUTE TO MY ROTH IRA?
For each year when you are eligible (see above), you can contribute up
to the lesser of $2,000 or 100% of your compensation (or earned income, if you
are self-employed).
Annual contributions may be made only to a Roth IRA annual
contribution account which does not contain converted or transferred funds from
a Regular IRA.
Your Roth IRA limit is reduced by any contributions for the same year
to a Regular IRA. For example, assuming you have at least $2,000 in
compensation or earned income, if you contribute $500 to your Regular IRA for
1998, your maximum Roth IRA contribution for 1998 will be $1,500.
If you and your spouse have spousal Roth IRAs, each spouse may
contribute up to $2,000 to his or her Roth IRA for a year as long as the
combined compensation of both spouses for the year (as shown on your joint
income tax return) is at least $4,000. If the combined compensation of both
spouses is less than $4,000, the spouse with the higher amount of compensation
may contribute up to that spouse's compensation amount, or $2,000 if less. The
spouse with the lower compensation amount may contribute any amount up to that
spouse's compensation plus any excess of the other spouse's compensation over
the other spouse's Roth IRA contribution. However, the maximum contribution to
either spouse's Roth IRA is $2,000 for the year.
As noted above, the spousal Roth IRA limits are reduced by any
contributions for the same calendar year to a Regular IRA maintained by you or
your spouse.
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For taxpayers with high income levels, the contribution limits may be
reduced (see below).
ARE CONTRIBUTIONS TO A ROTH IRA TAX DEDUCTIBLE?
Contributions to a Roth IRA are NOT deductible. This is a major
difference between Roth IRAs and Regular IRAs. Contributions to a Regular IRA
may be deductible on your federal income tax return depending on whether or not
you are an active participant in an employer-sponsored plan and on your income
level.
ARE THE EARNINGS ON MY ROTH IRA FUNDS TAXED?
Any dividends on or growth of investments held in your Roth IRA are
generally exempt from federal income taxes and will not be taxed until withdrawn
by you, unless the tax exempt status of your Roth IRA is revoked. If the
withdrawal qualifies as a tax-free withdrawal (see below), amounts reflecting
earnings or growth of assets in your Roth IRA will not be subject to federal
income tax.
WHICH IS BETTER, A ROTH IRA OR A REGULAR IRA?
This will depend upon your individual situation. A Roth IRA may be
better if you are an active participant in an employer-sponsored plan and your
adjusted gross income is too high to make a deductible IRA contribution (but not
too high to make a Roth IRA contribution). Also, the benefits of a Roth IRA vs.
a Regular IRA may depend upon a number of other factors including: your current
income tax bracket vs. your expected income tax bracket when you make
withdrawals from your IRA, whether you expect to be able to make nontaxable
withdrawals from your Roth IRA (see below), how long you expect to leave your
contributions in the IRA, how much you expect the IRA to earn in the meantime,
and possible future tax law changes.
Consult a qualified tax or financial advisor for assistance on this
question.
ARE THERE ANY RESTRICTIONS ON CONTRIBUTIONS TO MY ROTH IRA?
Taxpayers with very high income levels may not be able to contribute
to a Roth IRA at all, or their contribution may be limited to an amount less
than $2,000. This depends upon your filing status and the amount of your
adjusted gross income (AGI). The following table shows how the contribution
limits are restricted:
ROTH IRA CONTRIBUTION LIMITS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
IF YOU ARE IF YOU ARE THEN YOU MAY MAKE
SINGLE TAXPAYER MARRIED FILING JOINTLY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Up to Up to Full
$95,000 $150,000 Contribution
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------------------------
ADJUSTED More than $95,000 More than $150,000 Reduced Contribution
GROSS but less than but less than (see explanation
INCOME $110,000 $160,000 below)
(AGI)
LEVEL
---------------------------------------------------------------------
$110,000 $160,000 Zero (No
and up and up Contribution)
---------------------------------------------------------------------
</TABLE>
Note: If you are a married taxpayer filing separately, your maximum
Roth IRA contribution limit phases out over the first $15,000 of adjusted gross
income. If your AGI is $15,000 or more, you may not contribute to a Roth IRA
for the year. (Note: Pending legislation in Congress may reduce this number
from $15,000 to $10,000. Consult your tax advisor or the IRS for the latest
developments.)
HOW DO I CALCULATE MY LIMIT IF I FALL IN THE "REDUCED CONTRIBUTION" RANGE?
If your AGI falls in the reduced contribution range, you must
calculate your contribution limit. To do this, multiply your normal
contribution limit ($2,000 or your compensation if less) by a fraction. The
numerator is the amount by which your AGI exceeds the lower limit of the reduced
contribution range ($95,000 if single, or $150,000 if married filing jointly).
The denominator is $15,000 (single taxpayers) or $10,000 (married filing
jointly). Subtract this from your normal limit and then round down to the
nearest $10. The contribution limit is the greater of the amount calculated or
$200.
For example, assume that your AGI for the year is $157,555 and you are
married, filing jointly. You would calculate your Roth IRA contribution limit
this way:
1. The amount by which your AGI exceeds the lower limit of the reduced
contribution deductible range:
($157,555-$150,000) = $7,555
2. Divide this by $10,000: $7,555
-------
$10,000 = 0.7555
3. Multiply this by $2,000 (or your compensation for the year, if less):
0.7555 x $2,000 = $1,511
4. Subtract this from your $2,000 limit:
($2,000 - $1,511) = $489
5. Round this down to the nearest $10 = $480
6. Your contribution limit is the greater of this amount or $200.
Remember, your Roth IRA contribution limit of $2,000 is reduced by any
contributions for the same year to a Regular IRA. If you fall in the reduced
contribution range, the reduction formula applies to the Roth IRA contribution
limit left after subtracting your contribution for the year to a Regular IRA.
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HOW DO I DETERMINE MY AGI?
AGI is your gross income minus those deductions which are available to
all taxpayers even if they don't itemize. Instructions to calculate your AGI
are provided with your income tax Form 1040 or 1040A.
There are two additional rules when calculating AGI for purposes of
Roth IRA contribution limits. First, if you are making a deductible
contribution for the year to a Regular IRA, your AGI is reduced by the amount
of the deduction. Second, if you are converting a Regular IRA to a Roth IRA in
a year (see below), the amount includable in your income as a result of the
conversion is not considered AGI when computing your Roth IRA contribution limit
for the year. (Note: a bill pending in Congress might affect the first rule --
consult your tax advisor or the IRS for the latest developments.)
WHAT HAPPENS IF I CONTRIBUTE MORE THAN ALLOWED TO MY ROTH IRA?
The maximum contribution you can make to a Roth IRA generally is
$2,000 or 100% of compensation or earned income, whichever is less. As noted
above, your maximum is reduced by the amount of any contribution to a Regular
IRA for the same year and may be further reduced if you have high AGI. Any
amount contributed to the Roth IRA above the maximum is considered an "excess
contribution."
An excess contribution is subject to excise tax of 6% for each year it
remains in the Roth IRA.
HOW CAN I CORRECT AN EXCESS CONTRIBUTION?
Excess contributions may be corrected without paying a 6% penalty. To
do so, you must withdraw the excess and any earnings on the excess before the
due date (including extensions) for filing your federal income tax return for
the year for which you made the excess contribution. The earnings must be
included in your income for the tax year for which the contribution was made and
may be subject to a 10% premature withdrawal tax if you have not reached age
59 1/2 (unless an exception to the 10% penalty tax applies).
WHAT HAPPENS IF I DON'T CORRECT THE EXCESS CONTRIBUTION BY THE TAX RETURN DUE
DATE?
Any excess contribution not withdrawn by the tax return due date
(including any extensions) for the year for which the contribution was made
will be subject to the 6% excise tax. There will be an additional 6% excise tax
for each subsequent year the excess remains in your account.
For subsequent years, you may reduce the excess contributions in your
account by making a withdrawal equal to the excess. Earnings need not be
withdrawn. To the extent that no earnings are withdrawn, the withdrawal will
not be subject to income taxes or possible penalties for premature withdrawals
before age 59 1/2. Excess contributions may also be corrected in a subsequent
year to the extent that you contribute less than your Roth IRA contribution
limit for the subsequent year. As the prior excess contribution is reduced or
eliminated, the 6% excise tax will become correspondingly reduced or eliminated
for subsequent tax years.
CONVERSION OF EXISTING REGULAR IRA
CAN I CONVERT AN EXISTING REGULAR IRA INTO A ROTH IRA?
Yes, starting in 1998 you can convert an existing Regular IRA into a
Roth IRA if you meet the adjusted gross income (AGI) limits described below.
Conversion may be accomplished either by establishing a Roth IRA and then
transferring the amount in your Regular IRA you wish to convert to the new Roth
IRA. Or, if you want to convert an existing Regular IRA with Investors
Fiduciary Trust as custodian to a Roth IRA, you may give us directions to
convert.
You are eligible to convert a Regular IRA to a Roth IRA if, for the
year of the conversion, your AGI is $100,000 or less. The same limit applies to
married and single taxpayers, and the limit is not indexed to cost-of-living
increases. Married taxpayers are eligible to convert a Regular IRA to a Roth
IRA only if they file a joint income tax return; married taxpayers filing
separately are not eligible to convert.
NOTE: No contributions other than Roth IRA conversion contributions
made during the same tax year may be deposited in a single Roth IRA conversion
account.
CAUTION: You should be extremely cautious in converting an existing
IRA into a Roth IRA early in a year if there is any possibility that your AGI
for the year will exceed $100,000. Although a bill pending in Congress would
permit you to transfer amounts back to your Regular IRA if your AGI exceeds
$100,000, under the current rules, if you have already converted during a year
and you turn out to have more than $100,000 of AGI, there may be adverse tax
results for you. Consult your tax advisor or the IRS for the latest
developments.
WHAT ARE THE TAX RESULTS FROM CONVERTING?
The taxable amount in your Regular IRA you convert to a Roth IRA will
be considered taxable income on your federal income tax return for the year of
the conversion. All amounts in a Regular IRA are taxable except for your prior
non-deductible contributions to the Regular IRA.
If you make the conversion during 1998, the taxable income is spread
over four years. In other words, you would include one quarter of the taxable
amount on your federal income tax return for 1998, 1999, 2000 and 2001.
SHOULD I CONVERT MY REGULAR IRA TO A ROTH IRA?
Only you can answer this question, in consultation with your tax or
financial advisors. A number of factors, including the following, may be
relevant. Conversion may be advantageous if you expect to leave the converted
funds on deposit in your Roth IRA for at least five years and to be able to
withdraw the funds under circumstances that will not be taxable (see below).
The benefits of converting will also depend on whether you expect to be in the
same tax bracket when you withdraw from your Roth IRA as you are now. Also,
conversion is based upon an assumption that Congress will not change the tax
rules for withdrawals from Roth IRAs in the future, but this cannot be
guaranteed.
TRANSFERS/ROLLOVERS
CAN I TRANSFER OR ROLL OVER A DISTRIBUTION I RECEIVE FROM MY EMPLOYER'S
RETIREMENT PLAN INTO A ROTH IRA?
Distributions from qualified employer-sponsored retirement plans or
403(b) arrangements (for employees of tax-exempt employers) are NOT eligible for
rollover or direct transfer to a Roth IRA. However, in certain circumstances
it may be possible to make a direct rollover of an eligible distribution to a
Regular IRA and then to convert the Regular IRA to a Roth IRA (see above).
Consult your tax or financial advisor for further information on this
possibility.
CAN I MAKE A ROLLOVER FROM MY ROTH IRA TO ANOTHER ROTH IRA?
You may make a rollover from one Roth IRA to another Roth IRA you have
or you establish to receive the rollover. Such a rollover must be completed
within 60 days after the withdrawal from your first Roth IRA. After making a
rollover from one Roth IRA to another, you must wait a full year (365 days)
before you can make another such rollover. (However, you can instruct a Roth
IRA custodian to transfer amounts directly to another Roth IRA custodian; such a
direct transfer does not count as a rollover.)
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<PAGE>
HOW DO ROLLOVERS AFFECT MY ROTH IRA CONTRIBUTION LIMITS?
Rollover contributions, if properly made, do not count toward the
maximum contribution. Also, you may make a rollover from one Roth IRA to
another even during a year when you are not eligible to contribute to a Roth IRA
(for example, because your AGI for that year is too high).
WITHDRAWALS
WHEN CAN I MAKE WITHDRAWALS FROM MY ROTH IRA?
You may withdraw from your Roth IRA at any time. If the withdrawal
meets the requirements discussed below, it is tax-free. This means that you pay
no federal income tax even though the withdrawal includes earnings or gains on
your contributions while they were held in your Roth IRA.
WHEN MUST I START MAKING WITHDRAWALS?
There are no rules on when you must start making withdrawals from your
Roth IRA or on minimum required withdrawal amounts for any particular year
during your lifetime. Unlike Regular IRAs, you are not required to start making
withdrawals from a Roth IRA by the April 1 following the year in which you reach
age 70 1/2.
After your death, there are IRS rules on the timing and amount of
distributions. In general, the amount in your Roth IRA must be distributed by
the end of the fifth year after your death. However, distributions to a
designated beneficiary that begin by the end of the year following the year of
your death and that are paid over the life expectancy of the beneficiary satisfy
the rules. Also, if your surviving spouse is your designated beneficiary, the
spouse may defer the start of distributions until you would have reached age
70 1/2 had you lived.
WHAT ARE THE REQUIREMENTS FOR A TAX-FREE WITHDRAWAL?
To be tax-free, a withdrawal from your Roth IRA must meet two
requirements. First, the Roth IRA must have been open for 5 or more years
before the withdrawal. Second, at least one of the following conditions must be
satisfied:
-You are age 59 1/2 or older when you make the withdrawal.
-The withdrawal is made by your beneficiary after you die.
-You are disabled (as defined in IRS rules) when you make the
withdrawal.
-You are using the withdrawal to cover eligible first time homebuyer
expenses. These are the costs of purchasing, building or rebuilding a
principal residence (including customary settlement, financing or
closing costs). The purchaser may be you, your spouse or a child,
grandchild, parent or grandparent of you or your spouse. An
individual is considered a "first-time homebuyer" if the individual
(or the individual's spouse, if married) did not have an ownership
interest in a principal residence during the two-year period
immediately preceding the acquisition in question. The withdrawal
must be used for eligible expenses within 120 days after the
withdrawal (if there is an unexpected delay, or cancellation of the
home acquisition, a withdrawal may be redeposited as a rollover).
There is a lifetime limit on eligible first-time homebuyer expenses of
$10,000 per individual.
For a Roth IRA that you set up with amounts rolled over or converted
from a Regular IRA, the 5 year period begins with the year in which the
conversion or rollover was made. (Note: a bill pending in Congress might
affect this rule -- consult your tax advisor or the IRS for the latest
developments.)
For a Roth IRA that you started with a normal contribution, the 5 year
period starts with the year for which you make the initial normal contribution.
HOW ARE WITHDRAWALS FROM MY ROTH IRA TAXED IF THE TAX-FREE REQUIREMENTS ARE NOT
MET?
If the qualified withdrawal requirements are not met, a withdrawal
consisting of your own prior contribution amounts to your Roth IRA will not be
considered taxable income in the year you receive it, nor will the 10% penalty
apply. To the extent that the nonqualified withdrawal consists of dividends or
gains while your contributions were held in your Roth IRA, the withdrawal is
includable in your gross income in the taxable year you receive it, and may be
subject to the 10% withdrawal penalty. All amounts withdrawn from your Roth IRA
are considered withdrawals of your contributions until you have withdrawn the
entire amount you have contributed. After that, all amounts withdrawn are
considered taxable withdrawals of dividends and gains.
Note that, for purposes of determining what portion of any
distribution is includable in income, all of your Roth IRA accounts are
considered as one single account. Amounts withdrawn from any one Roth IRA
account are deemed to be withdrawn from contributions first. Since all your
Roth IRAs are considered to be one account for this purpose, withdrawals from
Roth IRA accounts are not considered to be from earnings or interest until an
amount equal to all contributions made to ALL of an individual's Roth IRA
accounts is withdrawn. The following example illustrates this:
A single individual contributes $1,000 a year to his GSI Roth IRA
account and $1,000 a year to the Brand X Roth IRA account over a period of ten
years. At the end of 10 years his account balances are as follows:
<TABLE>
<CAPTION>
PRINCIPAL EARNINGS
CONTRIBUTIONS
<S> <C> <C>
GSI ROTH IRA $10,000 $10,000
BRAND X ROTH IRA $10,000 $10,000
------- -------
TOTAL $20,000 $20,000
</TABLE>
At the end of 10 years, this person has $40,000 in both Roth IRA
accounts, of which $20,000 represents his contributions (aggregated) and $20,000
represents his earnings (aggregated). This individual, who is 40, withdraws
$15,000 from his Brand X Roth IRA (not a qualified withdrawal). We look to the
aggregate amount of all principal contributions - in this case $20,000 - to
determine if the withdrawal is from contributions, and thus non-taxable. In
this example, there is no ($0) taxable income as a result of this withdrawal
because the $15,000 withdrawal is less than the total amount of aggregated
contributions ($20,000). If this individual then withdrew $15,000 from his GSI
Roth IRA, $5,000 would not be taxable (the remaining aggregate contributions)
and $10,000 would be treated as taxable income for the year of the withdrawal,
subject to regular income taxes and the 10% premature withdrawal penalty (unless
an exception applies).
NOTE: If passed, a bill currently pending in Congress will change the
rules and the results discussed above. Under the proposed legislation, in
general, separate Roth IRAs established for annual contributions and conversions
for separate years are not aggregated as explained above to determine the tax on
withdrawals. See your tax advisor for more information and the latest
developments.
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<PAGE>
Taxable withdrawals of dividends and gains from a Roth IRA are treated
as ordinary income. Withdrawals of taxable amounts from a Roth IRA are not
eligible for averaging treatment currently available to certain lump sum
distributions from qualified employer-sponsored retirement plans, nor are such
withdrawals eligible for taxable gains tax treatment.
Your receipt of any taxable withdrawal from your Roth IRA before you
attain age 59 1/2 generally will be considered as an early withdrawal and
subject to a 10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if any of the
following exceptions applies:
- The withdrawal was a result of your death or disability.
- The withdrawal is one of a scheduled series of substantially
equal periodic payments for your life or life expectancy (or the joint
lives or life expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments,
the 10% penalty tax will apply. For example, if you begin receiving
payments at age 50 under a withdrawal program providing for
substantially equal payments over your life expectancy, and at age 58
you elect to withdraw the remaining amount in your Roth IRA in a
lump-sum, the 10% penalty tax will apply to the lump sum and to the
amounts previously paid to you before age 59 1/2 to the extent they
were includable in your taxable income.
- The withdrawal is used to pay eligible higher education
expenses. These are expenses for tuition, fees, books, and supplies
required to attend an institution for post-secondary education. Room
and board expenses are also eligible for a student attending at least
half-time. The student may be you, your spouse, or your child or
grandchild. However, expenses that are paid for with a scholarship or
other educational assistance payment are not eligible expenses.
- The withdrawal is used to cover eligible first time homebuyer
expenses (as described above in the discussion of tax-free
withdrawals).
- The withdrawal does not exceed the amount of your deductible
medical expenses for the year (generally speaking, medical expenses
paid during a year are deductible if they are greater than 7 1/2% of
your adjusted gross income for that year).
- The withdrawal does not exceed the amount you paid for health
insurance coverage for yourself, your spouse and dependents. This
exception applies only if you have been unemployed and received
federal or state unemployment compensation payments for at least 12
weeks; this exception applies to distributions during the year in
which you received the unemployment compensation and during the
following year, but not to any distributions received after you have
been reemployed for at least 60 days.
WHAT ABOUT THE 15 PERCENT PENALTY TAX?
The rule imposing a 15% penalty tax on very large withdrawals from
tax-favored arrangements (including IRAs, 403(b) arrangements and qualified
employer-sponsored plans), or on excess amounts remaining in such tax-favored
arrangements at your death, has been REPEALED. This 15% tax no longer applies.
IMPORTANT: The discussion of the tax rules for Roth IRAs in this Disclosure
Statement is based upon the best available information. However, Roth IRAs are
new under the tax laws, and the IRS has not issued regulations or rulings on the
operation and tax treatment of Roth IRA accounts. Also, if enacted, legislation
now pending in Congress will change some of the rules. Therefore, you should
consult your tax advisor for the latest developments or for advice about how
maintaining a Roth IRA will affect your personal tax or financial situation.
Also, please see Part Three below which contains important information
applicable to ALL GSI IRAs.
14
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PART THREE: RULES FOR ALL IRAS (REGULAR AND ROTH)
GENERAL INFORMATION
IRA REQUIREMENTS
All IRAs must meet certain requirements. Contributions generally must
be made in cash. The IRA trustee or custodian must be a bank or other person
who has been approved by the Secretary of the Treasury. Your contributions may
not be invested in life insurance or collectibles or be commingled with other
property except in a common trust or investment fund. Your interest in the
account must be nonforfeitable at all times. You may obtain further information
on IRAs from any district office of the Internal Revenue Service.
MAY I REVOKE MY IRA?
You may revoke a newly established Regular or Roth IRA at any time
within seven days after the date on which you receive this Disclosure Statement.
A Regular or Roth IRA established more than seven days after the date of your
receipt of this Disclosure Statement may not be revoked.
To revoke your Regular or Roth IRA, mail or deliver a written notice
of revocation to the Custodian at the address which appears at the end of this
Disclosure Statement. Mailed notice will be deemed given on the date that it is
postmarked (or, if sent by certified or registered mail, on the date of
certification or registration). If you revoke your Regular or Roth IRA within
the seven-day period, you are entitled to a return of the entire amount you
originally contributed into your Regular or Roth IRA, without adjustment for
such items as sales charges, administrative expenses or fluctuations in market
value.
INVESTMENTS
HOW ARE MY IRA CONTRIBUTIONS INVESTED?
You control the investment and reinvestment of contributions to your
Regular or Roth IRA. Investments must be in one or more of the Fund(s)
available from time to time as listed in the Adoption Agreement for your Regular
or Roth IRA or in an investment selection form provided with your Adoption
Agreement or from the Fund Distributor or Service Company. You direct the
investment of your IRA by giving your investment instructions to the Distributor
or Service Company for the Fund(s). Since you control the investment of your
Regular or Roth IRA, you are responsible for any losses; neither the Custodian,
the Distributor nor the Service Company has any responsibility for any loss or
diminution in value occasioned by your exercise of investment control.
Transactions for your Regular or Roth IRA will generally be at the applicable
public offering price or net asset value for shares of the Fund(s) involved next
established after the Distributor or the Service Company (whichever may apply)
receives proper investment instructions from you; consult the current prospectus
for the Fund(s) involved for additional information.
Before making any investment, read carefully the current prospectus
for any Fund you are considering as an investment for your Regular IRA or Roth
IRA. The prospectus will contain information about the Fund's investment
objectives and policies, as well as any minimum initial investment or minimum
balance requirements and any sales, redemption or other charges.
Because you control the selection of investments for your Regular or
Roth IRA and because mutual fund shares fluctuate in value, the growth in value
of your Regular or Roth IRA cannot be guaranteed or projected.
ARE THERE ANY RESTRICTIONS ON THE USE OF MY IRA ASSETS?
The tax-exempt status of your Regular or Roth IRA will be revoked if
you engage in any of the prohibited transactions listed in Section 4975 of the
tax code. Upon such revocation, your Regular or Roth IRA is treated as
distributing its assets to you. The taxable portion of the amount in your IRA
will be subject to income tax (unless, in the case of a Roth IRA, the
requirements for a tax-free withdrawal are satisfied). Also, you may be
subject to a 10% penalty tax on the taxable amount as a premature withdrawal if
you have not yet reached the age of 59 1/2.
Any investment in a collectible (for example, rare stamps) by your
Regular or Roth IRA is treated as a withdrawal; the only exception involves
certain types of government-sponsored coins or certain types of precious metal
bullion.
WHAT IS A PROHIBITED TRANSACTION?
Generally, a prohibited transaction is any improper use of the assets
in your Regular or Roth IRA. Some examples of prohibited transactions are:
-Direct or indirect sale or exchange of property between you and
your Regular or Roth IRA.
-Transfer of any property from your Regular or Roth IRA to
yourself or from yourself to your Regular or Roth IRA.
Your Regular or Roth IRA could lose its tax exempt status if you use
all or part of your interest in your Regular or Roth IRA as security for a loan
or borrow any money from your Regular or Roth IRA. Any portion of your Regular
or Roth IRA used as security for a loan will be treated as a distribution in the
year in which the money is borrowed. This amount may be taxable and you may
also be subject to the 10% premature withdrawal penalty on the taxable amount.
FEES AND EXPENSES
CUSTODIAN'S FEES
The fees charged by the Custodian for maintaining either a Regular IRA
or a Roth IRA are listed in the Adoption Agreement.
GENERAL FEE POLICIES
-Fees may be paid by you directly, or the Custodian may deduct them
from your Regular or Roth IRA.
-Fees may be changed upon 30 days written notice to you.
-The full annual maintenance fee will be charged for any calendar year
during which you have a Regular or Roth IRA with us. This fee is not
prorated for periods of less than one full year.
15
<PAGE>
-If provided for in this Disclosure Statement or the Adoption
Agreement, termination fees are charged when your account is closed
whether the funds are distributed to you or transferred to a successor
custodian or trustee.
-The Custodian may charge you for its reasonable expenses for services
not covered by its fee schedule.
OTHER CHARGES
There may be sales or other charges associated with the purchase or
redemption of shares of a Fund in which your Regular IRA or Roth IRA is
invested. Before investing, be sure to read carefully the current prospectus of
any Fund you are considering as an investment for your Regular IRA or Roth IRA
for a description of applicable charges.
TAX MATTERS
WHAT IRA REPORTS DOES THE CUSTODIAN ISSUE?
The Custodian will report all withdrawals to the IRS and the recipient
on the appropriate form. For reporting purposes, a direct transfer of assets to
a successor custodian or trustee is not considered a withdrawal.
The Custodian will report to the IRS the year-end value of your
account and the amount of any rollover (including conversions of a Regular IRA
to a Roth IRA) or regular contribution made during a calendar year, as well as
the tax year for which a contribution is made. Unless the Custodian receives an
indication from you to the contrary, it will treat any amount as a contribution
for the tax year in which it is received. It is MOST IMPORTANT that a
contribution between January and April 15th for the prior year be clearly
designated as such.
WHAT TAX INFORMATION MUST I REPORT TO THE IRS?
You must file Form 5329 with the IRS for each taxable year for which
you made an excess contribution or you take a premature withdrawal that is
subject to the 10% penalty tax, or you withdraw less than the minimum amount
required from your Regular IRA. If your beneficiary fails to make required
minimum withdrawals from your Regular or Roth IRA after your death, your
beneficiary may be subject to an excise tax and be required to file Form 5329.
For Regular IRAs, you must also report each nondeductible contribution
to the IRS by designating it a nondeductible contribution on your tax return.
Use Form 8606. In addition, for any year in which you make a nondeductible
contribution or take a withdrawal, you must include additional information on
your tax return. The information required includes: (1) the amount of your
nondeductible contributions for that year; (2) the amount of withdrawals from
Regular IRAs in that year; (3) the amount by which your total nondeductible
contributions for all the years exceed the total amount of your distributions
previously excluded from gross income; and (4) the total value of all your
Regular IRAs as of the end of the year. If you fail to report any of this
information, the IRS will assume that all your contributions were deductible.
This will result in the taxation of the portion of your withdrawals that should
be treated as a nontaxable return of your nondeductible contributions.
WHICH WITHDRAWALS ARE SUBJECT TO WITHHOLDING?
ROTH IRA
Federal income tax will be withheld at a flat rate of 10% of any
taxable withdrawal from your Roth IRA, unless you elect not to have tax
withheld. Withdrawals from a Roth IRA are not subject to the mandatory 20%
income tax withholding that applies to most distributions from qualified plans
or 403(b) accounts that are not directly rolled over to another plan or IRA.
REGULAR IRA
Federal income tax will be withheld at a flat rate of 10% from any
withdrawal from your Regular IRA, unless you elect not to have tax withheld.
Withdrawals from a Regular IRA are not subject to the mandatory 20% income tax
withholding that applies to most distributions from qualified plans or 403(b)
accounts that are not directly rolled over to another plan or IRA.
ACCOUNT TERMINATION
You may terminate your Regular IRA or Roth IRA at any time after its
establishment by sending a completed withdrawal form (or other withdrawal
instructions in a form acceptable to the Custodian), or a transfer authorization
form, to: General Securities, Incorporated, P.O. Box 419249, Kansas City, Mo
64179-0001.
Your Regular IRA or Roth IRA with GSI will terminate upon the first to
occur of the following:
-The date your properly executed withdrawal form or instructions (as
described above) withdrawing your total Regular IRA or Roth IRA
balance is received and accepted by the Custodian or, if later, the
termination date specified in the withdrawal form.
-The date the Regular IRA or Roth IRA ceases to qualify under the tax
code. This will be deemed a termination.
-The transfer of the Regular IRA or Roth IRA to another
custodian/trustee.
-The rollover of the amounts in the Regular IRA or Roth IRA to another
custodian/trustee.
Any outstanding fees must be received prior to such a termination of
your account.
The amount you receive from your IRA upon termination of the account
will be treated as a withdrawal, and thus the rules relating to Regular IRA or
Roth IRA withdrawals will apply. For example, if the IRA is terminated before
you reach age 59 1/2, the 10% early withdrawal penalty may apply to the taxable
amount you receive.
IRA DOCUMENTS
REGULAR IRA
The terms contained in Articles I to VII of Part One of the GSI
Universal Individual Retirement Custodial Account document have been promulgated
by the IRS in Form 5305-A for use in establishing a Regular IRA Custodial
Account that meets the requirements of Code Section 408(a) for a valid Regular
IRA. This IRS approval relates only to the form of Articles I to VII and is not
an approval of the merits of the Regular IRA or of any investment permitted by
the Regular IRA.
ROTH IRA
The terms contained in Articles I to VII of Part Two of the GSI
Universal Individual Retirement Account Custodial Agreement have been
promulgated by the IRS in Form 5305-RA for use in establishing a Roth IRA
Custodial Account that meets the requirements of Code Section 408A for a valid
Roth IRA. This IRS approval relates only to the form of Articles I to VII and
is not an approval of the merits of the Roth IRA or of any investment permitted
by the Roth IRA.
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Based on our legal advice relating to current tax laws and IRS
meetings, GSI believes that the use of a Universal Individual Retirement Account
Information Kit such as this, containing information and documents for both a
Regular IRA or a Roth IRA, will be acceptable to the IRS. However, if the IRS
makes a ruling, or if Congress enacts legislation, regarding the use of
different documentation, we will forward to you new documentation for your
Regular IRA or a Roth IRA (as appropriate) for you to read and, if necessary, an
appropriate new Adoption Agreement to sign. By adopting a Regular IRA or a Roth
IRA using these materials, you acknowledge this possibility and agree to this
procedure if necessary. In all cases, to the extent permitted, Investors
Fiduciary Trust will treat your IRA as being opened on the date your account was
opened using the Adoption Agreement in this Kit.
ADDITIONAL INFORMATION
For additional information you may write to the following address or call the
following telephone number.
GENERAL SECURITIES, INCORPORATED
5100 EDEN AVENUE, STE 204
EDINA, MN 55436
1-800-577-9217
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UNIVERSAL INDIVIDUAL RETIREMENT ACCOUNT CUSTODIAL
AGREEMENT
PART ONE: PROVISIONS APPLICABLE TO REGULAR IRAS
The following provisions of Articles I to VII are in the form promulgated
by the Internal Revenue Service in Form 5305-A for use in establishing an
individual retirement custodial account.
ARTICLE I.
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or an
employer contribution to a simplified employee pension plan as described in
section 408(k).
ARTICLE II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III.
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold, silver, and platinum coins, coins
issued under the laws of any state, and certain bullion.
ARTICLE IV.
1. Notwithstanding any provisions of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be made
in accordance with the following requirements and shall otherwise comply with
section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to
begin to the Depositor under paragraph 3, or to the surviving spouse under
paragraph 4, other than in the case of a life annuity, life expectancies shall
be recalculated annually. Such election shall be irrevocable as to the
Depositor and the surviving spouse and shall apply to all subsequent years. The
life expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or
begin to be, distributed by the Depositor's required beginning date, the April 1
following the calendar year end in which the Depositor reaches age 70 1/2. By
that date, the Depositor may elect, in a manner acceptable to the Custodian, to
have the balance in the custodial account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and
last survivor lives of the Depositor and his or her
designated beneficiary.
(d) Equal or substantially equal annual payments over a specified
period that may not be longer than the Depositor's life
expectancy.
(e) Equal or substantially equal annual payments over a specified
period that may not be longer than the joint life and last
survivor expectancy of the Depositor and his or her
designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed
to him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in
accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest
has begun, the entire remaining interest will, at the
election of the Depositor or, if the Depositor has not so
elected, at the election of the beneficiary or beneficiaries,
either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated
beneficiary or beneficiaries starting by December 31 of
the year following the year of the Depositor's death.
If, however, the beneficiary is the Depositor's
surviving spouse, then this distribution is not
required to begin before December 31 of the year in
which the Depositor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations
has irrevocably commenced, distributions are treated as
having begun on the Depositor's required beginning date, even
though payments may actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the
surviving spouse, no additional cash contributions or
rollover contributions may be accepted in the account.
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5. In the case of distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual payment for
each year, divide the Depositor's entire interest in the custodial account as of
the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor expectancy of
the Depositor and the Depositor's designated beneficiary, or the life expectancy
of the designated beneficiary, whichever applies.) In the case of distributions
under paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and designated
beneficiary as of their birthdays in the year the Depositor reaches age 70 1/2.
In the case of a distribution in accordance with paragraph 4(b)(ii), determine
life expectancy using the attained age of the designated beneficiary as of the
beneficiary's birthday in the year distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
ARTICLE V.
1. The Depositor agrees to provide the Custodian with information
necessary for the Custodian to prepare any reports required under section 408(i)
and Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
ARTICLE VII.
This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be made
with the consent of the persons whose signatures appear on the Adoption
Agreement.
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PART TWO: PROVISIONS APPLICABLE TO ROTH IRAS
The following provisions of Articles I to VII are in the form promulgated
by the Internal Revenue Service in Form 5305-RA for use in establishing a Roth
Individual Retirement Custodial Account.
ARTICLE I
1. If this Roth IRA is not designated as a Roth Conversion IRA,
then, except in the case of a rollover contribution described in section
408A(e), the Custodian will accept only cash contributions and only up to a
maximum amount of $2,000 for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no
contributions other than IRA Conversion Contributions made during the same tax
year will be accepted.
ARTICLE IA
The $2,000 limit described in Article I is gradually reduced to $0 between
certain levels of adjusted gross income (AGI). For a single Depositor, the
$2,000 annual contribution is phased out between AGI of $95,000 and $110,000;
for a married Depositor who files jointly, between AGI of $150,000 and $160,000;
and for a married Depositor who files separately, between $0 and $10,000. In
case of a conversion, the Custodian will not accept IRA Conversion Contributions
in a tax year if the Depositor's AGI for that tax year exceeds $100,000 or if
the Depositor is married and files a separate return. Adjusted gross income is
defined in section 408A(c)(3) and does not include IRA Conversion Contributions.
ARTICLE II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles
(within the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3), which provides an exception for certain gold, silver, and platinum
coins, coins issued under the laws of any state, and certain bullion.
ARTICLE IV
1. If the Depositor dies before his or her entire interest is
distributed to him or her and the Depositor's surviving spouse is not the sole
beneficiary, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of the
beneficiary or beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(b) Be distributed over the life expectancy of the designated
beneficiary starting no later than December 31 of the year following the year of
the Depositor's death.
If distributions do not begin by the date described in (b), distribution
method (a) will apply.
2. In the case of distribution method 1(b) above, to determine the
minimum annual payment for each year, divide the Depositor's entire interest in
the custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the designated beneficiary using the
attained age of the designated beneficiary as of the beneficiary's birthday in
the year distributions are required to commence and subtract 1 for each
subsequent year.
3. If the Depositor's spouse is the sole beneficiary on the
Depositor's date of death, such spouse will then be treated as the Depositor.
ARTICLE V
1. The Depositor agrees to provide the Custodian with
information necessary for the Custodian to prepare any reports required under
sections 408(i) and 408A(d)(3)(E), and Regulations section 1.408-5 and 1.408-6,
and under guidance published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal
Revenue Service and the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or
incorporated, the provisions of Articles I through IV and this sentence will be
controlling. Any additional articles that are not consistent with section 408A,
the related regulations, and other published guidance will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with
the provisions of the Code, related regulations, and other published guidance.
Other amendments may be made with the consent of the persons whose signatures
appear below.
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PART THREE: PROVISIONS APPLICABLE TO BOTH REGULAR IRAS AND ROTH IRAS
ARTICLE VIII.
1. As used in this Article VIII the following terms have the following
meanings:
"Account" or "Custodial Account" means the individual retirement account
established using the terms of either Part One or Part Two and, in either event,
Part Three of this Universal Individual Retirement Account Custodial Agreement
and the Adoption Agreement signed by the Depositor. The Account may be a
Regular Individual Retirement Account or a Roth Individual Retirement Account,
as specified by the Depositor. See Section 24 below.
"Custodian" means Investors Fiduciary Trust Company.
"Fund" means any registered investment company which is advised, sponsored
or distributed by Sponsor; provided, however, that such a mutual fund or
registered investment company must be legally offered for sale in the state of
the Depositor's residence.
"Distributor" means the entity which has a contract with the Fund(s) to
serve as distributor of the shares of such Fund(s).
In any case where there is no Distributor, the duties assigned hereunder to
the Distributor may be performed by the Fund(s) or by an entity that has a
contract to perform management or investment advisory services for the Fund(s).
"Service Company" means any entity employed by the Custodian or the
Distributor, including the transfer agent for the Fund(s), to perform various
administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned
hereunder to the Service Company will be performed by the Distributor (if any)
or by an entity specified in the second preceding paragraph.
"Sponsor" means General Securities, Incorporated.
2. The Depositor may revoke the Custodial Account established hereunder
by mailing or delivering a written notice of revocation to the Custodian within
seven days after the Depositor receives the Disclosure Statement related to the
Custodial Account. Mailed notice is treated as given to the Custodian on date
of the postmark (or on the date of Post Office certification or registration in
the case of notice sent by certified or registered mail). Upon timely
revocation, the Depositor's initial contribution will be returned, without
adjustment for administrative expenses, commissions or sales charges,
fluctuations in market value or other changes.
The Depositor may certify in the Adoption Agreement that the Depositor
received the Disclosure Statement related to the Custodial Account at least
seven days before the Depositor signed the Adoption Agreement to establish the
Custodial Account, and the Custodian may rely upon such certification.
3. All contributions to the Custodial Account shall be invested and
reinvested in full and fractional shares of one or more Funds. Such investments
shall be made in such proportions and/or in such amounts as Depositor from time
to time in the Adoption Agreement or by other written notice to the Service
Company (in such form as may be acceptable to the Service Company) may direct.
The Service Company shall be responsible for promptly transmitting all
investment directions by the Depositor for the purchase or sale of shares of one
or more Funds hereunder to the Funds' transfer agent for execution. However, if
investment directions with respect to the investment of any contribution
hereunder are not received from the Depositor as required or, if received, are
unclear or incomplete in the opinion of the Service Company, the contribution
will be returned to the Depositor, or will be held uninvested (or invested in a
money market fund if available) pending clarification or completion by the
Depositor, in either case without liability for interest or for loss of income
or appreciation. If any other directions or other orders by the Depositor with
respect to the sale or purchase of shares of one or more Funds for the Custodial
Account are unclear or incomplete in the opinion of the Service Company, the
Service Company will refrain from carrying out such investment directions or
from executing any such sale or purchase, without liability for loss of income
or for appreciation or depreciation of any asset, pending receipt of
clarification or completion from the Depositor.
All investment directions by Depositor will be subject to any minimum
initial or additional investment or minimum balance rules applicable to a Fund
as described in its prospectus.
All dividends and capital gains or other distributions received on the
shares of any Fund held in the Depositor's Account shall be (unless received in
additional shares) reinvested in full and fractional shares of such Fund (or of
any other Fund offered by the Sponsor, if so directed).
4. Subject to the minimum initial or additional investment, minimum
balance and other exchange rules applicable to a Fund, the Depositor may at any
time direct the Service Company to exchange all or a specified portion of the
shares of a Fund in the Depositor's Account for shares and fractional shares of
one or more other Funds. The Depositor shall give such directions by written
notice acceptable to the Service Company, and the Service Company will process
such directions as soon as practicable after receipt thereof (subject to the
second paragraph of Section 3 of this Article VIII).
5. Any purchase or redemption of shares of a Fund for or from the
Depositor's Account will be effected at the public offering price or net asset
value of such Fund (as described in the then effective prospectus for such Fund)
next established after the Service Company has transmitted the Depositor's
investment directions to the transfer agent for the Fund(s).
Any purchase, exchange, transfer or redemption of shares of a Fund for or
from the Depositor's Account will be subject to any applicable sales, redemption
or other charge as described in the then effective prospectus for such Fund.
6. The Service Company shall maintain adequate records of all purchases
or sales of shares of one or more Funds for the Depositor's Custodial Account.
Any account maintained in connection herewith shall be in the name of the
Custodian for the benefit of the Depositor. All assets of the Custodial Account
shall be registered in the name of the Custodian or of a suitable nominee. The
books and records of the Custodian shall show that all such investments are part
of the Custodial Account.
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The Custodian shall maintain or cause to be maintained adequate records
reflecting transactions of the Custodial Account. In the discretion of the
Custodian, records maintained by the Service Company with respect to the Account
hereunder will be deemed to satisfy the Custodian's recordkeeping
responsibilities therefor. The Service Company agrees to furnish the Custodian
with any information the Custodian requires to carry out the Custodian's
recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to the
Custodial Account will have any responsibility for rendering advice with respect
to the investment and reinvestment of Depositor's Custodial Account, nor shall
such parties be liable for any loss or diminution in value which results from
Depositor's exercise of investment control over his Custodial Account.
Depositor shall have and exercise exclusive responsibility for and control over
the investment of the assets of his Custodial Account, and neither Custodian nor
any other such party shall have any duty to question his directions in that
regard or to advise him regarding the purchase, retention or sale of shares of
one or more Funds for the Custodial Account.
8. The Depositor may in writing appoint an investment advisor with
respect to the Custodial Account on a form acceptable to the Custodian and the
Service Company. The investment advisor's appointment will be in effect until
written notice to the contrary is received by the Custodian and the Service
Company. While an investment advisor's appointment is in effect, the investment
advisor may issue investment directions or may issue orders for the sale or
purchase of shares of one or more Funds to the Service Company, and the Service
Company will be fully protected in carrying out such investment directions or
orders to the same extent as if they had been given by the Depositor.
The Depositor's appointment of any investment advisor will also be deemed
to be instructions to the Custodian and the Service Company to pay such
investment advisor's fees to the investment advisor from the Custodial Account
hereunder without additional authorization by the Depositor or the Custodian.
9. Distribution of the assets of the Custodial Account shall be made at
such time and in such form as Depositor (or the Beneficiary if Depositor is
deceased) shall elect by written order to the Custodian. Depositor acknowledges
that any distribution of a taxable amount from the Custodial Account (except for
distribution on account of Depositor's disability or death, return of an "excess
contribution" referred to in Code Section 4973, or a "rollover" from this
Custodial Account) made earlier than age 59 1/2 may subject Depositor to an
"additional tax on early distributions" under Code Section 72(t) unless an
exception to such additional tax is applicable. For that purpose, Depositor
will be considered disabled if Depositor can prove, as provided in Code Section
72(m)(7), that Depositor is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or be of long-continued and indefinite duration.
It is the responsibility of the Depositor (or the Beneficiary) by appropriate
distribution instructions to the Custodian to insure that any applicable
distribution requirements of Code Section 401(a)(9) and Article IV above are
met. If the Depositor (or Beneficiary) does not direct the Custodian to make
distributions from the Custodial Account by the time that such distributions are
required to commence in accordance with such distribution requirements, the
Custodian (and Service Company) shall assume that the Depositor (or Beneficiary)
is meeting the minimum distribution requirements from another individual
retirement arrangement maintained by the Depositor (or Beneficiary) and the
Custodian and Service Company shall be fully protected in so doing. The
Depositor (or the Depositor's surviving spouse) may elect to comply with the
distribution requirements in Article IV using the recalculation of life
expectancy method, or may elect that the life expectancy of the Depositor and/or
the Depositor's surviving spouse, as applicable, will not be recalculated; any
such election may be in such form as the Depositor (or surviving spouse)
provides (including the calculation of minimum distribution amounts in
accordance with a method that does not provide for recalculation of the life
expectancy of one or both of the Depositor and surviving spouse and instructions
for withdrawals to the Custodian in accordance with such method).
Notwithstanding paragraph 2 of Article IV, unless an election to have life
expectancies recalculated annually is made by the time distributions are
required to begin, life expectancies shall not be recalculated. Neither the
Custodian nor any other party providing services to the Custodial Account
assumes any responsibility for the tax treatment of any distribution from the
Custodial Account; such responsibility rests solely with the person ordering the
distribution.
10. The Custodian assumes (and shall have) no responsibility to make any
distribution except upon the written order of Depositor (or Beneficiary if
Depositor is deceased) containing such information as the Custodian may
reasonably request. Also, before making any distribution or honoring any
assignment of the Custodial Account, Custodian shall be furnished with any and
all applications, certificates, tax waivers, signature guarantees and other
documents (including proof of any legal representative's authority) deemed
necessary or advisable by Custodian, but Custodian shall not be responsible for
complying with any order or instruction which appears on its face to be genuine,
or for refusing to comply if not satisfied it is genuine, and Custodian has no
duty of further inquiry. Any distributions from the Account may be mailed,
first-class postage prepaid, to the last known address of the person who is to
receive such distribution, as shown on the Custodian's records, and such
distribution shall to the extent thereof completely discharge the Custodian's
liability for such payment.
11. (a) The term "Beneficiary" means the person or persons designated as
such by the "designating person" (as defined below) on a
form acceptable to the Custodian for use in connection with
the Custodial Account, signed by the designating person, and
filed with the Custodian. The form may name individuals,
trusts, estates, or other entities as either primary or
contingent beneficiaries. However, if the designation does
not effectively dispose of the entire Custodial Account as
of the time distribution is to commence, the term
"Beneficiary" shall then mean the designating person's
estate with respect to the assets of the Custodial Account
not disposed of by the designation form. The form last
accepted by the Custodian before such distribution is to
commence, provided it was received by the Custodian (or
deposited in the U.S. Mail or with a reputable delivery
service) during the designating person's lifetime, shall be
controlling and, whether or not fully dispositive of the
Custodial Account, thereupon shall revoke all such forms
previously filed by that person. The term "designating
person" means Depositor during his/her lifetime; after
Depositor's death, it also means Depositor's spouse, but
only if the spouse elects to treat the Custodial Account as
the spouse's own Custodial Account in accordance with
applicable provisions of the Code.
(b) When and after distributions from the Custodial Account to
Depositor's Beneficiary commence, all rights and obligations
assigned to Depositor hereunder shall inure to, and be
enjoyed and exercised by, Beneficiary instead of Depositor.
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12. (a) The Depositor agrees to provide information to the Custodian at
such time and in such manner as may be necessary for the
Custodian to prepare any reports required under Section
408(i) or Section 408A(d)(3)(E) of the Code and the
regulations thereunder or otherwise.
(b) The Custodian or the Service Company will submit reports to the
Internal Revenue Service and the Depositor at such time and
manner and containing such information as is prescribed by
the Internal Revenue Service.
(c) The Depositor, Custodian and Service Company shall furnish to
each other such information relevant to the Custodial
Account as may be required under the Code and any
regulations issued or forms adopted by the Treasury
Department thereunder or as may otherwise be necessary for
the administration of the Custodial Account.
(d) The Depositor shall file any reports to the Internal Revenue
Service which are required of him by law (including Form
5329), and neither the Custodian nor Service Company shall
have any duty to advise Depositor concerning or monitor
Depositor's compliance with such requirement.
13. (a) Depositor retains the right to amend this Custodial Account
document in any respect at any time, effective on a stated
date which shall be at least 60 days after giving written
notice of the amendment (including its exact terms) to
Custodian by registered or certified mail, unless Custodian
waives notice as to such amendment. If the Custodian does
not wish to continue serving as such under this Custodial
Account document as so amended, it may resign in accordance
with Section 17 below.
(b) Depositor delegates to the Custodian the Depositor's right so to
amend, provided (i) the Custodian does not change the
investments available under this Custodial Agreement and
(ii) the Custodian amends in the same manner all agreements
comparable to this one, having the same Custodian,
permitting comparable investments, and under which such
power has been delegated to it; this includes the power to
amend retroactively if necessary or appropriate in the
opinion of the Custodian in order to conform this Custodial
Account to pertinent provisions of the Code and other laws
or successor provisions of law, or to obtain a governmental
ruling that such requirements are met, to adopt a prototype
or master form of agreement in substitution for this
Agreement, or as otherwise may be advisable in the opinion
of the Custodian. Such an amendment by the Custodian shall
be communicated in writing to Depositor, and Depositor shall
be deemed to have consented thereto unless, within 30 days
after such communication to Depositor is mailed, Depositor
either (i) gives Custodian a written order for a complete
distribution or transfer of the Custodial Account, or (ii)
removes the Custodian and appoints a successor under Section
17 below.
Pending the adoption of any amendment necessary or desirable
to conform this Custodial Account document to the
requirements of any amendment to any applicable provision of
the Internal Revenue Code or regulations or rulings
thereunder, the Custodian and the Service Company may
operate the Depositor's Custodial Account in accordance with
such requirements to the extent that the Custodian and/or
the Service Company deem necessary to preserve the tax
benefits of the Account.
(c) Notwithstanding the provisions of subsections (a) and (b) above,
no amendment shall increase the responsibilities or
duties of Custodian without its prior written consent.
(d) This Section 13 shall not be construed to restrict the
Custodian's right to substitute fee schedules in the manner
provided by Section 16 below, and no such substitution shall
be deemed to be an amendment of this Agreement.
14. (a) Custodian shall terminate the Custodial Account if this
Agreement is terminated or if, within 30 days (or such
longer time as Custodian may agree) after resignation or
removal of Custodian under Section 17, Depositor or
Sponsor, as the case may be, has not appointed a successor
which has accepted such appointment. Termination of the
Custodial Account shall be effected by distributing all
assets thereof in a single payment in cash or in kind to
Depositor, subject to Custodian's right to reserve funds as
provided in Section 17.
(b) Upon termination of the Custodial Account, this custodial account
document shall have no further force and effect (except for
Sections 15(f), 17(b) and (c) hereof which shall survive
the termination of the Custodial Account and this document),
and Custodian shall be relieved from all further liability
hereunder or with respect to the Custodial Account and all
assets thereof so distributed.
15. (a) In its discretion, the Custodian may appoint one or more
contractors or service providers to carry out any of its
functions and may compensate them from the Custodial Account
for expenses attendant to those functions. In the event of
such appointment, all rights and privileges of the Custodian
under this Agreement shall pass through to such contractors
or service providers who shall be entitled to enforce them
as if a named party.
(b) The Service Company shall be responsible for receiving all
instructions, notices, forms and remittances from Depositor
and for dealing with or forwarding the same to the transfer
agent for the Fund(s).
(c) The parties do not intend to confer any fiduciary duties on
Custodian or Service Company (or any other party providing
services to the Custodial Account), and none shall be
implied. Neither shall be liable (or assumes any
responsibility) for the collection of contributions, the
proper amount, time or tax treatment of any contribution to
the Custodial Account or the propriety of any contributions
under this Agreement, or the purpose, time, amount
(including any minimum distribution amounts), tax treatment
or propriety of any distribution hereunder, which matters
are the sole responsibility of Depositor and Depositor's
Beneficiary.
(d) Not later than 60 days after the close of each calendar year (or
after the Custodian's resignation or removal), the Custodian
or Service Company shall file with Depositor a written
report or reports reflecting the transactions effected by it
during such period and the assets of the Custodial Account
at its close. Upon the expiration of 60 days after such a
report is sent to Depositor (or Beneficiary), the Custodian
or Service Company shall be forever released and discharged
from all liability and accountability to anyone with respect
to transactions shown in or reflected by such report except
with respect to any such acts or transactions as to which
Depositor shall have filed written objections with the
Custodian or Service Company within such 60 day period.
23
<PAGE>
(e) The Service Company shall deliver, or cause to be delivered, to
Depositor all notices, prospectuses, financial statements
and other reports to shareholders, proxies and proxy
soliciting materials relating to the shares of the Funds(s)
credited to the Custodial Account. No shares shall be
voted, and no other action shall be taken pursuant to such
documents, except upon receipt of adequate written
instructions from Depositor.
(f) Depositor shall always fully indemnify Service Company,
Distributor, the Fund(s), Sponsor and Custodian and save
them harmless from any and all liability whatsoever which
may arise either (i) in connection with this Agreement and
the matters which it contemplates, except that which arises
directly out of the Service Company's, Distributor's,
Fund's, Sponsor's or Custodian's bad faith, gross negligence
or willful misconduct, (ii) with respect to making or
failing to make any distribution, other than for failure to
make distribution in accordance with an order therefor which
is in full compliance with Section 10, or (iii) actions
taken or omitted in good faith by such parties. Neither
Service Company nor Custodian shall be obligated or expected
to commence or defend any legal action or proceeding in
connection with this Agreement or such matters unless agreed
upon by that party and Depositor, and unless fully
indemnified for so doing to that party's satisfaction.
(g) The Custodian and Service Company shall each be responsible
solely for performance of those duties expressly assigned to
it in this Agreement, and neither assumes any responsibility
as to duties assigned to anyone else hereunder or by
operation of law.
(h) The Custodian and Service Company may each conclusively rely upon
and shall be protected in acting upon any written order from
Depositor or Beneficiary, or any investment advisor
appointed under Section 8, or any other notice, request,
consent, certificate or other instrument or paper believed
by it to be genuine and to have been properly executed, and
so long as it acts in good faith, in taking or omitting to
take any other action in reliance thereon. In addition,
Custodian will carry out the requirements of any apparently
valid court order relating to the Custodial Account and will
incur no liability or responsibility for so doing.
16. (a) The Custodian, in consideration of its services under this
Agreement, shall receive the fees specified on the
applicable fee schedule. The fee schedule originally
applicable shall be the one specified in the Adoption
Agreement or Disclosure Statement, as applicable. The
Custodian may substitute a different fee schedule at any
time upon 30 days' written notice to Depositor. The
Custodian shall also receive reasonable fees for any
services not contemplated by any applicable fee schedule and
either deemed by it to be necessary or desirable or
requested by Depositor.
(b) Any income, gift, estate and inheritance taxes and other taxes of
any kind whatsoever, including transfer taxes incurred in
connection with the investment or reinvestment of the assets
of the Custodial Account, that may be levied or assessed in
respect to such assets, and all other administrative
expenses incurred by the Custodian in the performance of its
duties (including fees for legal services rendered to it in
connection with the Custodial Account) shall be charged to
the Custodial Account. If the Custodian is required to pay
any such amount, the Depositor (or Beneficiary) shall
promptly upon notice thereof reimburse the Custodian.
(c) All such fees and taxes and other administrative expenses charged
to the Custodial Account shall be collected either from the
amount of any contribution or distribution to or from the
Account, or (at the option of the person entitled to collect
such amounts) to the extent possible under the circumstances
by the conversion into cash of sufficient shares of one or
more Funds held in the Custodial Account (without liability
for any loss incurred thereby). Notwithstanding the
foregoing, the Custodian or Service Company may make demand
upon the Depositor for payment of the amount of such fees,
taxes and other administrative expenses. Fees which remain
outstanding after 60 days may be subject to a collection
charge.
17. (a) Upon 30 days' prior written notice to the Custodian, Depositor or
Sponsor, as the case may be, may remove it from its office
hereunder. Such notice, to be effective, shall designate a
successor custodian and shall be accompanied by the
successor's written acceptance. The Custodian also may at
any time resign upon 30 days' prior written notice to
Sponsor, whereupon the Sponsor shall notify the Depositor
(or Beneficiary) and shall appoint a successor to the
Custodian. In connection with its resignation hereunder,
the Custodian may, but is not required to, designate a
successor custodian by written notice to the Sponsor or
Depositor (or Beneficiary), and the Sponsor or Depositor (or
Beneficiary) will be deemed to have consented to such
successor unless the Sponsor or Depositor (or Beneficiary)
designates a different successor custodian and provides
written notice thereof together with such a different
successor's written acceptance by such date as the Custodian
specifies in its original notice to the Sponsor or Depositor
(or Beneficiary) (provided that the Sponsor or Depositor (or
Beneficiary) will have a minimum of 30 days to designate a
different successor).
(b) The successor custodian shall be a bank, insured credit union, or
other person satisfactory to the Secretary of the Treasury
under Code Section 408(a)(2). Upon receipt by Custodian of
written acceptance by its successor of such successor's
appointment, Custodian shall transfer and pay over to such
successor the assets of the Custodial Account and all
records (or copies thereof) of Custodian pertaining thereto,
provided that the successor custodian agrees not to dispose
of any such records without the Custodian's consent.
Custodian is authorized, however, to reserve such sum of
money or property as it may deem advisable for payment of
all its fees, compensation, costs, and expenses, or for
payment of any other liabilities constituting a charge on or
against the assets of the Custodial Account or on or against
the Custodian, with any balance of such reserve remaining
after the payment of all such items to be paid over to the
successor custodian.
(c) Any Custodian shall not be liable for the acts or omissions of
its predecessor or its successor.
18. References herein to the "Internal Revenue Code" or "Code" and
sections thereof shall mean the same as amended from time to time, including
successors to such sections.
24
<PAGE>
19. Except where otherwise specifically required in this Agreement, any
notice from Custodian to any person provided for in this Agreement shall be
effective if sent by first-class mail to such person at that person's last
address on the Custodian's records.
20. Depositor or Depositor's Beneficiary shall not have the right or power
to anticipate any part of the Custodial Account or to sell, assign, transfer,
pledge or hypothecate any part thereof. The Custodial Account shall not be
liable for the debts of Depositor or Depositor's Beneficiary or subject to any
seizure, attachment, execution or other legal process in respect thereof except
to the extent required by law. At no time shall it be possible for any part of
the assets of the Custodial Account to be used for or diverted to purposes other
than for the exclusive benefit of the Depositor or his/her Beneficiary except to
the extent required by law.
21. When accepted by the Custodian, this Agreement is accepted in and
shall be construed and administered in accordance with the laws of the state
where the principal offices of the Custodian are located. Any action involving
the Custodian brought by any other party must be brought in a state or federal
court in such state.
If in the Adoption Agreement, Depositor designates that the Custodial
Account is a Regular IRA, this Agreement is intended to qualify under Code
Section 408(a) as an individual retirement Custodial Account and to entitle
Depositor to the retirement savings deduction under Code Section 219 if
available. If in the Adoption Agreement Depositor designates that the Custodial
Account is a Roth IRA, this Agreement is intended to qualify under Code Section
408A as a Roth individual retirement Custodial Account and to entitle Depositor
to the tax-free withdrawal of amounts from the Custodial Account to the extent
permitted in such Code section.
If any provision hereof is subject to more than one interpretation or
any term used herein is subject to more than one construction, such ambiguity
shall be resolved in favor of that interpretation or construction which is
consistent with the intent expressed in whichever of the two preceding sentences
is applicable.
However, the Custodian shall not be responsible for whether or not
such intentions are achieved through use of this Agreement, and Depositor is
referred to Depositor's attorney for any such assurances.
22. Depositor should seek advice from Depositor's attorney regarding the
legal consequences (including but not limited to federal and state tax matters)
of entering into this Agreement, contributing to the Custodial Account, and
ordering Custodian to make distributions from the Account. Depositor
acknowledges that Custodian and Service Company (and any company associated
therewith) are prohibited by law from rendering such advice.
23. If any provision of any document governing the Custodial Account
provides for notice, instructions or other communications from one party to
another in writing, to the extent provided for in the procedures of the
Custodian, Service Company or another party, any such notice, instructions or
other communications may be given by telephonic, computer, other electronic or
other means, and the requirement for written notice will be deemed satisfied.
24. The legal documents governing the Custodial Account are as follows:
(a) If in the Adoption Agreement the Depositor designated the Custodial Account
as a Regular IRA under Code Section 408(a), the provisions of Part One and Part
Three of this Agreement and the provisions of the Adoption Agreement are the
legal documents governing the Depositor's Custodial Account.
(b) If in the Adoption Agreement the Depositor designated the Custodial Account
as a Roth IRA under Code Section 408A, the provisions of Part Two and Part Three
of this Agreement and the provisions of the Adoption Agreement are the legal
documents governing the Depositor's Custodial Account.
(c) In the Adoption Agreement the Depositor must designate the Custodian
Account as either a Roth IRA or a Regular IRA, and a separate account will be
established for such IRA. One Custodial Account may not serve as a Roth IRA and
a Regular IRA (through the use of subaccounts or otherwise).
25. Articles I through VII of Part One of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-A. It is anticipated
that, if and when the Internal Revenue Service promulgates changes to Form
5305-A, the Custodian will amend this Agreement correspondingly.
Articles I through VII of Part Two of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-RA. It is anticipated
that, if and when the Internal Revenue Service promulgates changes to Form
5305-RA, the Custodian will amend this Agreement correspondingly.
The Internal Revenue Service has endorsed the use of documentation
permitting a Depositor to establish either a Regular IRA or Roth IRA (but not
both using a single Adoption Agreement), and this Kit complies with the
requirements of the IRS guidance for such use. If the Internal Revenue Service
subsequently determines that such an approach is not permissible, or that the
use of a "combined" Adoption Agreement does not establish a valid Regular IRA or
a Roth IRA (as the case may be), the Custodian will furnish the Depositor with
replacement documents and the Depositor will if necessary sign such replacement
documents. Depositor acknowledges and agrees to such procedures and to
cooperate with Custodian to preserve the intended tax treatment of the Account.
26. If the Depositor maintains an Individual Retirement Account under
Code section 408(a), Depositor may convert or transfer such other IRA to a Roth
IRA under Code section 408A using the terms of this Agreement and the Adoption
Agreement by completing and executing the Adoption Agreement and giving suitable
directions to the Custodian and the custodian or trustee of such other IRA.
Alternatively, the Depositor may convert or transfer such other IRA to a Roth
IRA by use of a reply card or by telephonic, computer or electronic means in
accordance with procedures adopted by the Custodian or Service Company intended
to meet the requirements of Code section 408A, and the Depositor will be deemed
to have executed the Adoption Agreement and adopted the provisions of this
Agreement and the Adoption Agreement in accordance with such procedures.
27. The Depositor acknowledges that he or she has received and read the
current prospectus for each Fund in which his or her Account is invested and the
Individual Retirement Account Disclosure Statement related to the Account. The
Depositor represents under penalties of perjury that his or her Social Security
number (or other Taxpayer Identification Number) as stated in the Adoption
Agreement is correct.
25
<PAGE>
EXHIBIT 16
SCHEDULE OF COMPUTATION OF PERFORMANCE
QUOTATIONS IN CALCULATION OF PERFORMANCE DATA
The average annual compounded total return on investments is calculated as
follows:
n
P(1+T) = ERV
1 Year 1000 (1+T)1 = 1,132.33 = 13.2%
5 Years 1000 (1+T)5 = 1,951.37 = 14.3%
10 Years 1000 (1+T)10 = 3,844.33 = 14.4%
The cumulative total return on investments is calculated as follows:
CTR = ERV - P
---- 100
P
1 Year (1,132.33 - 1,000) x 100 = 13.2%
------------------
1,000
5 Year (1,951.37 - 1,000) x 100 = 95.1%
-------------------
10 Year (3,844.33 - 1,000) x 100 = 284.4%
-------------------
See "Calculation of Performance Data" in the Statement of Additional Information
for a legend defining the symbols.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 37,436
<INVESTMENTS-AT-VALUE> 50,299
<RECEIVABLES> 414
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,713
<PAYABLE-FOR-SECURITIES> 104
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,708
<TOTAL-LIABILITIES> 4,708
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 2,780
<SHARES-COMMON-PRIOR> 2,735
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,472
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,862
<NET-ASSETS> 46,006
<DIVIDEND-INCOME> 611
<INTEREST-INCOME> 578
<OTHER-INCOME> 0
<EXPENSES-NET> 697
<NET-INVESTMENT-INCOME> 492
<REALIZED-GAINS-CURRENT> 4,472
<APPREC-INCREASE-CURRENT> 1,097
<NET-CHANGE-FROM-OPS> 6,062
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 489
<DISTRIBUTIONS-OF-GAINS> 4,473
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 372
<NUMBER-OF-SHARES-REDEEMED> 163
<SHARES-REINVESTED> 241
<NET-CHANGE-IN-ASSETS> 6,031
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 290
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 696
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 16.08
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> 2.08
<PER-SHARE-DIVIDEND> (.18)
<PER-SHARE-DISTRIBUTIONS> (1.61)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.55
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
