Securities Act of 1933 Registration No. 2-68483
Investment Act of 1940 Registration No. 881-3079
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A-A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. _______ [ ]
Post-Effective Amendment No. 25 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 27 [X]
NORTHEAST INVESTORS GROWTH FUND
(Exact Name of Registrant as Specified in Charter)
50 Congress Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 523-3588
William A. Oates, Jr.
President
Northeast Investors Growth Fund
50 Congress Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copies to:
Thomas J. Kelly, Esquire
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
The sole purpose of this amendment being filed is to file the exhibits
listed herein, a list of the exhibits, and a signature page.
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NORTHEAST INVESTORS
ROTH IRA
50 Congress Street
Suite 1000
Boston, Massachusetts 02109-4096
Telephone: 617-523-3588
800-225-6704
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TABLE OF CONTENTS
Page
HOW TO OPEN A ROTH IRA 3
HOW TO OPEN A CONVERSION OR ROLLOVER ROTH IRA 3
HOW TO OPEN A SPOUSAL ROTH IRA 4
CUSTODIAN FEE 4
WITHDRAWALS 4
IN SUMMARY, PLEASE SEND THE FOLLOWING 4
INFORMATION ABOUT A NORTHEAST INVESTORS ROTH IRA 5
Briefly, what is a Roth IRA? 5
Revocation 6
Three Important Points 6
Investments 6
WHO MAY ESTABLISH A ROTH IRA? 6
Roth IRAs for You and Your Spouse 6
IRAs for Divorced Individuals 7
HOW MUCH CAN I CONTRIBUTE? 7
Annual Contributions 7
Coordination With Traditional IRA Contributions 7
Adjusted Gross Income 7
Contribution Limits Based on AGI 8
Conversion or Rollover Contributions from
a Traditional IRA ..... 8
Will Conversion/Rollover of my Traditional IRA be
Advantageous? 9
Rollovers From One Roth IRA To Another 10
HOW MUCH CAN I DEDUCT? 10
WHEN CAN I MAKE CONTRIBUTIONS? 10
INVESTMENT CHOICES 10
EXCESS CONTRIBUTIONS 10
RECHARACTERIZING YOUR CONTRIBUTION 11
WITHDRAWALS FROM YOUR ROTH IRA 12
WHEN MUST I MAKE WITHDRAWALS? 15
HOW TO MAKE WITHDRAWALS 15
A WORD ABOUT REPORTING 15
DEATH BENEFITS 15
SOME THINGS TO AVOID 16
CUSTODIAN FEE AND OTHER CHARGES 16
The Ten Dollar ($10) Annual Maintenance Fee 16
Tax Withholding Fee ($10) 16
Northeast Investors Trust 17
Northeast Investors Growth Fund 17
GROWTH OF YOUR ACCOUNT 17
STATE TAX RULES 18
IRS REPORTS AND RETURNS 18
NORTHEAST INVESTORS ROTH IRA TRANSFER FORM 23
NORTHEAST INVESTORS ROTH IRA APPLICATION FORM 25
NORTHEAST INVESTORS UNIVERSAL IRA WITHDRAWAL
AUTHORIZATION FORM 29
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ROTH IRA VS. TRADITIONAL IRA
This booklet describes the new Northeast Investors Roth IRA, a new kind of IRA
that became available starting January 1, 1998. The booklet does not describe
our Traditional IRA, which has been available for many years.
The main difference between a Roth IRA and a Traditional IRA is as follows.
With a Traditional IRA, contributions may be deductible currently on your
federal income tax return. Later, withdrawals are taxable (except for any prior
nondeductible contributions).
Contributions to a Roth IRA are not deductible. However, withdrawals that
meet certain requirements are not included in your taxable income. This means
that income and growth achieved while your contributions were in the Roth IRA
can be withdrawn tax-free, a unique benefit. Also, unlike a Traditional IRA,
contributions to a Roth IRA may be made after age 701/2, and during your
lifetime there are no mandatory age 701/2 withdrawal rules for Roth IRAs.
Different features of Roth IRAs and Traditional IRAs may make one or the
other better for you. Consult your own tax or financial advisor for more
information. If you would like materials for a Northeast Investors Traditional
IRA, please call us at 1-800-225-6704.
Finally, please note that because Roth IRAs are new, many of the tax law
rules are not definitively set forth. The IRS has issued proposed regulations on
Roth IRAs, but these are subject to change. The material in this booklet is
based on the latest available information. However, if you have a specific
question about how the Roth IRA rules apply to your particular situation or
about the latest Roth IRA developments or any changes in the rules, consult a
qualified professional or the IRS. If as a result of future developments or
changes in the rules, it becomes necessary to revise the Custodial Agreement or
other legal documents governing your account, Northeast Investors will send you
the necessary amendments (which we expect would not require an additional
signature by you).
HOW TO OPEN A ROTH IRA
1. To open a Northeast Investors Roth IRA, please complete and sign the
enclosed Roth IRA Application form, and if needed the Roth IRA Transfer
Form. Please make sure that sections 1 through 3 of the Application are
completed and that you sign in section 4.
2. Send the completed and signed Roth IRA Application form along with
either a check for your initial contribution or the Roth IRA Transfer
Form if applicable.
A minimum of $500 is required to open your Roth IRA. Anytime thereafter you
may make contributions of any amount to your Northeast Investors Roth IRA as
long as you do not exceed the limits on contributions. For further information
regarding the contribution rules, please see pages 7 and 8.
HOW TO OPEN A CONVERSION OR ROLLOVER ROTH IRA
1. If your (or your and your spouse's) adjusted gross income does not exceed
$100,000, you may convert your existing Northeast Investors Traditional IRA to a
Roth IRA. Or you may establish a Northeast Investors Roth IRA to receive a
rollover distribution or a direct transfer from a Traditional IRA account with
another custodian, thus converting it into a Roth IRA. (You may not rollover or
convert a Traditional IRA to a Roth IRA if you are married but file a single tax
return, or if your adjusted gross income exceeds $100,000.) A conversion or
rollover from a Traditional IRA will not be subject to a 10% premature
withdrawal penalty, but the taxable amount converted or rolled over will be
subject to
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federal income tax at the time of the rollover or conversion. (However, income
attributable to a rollover or conversion in 1998 may be spread out over the four
year period running from 1998-2001.) State tax rules may be different. For
further information regarding rollovers/conversions, please see page 8.
You may elect to open a Roth IRA account to hold both annual contributions
and conversion, rollover or transfer amounts by simply completing one Roth IRA
Application, and if needed one Roth IRA Transfer Form. You must complete
separate Roth IRA Applications (as well as, if necessary, a Roth IRA Transfer
Form) if you want to maintain separate Roth IRA accounts to hold annual
contribution amounts and amounts converted, rolled over or transferred.
Also, you may roll over a withdrawal from another Roth IRA with a different
custodian, or make a direct transfer from the other Roth IRA, to a Northeast
Investors Roth IRA.
For a conversion or direct rollover, complete the Roth IRA Application form
and the Roth IRA Transfer Form.
HOW TO OPEN A SPOUSAL ROTH IRA
1. For a spousal Roth IRA, your spouse must complete a Roth IRA Application
(sections 1 through 4). You may be eligible to contribute up to a combined
maximum of $4,000 to your Roth IRA and the spousal Roth IRA. For further
information regarding Roth IRAs for your spouse, please see page 6.
CUSTODIAN FEE
1. The custodian fee is a $10 Roth IRA maintenance fee charged annually. For
further information regarding the $10 maintenance fee, please see page 15. The
annual maintenance fee will automatically be charged to your Roth IRA account.
(However, if you want to be billed for the annual maintenance fee and pay by
check, please check the appropriate box on the Roth IRA Application.)
WITHDRAWALS
1. A Withdrawal Authorization Form is enclosed in this booklet and additional
forms may be requested from Northeast Management and Research Co., Inc. For
methods of withdrawal refer to the Withdrawal Authorization Form. You generally
must be at least age 591/2 and have had your Roth IRA account open for five or
more years to take a tax-free withdrawal representing earnings or share growth
in your account. (You may withdraw the principal amount contributed without
incurring additional tax or penalty.) For further information on withdrawals,
please see pages 12-15.
2. If you do not meet the requirements for a tax-free withdrawal, the earnings
and appreciation in your Roth IRA account that you withdraw will be taxable.
Also, if you are under 591/2 the 10% IRS penalty tax will apply unless there is
an available exception.
IN SUMMARY, PLEASE SEND THE FOLLOWING:
1. The Roth IRA Application form with sections 1 through 4 completed and section
5 signed.
2. If you want separate Roth IRAs for annual contribution amounts and for
amounts converted, transferred or rolled over from a Traditional IRA in a
particular year, complete separate Roth IRA Applications. More forms are
available from Northeast Investors. 3. For regular or spousal Roth IRAs (but not
for conversion or transfer Roth IRAs), a check in the amount of your initial
contribution, made payable to Northeast Management & Research Company, Inc. 4.
For a conversion or direct rollover of a Traditional IRA, the completed Roth
IRA Transfer Form.
5. If you are paying the annual maintenance fee by check, a check in the amount
of $10.00 for each Roth IRA.
All checks should be payable to Northeast Management & Research Co., Inc.
SEND ALL COMPLETED FORMS, CHECKS AND ANY OTHER CORRESPONDENCE TO:
Northeast Management & Research Company, Inc.
50 Congress Street, Suite 1000
Boston, MA 02109-4096
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INFORMATION ABOUT A
NORTHEAST INVESTORS ROTH IRA
Briefly, what is a Roth IRA?
A Northeast Investors Roth Individual Retirement Account ("Roth IRA") is a
convenient and sensible method of saving for retirement or other long-term
needs. The Roth IRA is named for Senator William Roth, who pushed for the Roth
IRA concept. Roth IRAs are available for use by taxpayers after January 1, 1998.
A Roth IRA is essentially the mirror image of a Traditional IRA. In a
Traditional IRA, you may get a tax deduction when your contributions go in, but
you pay income tax on the amount that comes out. With a Roth IRA, there is no
deduction for contributions, but qualified withdrawals come out of the Roth IRA
tax free.
Here's how it works: in a Traditional IRA, you are generally permitted to
contribute up to $2,000 ($4,000 for married couples) annually. If you meet
certain rules, you may deduct your contribution and therefore you are not taxed,
as a part of your overall federal income tax for that year, on the amount you
contributed to the Traditional IRA. However, a withdrawal from a Traditional IRA
is taxable as income in the year of the withdrawal.
With a Roth IRA, on the other hand, amounts contributed are not deductible
and therefore do not reduce your taxable income for the year for which the
contribution is made. However, withdrawals are tax-free if you have had the Roth
IRA account for a minimum of five years and you are at least 591/2 years old or
have another qualifying reason for the withdrawal. With a Roth IRA you pay tax
now on the principal amount, but you do not pay tax on the earnings and growth
in value of your account.
In general, a couple filing jointly may be able to invest as much as $4,000
a year in Roth IRAs if their adjusted gross income is $150,000 or less. An
individual taxpayer with annual income up to $95,000 may be able to contribute
up to $2,000 a year. You must have compensation or earned income at least equal
to your contribution. Within these rules anyone can have a Roth IRA, including
individuals who are age 701/2 or older and participants in company sponsored
profit sharing, 401(k) or retirement plans, or a SEP or SIMPLE IRA plan
maintained by an employer. Individuals can also maintain both Traditional and
Roth IRAs. However, contributions to both the Traditional and Roth IRAs count
against the annual contribution limit.
You may also convert, or rollover or transfer amounts from, an existing
Traditional IRA into a Roth IRA if your (or your and your spouse's combined)
adjusted gross income for a year is less than $100,000. The amount converted or
rolled over is subject to regular federal income tax for the year of the
conversion or rollover as if withdrawn. However, the 10% early withdrawal
penalty that generally applies to early withdrawals from Traditional IRAs does
not apply. Tax on amounts converted or rolled over from a Traditional IRA to a
Roth IRA during 1998 may be spread out over four years (1998-2001). You may wish
to establish a Roth IRA account to receive amounts converted or rolled over from
a Traditional IRA in a year and keep it separate from any Roth IRA you have for
annual contribution amounts. This will help you keep account records to
facilitate calculation of any income taxes that may be due or withdrawals from
your Roth IRA.
Contributions to your Roth IRA are invested in shares of Northeast
Investors Trust or Northeast Investors Growth Fund, as you decide (there is a
$500 minimum investment for each fund). You can invest a portion of each
contribution in each fund, and you can exchange investments from one fund to the
other. The growth of your Roth IRA (both earnings and appreciation) is exempt
from federal income tax while it accrues. Gen-
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erally, you may make withdrawals from the principal amount contributed to your
Roth IRA at any time without tax or penalty. If you are at least 591/2, and you
have had a Roth IRA account for at least five years, withdrawals of earnings or
growth in your account will also be tax-free.
A Roth IRA must meet certain requirements of the Internal Revenue Code. The
agreement establishing the Roth IRA must identify the account as a Roth IRA and
must provide that the custodian is a bank and that contributions will be in
cash. The Northeast Investors Roth IRA Custodial Agreement is designed to meet
the requirements so that your Roth IRA will receive the favorable federal income
tax treatment provided by law.
Revocation
You may revoke your Roth IRA within seven calendar days after Northeast
Management & Research Company, Inc. receives the Roth IRA Application
establishing your Roth IRA. The amount of your deposit will be returned to you
without penalty, administrative charge or adjustment for dividends or investment
gains or losses.
To revoke your account, mail or deliver a written notice to Northeast
Management & Research Company, Inc., 50 Congress Street, Suite 1000, Boston,
Massachusetts 02109-4096. If you have any questions, call 617-523-3588 or
1-800-225-6704.
Three Important Points
First, this booklet summarizes the federal tax treatment of Northeast
Investors Roth IRAs. State taxes on Roth IRAs may vary from federal taxes. A
further word on this can be found on page 18.
Second, if you are uncertain about whether you are eligible for a Northeast
Investors Roth IRA, or about when or how much you should contribute to or
withdraw from your Roth IRA, or about the merits of converting an existing
Traditional IRA to a Roth IRA, consult your tax or financial advisor or the
Internal Revenue Service. This booklet outlines the main rules, but no summary
can describe all the rules that could apply in your individual case. Northeast
Investors has no responsibility for determining your eligibility for a Roth IRA,
or the proper time or amount of any contribution or withdrawal.
Third, the Internal Revenue Service has promulgated the language of
Articles I-VII of Northeast Investors Roth IRA Custodial Agreement to set forth
the terms and conditions which must be contained in a Roth IRA agreement. This
does not mean that the IRS approves the merits of investing in a Northeast
Investors Roth IRA.
If you have any questions about your Roth IRA, you can obtain further
information at any district office of the Internal Revenue Service.
Investments
Your contributions will be invested exclusively in shares of Northeast
Investors Trust or shares of Northeast Investors Growth Fund as you choose-- see
Investment Choices on page 10. Dividends and distributions will be automatically
reinvested. For more information about Northeast Investors Trust and Northeast
Investors Growth Fund, see the current prospectuses for the funds. Read the
prospectus(es) before investing.
WHO MAY ESTABLISH A ROTH IRA?
Roth IRAs for You and Your Spouse
To make contributions to your Roth IRA, you must have received compensation
or earned income during the year for personal services.
Contributions to a Roth IRA may also be made on behalf of your spouse from
your compensation. This is called a spousal Roth IRA. Your spouse must open his
or her own spousal Roth IRA to receive the contributions.
Unlike a Traditional IRA, you may contribute to a Roth IRA even if
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you are (or, in the case of a spousal Roth IRA, your spouse is) older than age
701/2. The contribution limits for Roth IRAs are summarized below.
Roth IRAs for Divorced Individuals
If you are divorced, for Roth IRA purposes, "compensation" includes any
alimony you receive under a divorce or separation order or agreement and which
you must include in your taxable income. Therefore, you may have a Roth IRA and
contribute to it from your alimony (and any other actual compensation or earned
income you have).
HOW MUCH CAN I CONTRIBUTE?
Annual Contributions
For single taxpayers, you may contribute up to $2,000 (or 100% of
compensation, if less) per year to your Roth IRA if your adjusted gross income
("AGI") is $95,000 or less. The amount you may contribute is reduced if your AGI
is over $95,000 but less than $110,000 (see below). If you have AGI of more than
$110,000 in a year, you may not contribute to a Roth IRA for that year.
A married couple filing a joint return can contribute as much as $4,000 (or
100% of compensation of both spouses, if less) per year to their Roth IRAs if
they have an AGI of $150,000 or less. The maximum contribution to the Roth IRA
of either spouse is $2,000. The maximum contribution is reduced for AGI between
$150,000 and $160,000 (see below). If the married couple's AGI for a year
exceeds $160,000, neither may contribute to a Roth IRA for that year.
Note that married persons who file separate tax returns have limited
ability to contribute to a Roth IRA. A married person who files separately may
contribute to a Roth IRA only if his or her AGI for the year is below $10,000.
(However, if you are married but are filing singly and have lived apart from
your spouse for the entire year, you are treated as single for purposes of these
rules on eligibility to contribute to a Roth IRA.)
Coordination With Traditional IRA Contributions
If you make a contribution for a year to a Traditional IRA, the amount of
the contribution reduces your Roth IRA contribution limit. For example, if you
should contribute $1,000 to a Traditional IRA for 1998, your maximum Roth IRA
contribution for 1998 will be $1,000 ($2,000 limit reduced by the $1,000
contribution to your Traditional IRA)--assuming the other Roth IRA requirements
are met.
Adjusted Gross Income
As indicated above, the maximum amount you may contribute on an annual
basis to your Roth IRA depends on your AGI. AGI is your total income less
certain adjustments such as business expenses or alimony, but before itemized
deductions.
For Roth IRA purposes, there are two special rules in determining your AGI.
First, AGI is determined without taking into account any deduction you take for
a contribution to a Traditional IRA for the year. Second, AGI does not include
any amount that you must include in taxable income from converting or rolling
over a Traditional IRA into a Roth IRA in a year.
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Contribution Limits Based on AGI
The following chart shows Roth IRA contribution limits at different AGI
levels:
ROTH IRA CONTRIBUTION LIMITS
<TABLE> (AGI Levels)
<C> <S> <S> <S>
Full Contribution Smaller Contribution No Contribution
Single up to $95,000 above $95,000 up to $110,000 $110,000 and up
Married up to $150,000 above $150,000 up to $160,000 $160,000 and up
(filing jointly)
Married zero zero up to $10,000 $10,000 and up
(filing separately)
</TABLE>
If you are in the Smaller Contribution range, you can determine how much
you may contribute as follows:
First, subtract your AGI from the amount in the No Contribution column
applicable to you (i.e., $110,000 for single taxpayers, $160,000 for married
taxpayers), and divide that amount by $15,000 (if you are single) or $10,000 (if
you are married filing jointly). Second, multiply the amount from the first step
by the maximum contribution to get the amount that may be contributed. Round
down to the nearest $10. Also, as long as your AGI for a year does not equal or
exceed the No Contribution amount that applies to you, you may contribute $200
even if the contribution formula results in an amount smaller than $200. This
limit applies to each Roth IRA of a married couple.
For example, suppose you are a married joint filer with AGI of $155,000.
Subtract $155,000 from $160,000, the amount where contributions phase out
completely. $160,000 minus $155,000 equals $5,000. $5,000 divided by $10,000 is
.5 or 50%. Therefore, you are eligible to contribute 50% of $2,000 ($1,000) to
your Roth IRA and your spouse may contribute up to 50% of $2,000 ($1,000) to the
spouse's Roth IRA, a total of $2,000.
You (and your spouse) may also contribute to Traditional IRAs in the same
year in which you make contributions to a Roth IRA. However, any contributions
to a Traditional IRA reduce the Roth IRA contribution limit of $2,000 (or
compensation for the year, if less) dollar for dollar. In other words, if you
and your spouse file a joint tax return and have a combined annual income of at
least $4,000 but less than $150,000, you may contribute up to $4,000 to Roth
IRAs, or to Traditional IRAs for you and your spouse, or you could divide up
contributions between the IRAs any way you like, as long as your contributions
to any particular IRA do not exceed $2,000 and total contributions to all IRAs
do not exceed $4,000 in a single year. (Of course, the limits on the
availability of a deduction for any amount you contribute to your Traditional
IRA will still apply).
Unlike a Traditional IRA, you may make contributions to a Roth IRA even if
you (or your spouse) are older than age 701/2. Moreover, contributions to Roth
IRAs may be made without regard to whether you are an active participant in your
employer's retirement, profiting sharing or 401(k) plan.
Conversion or Rollover Contributions from a Traditional IRA
You may convert a portion or the entire account balance of an existing
Traditional IRA you maintain with Northeast Investors to a Roth IRA. If you have
a Traditional IRA with another sponsor, you can withdraw it and then roll it
over within 60 days into a Northeast Investors Roth IRA or direct the current
custodian of your Traditional IRA to transfer it directly to a Northeast
Investors Roth IRA. Any of these methods will work to correct a Traditional IRA
to a Roth IRA. You are eligible to convert (by any of the three methods) from a
Traditional IRA to a Roth IRA if your
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(or your and your spouse's combined) AGI for the year is $100,000 or less.
(Note: married couples must file jointly to take advantage of this conversion/
rollover option. However, if you are married but are filing singly and have
lived apart for the entire year, you are treated as single and joint filing
requirement does not apply.)
Any amount that you convert from an existing Traditional IRA into a Roth
IRA will be subject to federal income tax in the year in which the conversion
occurs. However, any previous nondeductible contributions held in your
Traditional IRA are not subject to income tax upon conversion. Also, the 10%
penalty for premature IRA withdrawals does not apply to the conversion amount
even if you are under age 591/2. For conversions made in 1998, the taxable
amount converted may be spread out over the four year period beginning in 1998
and ending in 2001 to help with the tax impact. However, you may take the entire
taxable amount into income in 1998 by so electing on your 1998 return.
If you convert a Traditional IRA to a Roth IRA by means of a withdrawal
from the Traditional IRA followed by a rollover within 60 days to the Roth IRA,
the eligibility rules apply to the year of the withdrawal. For example, if you
withdraw in December, 1998 and rollover to a Roth IRA in January, 1999, you must
meet the $100,000 limit and married filing jointly requirement for 1998 (and the
withdrawal will qualify for spreading the taxable amount over four years). Also,
such a rollover does not use up the one-rollover-per-year limit on certain
rollovers among IRAs.
You can convert from a Traditional IRA to Northeast Investors Roth IRA by
completing the Conversion/Direct Transfer to Roth IRA Form.
You may also convert to a Roth IRA either (i) a SEP IRA that you have as a
participant in your employer's simplified employee pension (SEP) plan, or (ii) a
SIMPLE IRA that you have as a participant in an employer SIMPLE IRA plan (but
not an employer SIMPLE 401(k) plan). A SIMPLE IRA account must be in effect for
at least two years before conversion to a Roth IRA. Conversion may be
accomplished by any of the three methods mentioned above.
You may wish to establish a separate Roth IRA account to hold amounts
converted/rolled over/transferred in a particular year to keep them separate
from annual contribution amounts or conversion/rollover/transfer amounts for a
different year.
This may help you keep proper records so you can report and pay taxes on
any withdrawals from your Roth IRA account(s). See the tax information under the
heading WITHDRAWALS FROM YOUR ROTH IRA (p. 12). If you convert/rollover/transfer
your Traditional IRA but are not eligible (for example, your AGI for the year
exceeds $100,000), see the information under the heading RECHARACTERIZING YOUR
CONTRIBUTION (p. 11).
Will Conversion Of My Traditional IRA Be Advantageous?
Whether conversion of your Traditional IRA to a Roth IRA will be
advantageous depends on a number of factors, including:
-- Your tax rate now versus your expected tax rate when you will make
withdrawals. -- Whether you expect to be eligible to make tax-free
withdrawals from your Roth IRA (see below). -- Whether you expect not to
need or want to make withdrawals when you reach 701/2. -- The rate of
return you expect your Roth IRA to make versus the after-tax
rate of return you would make on investments outside the IRA.
There may be other factors that apply in your situation. Also, the benefits
of converting may depend on the key tax law rules not changing, but this cannot
be guaranteed. Consult a qualified tax or financial advisor for advice.
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Rollovers From One Roth IRA To Another
As with Traditional IRAs, you may make a rollover from one Roth IRA you
have to another (but you may not roll from a Roth IRA to a Traditional IRA).
Such rollovers do not count against the annual contribution limits. A rollover
must be completed within 60 days after you withdraw from the first Roth IRA.
Also, after completing such a rollover from one Roth IRA to another, you must
wait a full year before you can do another Roth IRA to Roth IRA rollover. (With
Traditional IRAs, the IRS has recognized direct transfers from one IRA custodian
to another and presumably the IRS will approve such direct
custodian-to-custodian transfers with Roth IRAs also. Such direct transfers from
one custodian to another are not considered a rollover and do not use up your
one-rollover-per-year opportunity.)
HOW MUCH CAN I DEDUCT?
Unlike a Traditional IRA, contributions to a Roth IRA are not eligible for
a deduction in the year in which they are made. The Roth IRA simply provides a
vehicle in which your investments may grow tax-free. When you take a withdrawal
from the Roth IRA, the entire amount --principal and earnings--comes out of the
account tax-free to you, as long as yours is a qualified withdrawal, discussed
below.
WHEN CAN I MAKE CONTRIBUTIONS?
You may establish and make a contribution to your Northeast Investors Roth
IRA for a particular year if you do so by the due date of your federal tax
return for that year (not including any extensions). Normally, this will be
April 15 of the following year. Of course, you may make your contribution
earlier and it will start earning sooner.
INVESTMENT CHOICES
Contributions to your Northeast Investors Roth IRA must be invested in
shares of Northeast Investors Trust or shares of Northeast Investors Growth
Fund. You may also invest part of each contribution in each fund. Simply
indicate your choice in the Application when you open your Northeast Investors
Roth IRA.
Also, you can direct the custodian to exchange a specified portion of the
Northeast Investors Trust shares in your Roth IRA to Northeast Investors Growth
Fund or vice versa.
Investments or exchanges are subject to the $500 minimum investment
requirement applicable to each fund. Before investing, be sure to read the
current prospectuses for Northeast Investors Trust and Northeast Investors
Growth Fund to familiarize yourself with the investment objectives and policies
of each, and applicable fees and expenses.
EXCESS CONTRIBUTIONS
An "excess contribution" occurs if you contribute more to your Roth IRA or
a spousal Roth IRA than the maximum allowed. The excess is the difference
between the amount you actually contributed and the maximum allowed. For
example, if you contributed $2,500 to your own Roth IRA in a particular year,
you would have a $500 excess contribution. (Remember that the maximum
contribution--generally $2,000 or 100% of compensation or earned income, if
less--is reduced by any contributions to a Traditional IRA. Also, the
contribution limit phases out for single taxpayers with adjusted gross income
above $95,000 or married taxpayers with adjusted gross income above $150,000.)
If you have an excess contribution, you must pay an IRS penalty of 6% of
the excess contribution. You can avoid paying the penalty tax if you withdraw
the excess contribution on or before the due date (including any extensions) for
filing your federal income tax return for
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the year for which the excess contribution was made. Net income on the excess
must accompany the withdrawal. The net income is included in your taxable income
for the year for which the excess contribution was made and is subject to income
taxes and to the 10% penalty tax if you are not at least age 591/2 (and no other
exception applies).
If you do not withdraw the amount of the excess contribution in time, you
must pay the 6% penalty for the year for which the excess contribution was made.
In each subsequent taxable year, any excess amounts remaining in your Roth IRA
will be taken into account to determine excess penalties in those subsequent
years.
You can reduce or avoid the penalty tax in later years by reducing or
eliminating the excess in your Roth IRA. To reduce the excess, you may do one of
two things. First, you may withdraw the excess; the withdrawal is not considered
taxable income. The other is simply to contribute less in a subsequent year than
the maximum amount allowed. There will be a dollar-for- dollar reduction in the
excess amount for each dollar you contribute for a year that is less than the
maximum limit for that year.
RECHARACTERIZING YOUR CONTRIBUTION
You can undo a conversion of a Traditional IRA to a Roth IRA using a
process called "recharacterization." There are many tax and financial reasons
why you may want to recharacterize. For example, at the end of a year in which
you converted from a Traditional IRA to a Roth IRA you may discover that your
AGI exceeds $100,000 and you were thus ineligible to convert. Current law does
not place any restrictions on the reasons for recharacterizing. (See Conversion
or Rollover Contributions from a Traditional IRA, p. 8).
To perform a recharacterization, you must notify the custodian or trustee
of the Roth IRA that is holding the converted amount that you want to
recharacterize and the custodian or trustee of the Traditional IRA that will
receive the recharacterized amount. The total amount converted, along with any
earnings or loss allocable to the converted amount, must be recharacterized.
Recharacterization is accomplished by a trustee-to-trustee transfer from the
Roth IRA holding the amount to the Traditional IRA that will receive the
recharacterized amount. A recharacterization must be completed by the due date
for filing your income tax return.
Under current law, you may convert and recharacterize for any reason, and
there is no limit on the number of times you may recharacterize and convert
under current IRS rules. However, a special tax rule applies if you convert an
amount more than twice during a year (for these purposes any conversions prior
to November 1, 1998 are not taken into account, nor are recharacterizations
performed in any year because you exceeded the $100,000 AGI limit or you were
married filing separately.) Under this special tax rule, if you convert more
than twice, the third (or fourth, etc.) conversion is valid (in other words, the
amount converted will be considered to be a valid Roth IRA). However the amount
of income tax due will be determined based on the amount in the account at the
time of the second conversion. The following example illustrates this complex
rule:
Ike converts his Traditional IRA with $75,000 in it to a Roth IRA early in a
year. At that time, Ike owes income taxes on $75,000 (assuming the Traditional
IRA held all taxable amounts). The market value of Ike's Roth IRA declines to
$60,000, so he recharacterizes it back to a Traditional IRA, and then converts
the Traditional IRA a second time to a Roth IRA. Income tax is now based on the
$60,000 from the
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second conversion, rather than on $75,000. The value of Ike's Roth IRA
declines further and late in the year his Roth IRA is worth $50,000, so he
recharacterizes back to a Traditional IRA and then converts it to a Roth IRA a
third time. This last conversion is disregarded for income tax purposes
(although the amount converted is considered to be in a Roth IRA), and Ike still
has to pay income taxes on $60,000 in this example. Caution: The IRS may issue
final regulations which may change the recharacterization/conversion rules by
further limiting the number of times that recharacterizations/conversions may be
performed or by restricting the reasons for recharacterizations. Consult your
personal tax advisor for the latest developments.
WITHDRAWALS FROM YOUR ROTH IRA
Unlike Traditional IRAs, Roth IRAs are back loaded. This means that you
will not receive a tax savings (a deduction) at the time you make your
contributions. Tax savings are realized when you take a qualified withdrawal
from your Roth IRA. Qualified withdrawals from your Roth IRA are distributed to
you without federal income tax.
Here's how it works: you make a contribution to your Roth IRA. At the time
you make the contribution, you receive no income tax deduction for the amount
contributed. Earnings or growth in your Roth IRA account accumulate tax free.
When you take a qualified withdrawal from your Roth IRA account, the withdrawal
is tax free.
For a tax-free withdrawal, your Roth IRA must have been in effect for at
least five years and at least one of the following conditions must be satisfied:
o You are age 591/2 or older when you make the withdrawal. o The withdrawal is
made by your beneficiary after you die. o You are disabled (as defined in IRS
regulations) when you make the withdrawal
(you are considered "disabled" if you are unable to engage in any
substantial gainful activity because of a physical or mental impairment
which can be expected to result in death or to be of long-lasting or
indefinite duration).
o You are using the withdrawal to cover eligible first time homebuyer
expenses incurred by you or your spouse, or a child, grandchild or parent
or grandparent of you or your spouse. Such a person is considered a
"first-time homebuyer" if he or she did not have an ownership interest in
a principal residence within the two year period ending on the home's
acquisition date. Eligible expenses include the cost of purchase,
construction or reconstruction of a principal residence (including
customary settlement, financing or closing costs). First-time home buyer
distributions are subject to a $10,000 lifetime maximum per individual
homebuyer.
For Roth IRAs started with a conversion or rollover of a Traditional IRA,
the five year period begins with the year in which the conversion or rollover
was made. For a Roth IRA started with a normal annual contribution, the five
year period starts with the year for which you made the initial contribution.
Once the five year requirement is satisfied for any Roth IRA you own, it is
considered satisfied for all of your Roth IRAs (even if the Roth IRA you are
actually withdrawing from has been in effect for fewer than five years).
If the withdrawal from the Roth IRA is a qualifying withdrawal, you pay no
income tax on any portion of the amount withdrawn, and there is no penalty
assessed. If the withdrawal is not qualified--it does not meet the requirements
stated above-- you will not be assessed any tax or penalty on any amounts
treated as a return of your own contributions to the account. However, any
earnings or interest or growth in value included in the amount withdrawn will be
taxed as ordinary income in the year of the withdrawal and will be subject to a
10% premature withdrawal penalty (unless an exception applies).
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For example, let's say you are single, your compensation in 1998 is $80,000
and you contribute $2,000 (the maximum amount) to your Roth IRA. Your taxable
income will still be $80,000 (unlike a Traditional IRA, there is no deduction
for amounts contributed to your Roth IRA). Assume also that you earned $1,000 on
your Roth IRA account over five years. Starting in the year 2003 (five years
after 1998 when you started the Roth IRA), if you were 591/2 or over (or some
other eligibility requirement was met), you could withdraw the entire $3,000
($2,000 + $1,000) tax-free.
If, on the other hand, you were not 591/2, you could withdraw $2,000 (your
own contributions) tax-free because this amount was previously taxed. But the
$1,000 in earnings would be taxed as ordinary income in the year withdrawn, and
you would be assessed an additional 10% penalty (unless an exception applied).
Note that for purposes of determining what portion of any distribution is
includible in annual income, the current law says that all of your Roth IRA
accounts are treated as if they were one single account. (This rule aggregating
all Roth IRAs includes any you may have with another custodian or trustee.)
Amounts withdrawn from a Roth IRA are treated as being withdrawn in the
following order:
1) All annual contributions.
2) All conversion amounts (on a first in, first out basis).
3) Earnings (including reinvested dividends and growth).
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 growth until an amount equal to all contributions made to all of an
individual's Roth IRA accounts is withdrawn.
Note: You may have a Roth with one or more other custodians. All your Roth
IRAs are taken into account when applying the tax rules. Therefore, a withdrawal
may be treated as being an annual contribution amount under the ordering rule
described above even though it comes from a Roth IRA account holding conversion
amounts. This peculiarity makes it especially important that you keep proper
records and that you report all withdrawals properly on your federal income tax
returns.
The following examples illustrate these concepts:
Example 1: Jane contributed $2,000 to a Roth IRA in 1998 and in 1999. In
addition, in the year 2000, Jane converted $5,000 from a Traditional IRA to a
Roth IRA. In 2001, Jane's Roth IRA account balance is as follows:
Annual Contributions: $ 4,000
Converted Amounts: $ 5,000
Earnings: $ 1,200
----------------------- -------
Total Amount: $10,200
If Jane withdraws $7,000 in 2001, for tax purposes $4,000 will be
considered as distributed from her Annual Contributions and neither income tax
nor the penalty will apply. Under the ordering rules, the remaining $3,000 will
be considered as distributed from the Converted Amount and no income tax or
penalty will apply because Jane paid any income taxes due when she converted. If
Jane withdraws another $3,000 in 2004, $2,000 of the withdrawal is considered
her remaining Converted Amount (not taxable), and $1,000 is considered Earnings
(which may be taxable or not depending on whether Jane is age 591/2 or meets one
of the other conditions for a tax-free withdrawal).
Example 2: John, a single individual, contributes $1,000 a year to his
Northeast Investors Roth IRA account and $1,000 a year to another Roth IRA
account over a period of ten years. At the end of 10 years his account balances
are as follows:
Annual
Contributions Earnings
Northeast
Investors
Roth IRA $10,000 $10,000
Other Roth IRA $10,000 $10,000
------- -------
Total $20,000 $20,000
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At the end of 10 years, John has $40,000 in both Roth IRA accounts, $20,000 in
contributions (in both IRAs) and $20,000 in earnings (in both IRAs). John, who
is 40, withdraws $15,000 from his Other Roth IRA. This is not a qualified
withdrawal because John is not 591/2 (and no other qualifying circumstance
applies). Under the ordering rule, $0 is taxable as income to John. This is
because we look at the total amount of John's annual contributions--in this case
$20,000--to determine if the withdrawal is from contributions, and thus
non-taxable. Here, John's $15,000 withdrawal is less than his total amount of
contributions to both Roth IRAs, and thus no part of the withdrawal is included
as taxable income. If John then withdrew $15,000 from his Northeast Investors
Roth IRA, $5,000 would not be taxable (his remaining annual 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).
IMPORTANT: As this example shows, if you have multiple Roth IRAs, the
taxation of a withdrawal depends on amounts in all the accounts. Northeast
Investors will not necessarily know the correct tax treatment, and will issue
Form 1099-R reporting a withdrawal from the Northeast Investors Roth IRA in
accordance with IRS rules based on our records of that account. It is your
responsibility to keep proper records and to pay any income taxes due on the
withdrawal.
If the rules discussed above for a tax-free withdrawal are not satisfied,
you must pay an IRS penalty tax of 10% or any taxable portion of the "premature
withdrawal" in addition to regular income taxes on the taxable amount withdrawn.
However, there are certain exceptions to the "premature withdrawal" penalties.
These are described in the following paragraphs.
If you are disabled, you may make withdrawals immediately and you will not
be subject to the premature withdrawal penalty. You are considered "disabled" if
you are unable to engage in any substantial gainful activity because of a
physical or mental impairment which can be expected to result in death or to be
of long-lasting or indefinite duration.
If you die, your beneficiary may withdraw from your IRA without the IRS
premature withdrawal penalty.
The premature withdrawal penalty does not apply if the withdrawal does not
exceed the amount of "eligible higher education expenses" or "eligible
first-time homebuyer expenses" during the year.
"Eligible higher education expenses" include tuition, fees, books and
supplies needed to attend a post-secondary institution of higher learning. Also,
room and board may qualify if the student is attending at least half-time. The
expenses may be for you or your spouse, child or grandchild.
"First-time homebuyer expenses" include the cost of purchase or
construction of a principal residence (including financing or closing costs) for
you, your spouse, or a child, grandchild, parent or grandparent of you or your
spouse. A person is a "first-time homebuyer" for this purpose if he or she (and
his or her spouse if married) did not own any interest in a principal residence
during the two years before the date of purchase or construction of the new
home. For any individual, a lifetime maximum of $10,000 may be treated as
eligible first-time homebuyer expenses, regardless of the number of homes
purchased.
If your medical expenses in a year exceed 71/2% of your adjusted gross
income ("AGI") for that year, then IRA withdrawals in that year up to the amount
of the excess medical expenses are not subject to the 10% penalty tax.
Withdrawals also are not subject to the 10% penalty tax up to the amount that
you paid for health insurance premiums for yourself, your spouse and dependents
if you are unemployed. This exception applies only if you have received
unemployment compensation
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for at least 12 weeks, and only to withdrawals you made in the year that you
received the unemployment compensation and the following year. Any withdrawals
made after you have been reemployed for at least 60 days will not be exempt.
Starting in the year 2000, an IRS levy on your Roth IRA for unpaid taxes will
not be subject to the 10% penalty (regular income taxes will apply to the
taxable amount levied from your account).
Note: Special Rule for Four Year Tax Spread. If you convert from a
Traditional IRA to a Roth IRA in 1998 and choose to spread the tax on the
converted amount over 4 years (1998-2001), special tax and penalty rules may
apply if you withdraw an amount considered to be from the converted amount prior
to 2001. In general, if you receive a distribution of such "converted" money
prior to the end of the four year period, the amount of the income previously
deferred (and that has not yet been reported on your tax return as of the time
of the withdrawal) will be accelerated and will become taxable in the year of
the withdrawal. In addition, you may have to pay a 10% penalty tax, unless an
exception applies. (The accelerated tax rules are very complicated. Consult your
tax advisor for more information.)
Withdrawals from a Roth IRA are not subject to the required 20% income tax
withholding rules that apply to most distributions from qualified plans and
403(b) arrangements. A withdrawal is subject to 10% federal income tax
withholding unless you elect not to have withholding. State income tax
withholding may also apply. The Withdrawal Authorization Form has additional
information about withholding.
WHEN MUST I MAKE WITHDRAWALS?
Unlike a Traditional IRA, during your lifetime you are not required to make
withdrawals at any particular times or in any particular amounts. There is no
requirement that your first withdrawal begin on April 1 of the year following
the calendar year in which you reach age 701/2. With a Roth IRA, you can take
out as little as you want, as late as you want, until your death.
HOW TO MAKE WITHDRAWALS
You can withdraw the amount in your Roth IRA in installment payments over a
specified period, or you can withdraw the total amount in one lump sum payment.
Simply complete a Withdrawal Authorization Form to indicate your wishes and send
it to Northeast Investors.
The taxable amount (if any) included in a lump sum withdrawal does not
receive special tax treatment available in certain cases for lump sum
contributions from most retirement plans. Therefore, it may be advantageous for
you to withdraw in periodic installments.
A WORD ABOUT REPORTING
Northeast Investors reports all withdrawals from your Roth IRA on Form
1099-R in accordance with IRS requirements. The information provided reflects
only withdrawals from your Northeast Investors Roth IRA account(s). To determine
whether tax or penalties apply, all of your Roth IRA accounts are considered
together, including those you may have with other Roth IRA custodians. Because
you are the only one who knows about all of your Roth IRA accounts, you are
solely responsible for determining what taxes and penalties might apply.
DEATH BENEFITS
You can name a beneficiary on the Designation of Beneficiary (Section 3, of
the Application form) or in another written instrument filed with Northeast
Management & Research Company, Inc. You can change a previous designation at any
time by filing a new form or instrument.
If you die before your entire Roth IRA has been distributed to you, the
balance in your account will be paid to your ben-
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eficiary. Payments may be in the form of a lump sum or installments. Unlike
withdrawals during your lifetime, after your death there are IRS minimum
withdrawal rules that your beneficiary must satisfy. The amount in your account
must be withdrawn by the end of the fifth year following the year of your death.
Alternatively, your designated beneficiary may start withdrawals by the end of
the year following the year of your death and take installments over the
beneficiary's life expectancy (determined under IRS rules). If your surviving
spouse is your designated beneficiary, your spouse may delay the start of
withdrawals until you would have reached age 701/2 (had you lived).
Alternatively, your surviving spouse, if designated as your Roth IRA
beneficiary, can elect to treat the account as the spouse's own Roth IRA. In
that case, there are no required minimum distribution rules during the spouse's
lifetime.
SOME THINGS TO AVOID
Transactions between you and your Roth IRA are not allowed. Specific
"prohibited transactions" are listed in the Internal Revenue Code. They include
borrowing from your Roth IRA, selling or exchanging property with your Roth IRA
and similar transactions.
If you engage in a prohibited transaction, your Roth IRA will lose its
tax-exempt status. The taxable amount in your account in will be treated as
taxable income to you in that year. In addition, you must pay the 10% IRS
penalty for premature withdrawals if you are under age 591/2.
If you use all or part of your Roth IRA as security for a loan, the part so
used that is attributable to earnings or growth will be treated as taxable
income to you in that year. Again, you may have to pay the tax for premature
withdrawals in addition to regular income taxes on the amount used as security.
CUSTODIAN FEE AND OTHER CHARGES
The Ten Dollar ($10) Annual
Maintenance Fee
Each year, a fee is charged to your account to cover the cost of the Roth
IRA custodian services provided by Investors Bank & Trust Company. The amount of
the fee may be changed by agreement between the Custodian and Northeast
Management & Research Company, Inc. For your convenience, we offer a choice of
two ways to pay this fee:
1. Automatic Deduction: This method of automatic deduction is the most
convenient for you. The fee of $10 is automatically deducted from
your Roth IRA in December, and the deduction will be reflected in
your year-end statement.
2. Payment by Check: This method requires that you check the appropriate
box on the Roth IRA Application. We will send you a yearly invoice
for this fee during the month of December.
The payment option you select now will remain your method of payment for
Roth IRA fees in the future, unless you notify us in writing of a change. For
example, if you have the fee automatically deducted this year, we will not mail
you a notice requesting payment in the future. If you choose payment by check,
we will mail you a reminder of payment due in each following year. If you
terminate your Roth IRA during a year, you must pay that year's fee or else it
will be deducted from your account.
Tax Withholding Fee ($10)
This fee is payable each time you request tax withholding on any
withdrawal. Separate withholding fees apply for federal and state tax
withholding.
PLEASE TAKE NOTE:
Any fees you are paying by check should be made payable and sent directly
to:
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Northeast Management & Research Company, Inc.
50 Congress Street, Suite 1000
Boston, MA 02109-4096
Northeast Investors Trust
The trustees of Northeast Investors Trust are entitled to receive an annual
fee equal to 1/2 of 1% of the principal of the Trust, computed at the end of
each quarter at the rate of 1/8 of 1% of the principal at the close of the
quarter. For this purpose, the principal of the Trust is the total value of the
Trust's investment portfolio and other assets, less all liabilities except
accrued trustees' fees.
The trustees of Northeast Investors Trust are entitled to charge a
redemption fee of up to 1% of the net asset value of the shares redeemed. It is
the present policy of the trustees not to charge such a fee, but this policy may
be changed by the trustees without notice to the shareholders.
For further information on the Trustees' annual fee and the redemption of
shares, see the current Northeast Investors Trust prospectus.
Northeast Investors Growth Fund
Northeast Investors Growth Fund has an Advisory and Service Contract with
Northeast Management & Research Company, Inc. ("NMR") under which NMR provides
investment advice and other services to the Fund. As its compensation under the
contract, NMR receives a monthly fee calculated at an annual rate of 1% of the
daily average net assets of the Fund up to and including $10,000,000, 3/4 of 1%
of such daily average net assets above $10,000,000 up to and including
$30,000,000 and 1/2 of 1% of such daily average net assets in excess of
$30,000,000.
Under the contract, NMR pays a portion of operating and bookkeeping
expenses of the Fund. The Fund is required to pay its legal fees, auditing fees,
cost of reports to shareholders and expense of shareholders' meetings, and
certain other expenses.
For more information on the contractual fees, and other expenses of the
Fund, see the current prospectus relating to Northeast Investors Growth Fund.
GROWTH OF YOUR ACCOUNT
Dividends and any capital gains distributions on the shares of Northeast
Investors Trust or Northeast Investors Growth Fund in your account will be
reinvested in additional shares and fractional shares.
Shareholders of Northeast Investors Trust are entitled to receive dividends
approximately equal to the net income of the Trust, plus other cash
distributions as the Trustees may declare. Net income is the gross earnings of
the Trust less expenses, and each share is entitled to receive a proportionate
amount of a dividend or distribution.
Shareholders of Northeast Investors Growth Fund receive income dividends
equal to substantially all of the net investment income of the Fund, generally
paid annually. In addition, shareholders receive an annual capital gains
distribution equal to substantially all of the Fund's net realized capital gains
(reduced by any available capital loss carryforwards). Each share receives a
proportionate amount of any dividend or distribution.
Because the net income of Northeast Investors Trust and or Northeast
Investors Growth Fund may fluctuate from year to year, no fixed dividends can be
promised. Also, because the value of their investment portfolios may fluctuate,
the amount available for distribution to you from your account cannot be
projected or guaranteed.
For further information on dividends and distributions, see the current
Northeast Investors Trust prospectus or Northeast Investors Growth Fund
prospectus.
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STATE TAX RULES
The tax rules discussed in this booklet are based on federal law. Tax
treatment of Roth IRAs under state law varies from state to state.
Non-residents of Massachusetts are not liable for Massachusetts income tax
on taxable amounts earned by or withdrawn from a Northeast Investors Roth IRA.
For advice on treatment of IRAs under the tax laws of Massachusetts or other
states, consult your tax advisor or legal counsel.
IRS REPORTS AND RETURNS
If you owe an IRS penalty for an excess contribution, a premature
withdrawal, or the failure of your beneficiary to withdraw the require minimum
amount, you (or your beneficiary) must file the appropriate IRS reporting form
with your individual tax return.
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Northeast Investors Roth IRA Custodial Agreement Articles I--VII
of this Custodial Agreement (the "Agreement") are in the form promulgated by the
Internal Revenue Service in Form 5305-RA (January 1998) for establishing a Roth
individual retirement 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.
Article VIII
1. The amount of each contribution credited to the Depositor's individual
retirement custodial account shall (except to the extent applied to pay fees or
other charges under Section 7 below) be applied to purchase full and fractional
shares of Northeast Investors Trust or Northeast Investors Growth Fund (provided
always that such shares may legally be offered for sale in the state of the
Depositor's residence)
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in accordance with instructions of the Depositor given under Section 3 below.
The custodian (or Northeast Management & Research company, Inc. ("NMR") acting
as agent for the custodian under section 16 of this Article VIII) may retain the
Depositor's initial deposit for a period of up to ten days after receipt
thereof, without liability for interest or for loss of earnings or appreciation,
and may invest the initial deposit at the end of such period. The Depositor may
revoke the account by written notice to the custodian received by the custodian
within seven calendar days after the Depositor establishes the account. Upon
revocation, the amount of the Depositor's initial deposit will be returned to
him.
2. All dividends and capital gains or other distributions received on the
shares of Northeast Investors Trust held in the Depositor's account shall be
retained in the account and (unless received in additional shares) shall be
reinvested in full and fractional shares of Northeast Investors Trust.
Similarly, all dividends and capital gains or other distributions received on
the shares of Northeast Investors Growth Fund held in the Depositor's account
shall be retained in the account and (unless received in additional shares)
shall be reinvested in full and fractional shares of Northeast Investors Growth
Fund.
3. For each contribution, the Depositor shall designate the portion that
will be invested in shares of Northeast Investors Trust and the portion that
will be invested in shares of Northeast Investors Growth Fund. A contribution
may be invested entirely in Northeast Investors Trust, entirely in Northeast
Investors Growth Fund, or partly in each fund. However, all investment
directions (including those under this Section 3 or under Section 4) will be
subject to the minimum initial or additional investment and minimum balance
requirements of the funds.
The Depositor shall make such designation on an Investment Instructions
Form or other written notice acceptable to the custodian. If any such
designation or other investment instructions are, in the opinion of the
custodian, ambiguous or incomplete, the custodian may hold such amount
uninvested (without crediting any interest thereon) until the designation or
other investment instructions have been clarified or completed to the
custodian's satisfaction, and neither the custodian nor any other party will
have any liability for loss of interest, earnings or investment gains during
such period.
4. The Depositor may at any time direct the custodian to redeem all or a
specified portion of the Northeast Investors Trust shares in the Depositor's
account and to invest the redemption proceeds in shares and fractional shares of
Northeast Investors Growth Fund, or to redeem all or a portion of the Northeast
investors Growth Fund shares in the Depositor's account and to invest the
redemption proceeds in shares and fractional shares of Northeast Investors
Trust.
The Depositor shall give such directions on an Investment Instructions Form
or other written notice acceptable to the custodian, and the custodian will
process such directions as soon as practicable after receipt thereof. If any
such directions are, in the opinion of the custodian, ambiguous or incomplete,
the custodian may refrain from acting thereon until the directions have been
clarified or completed to the custodian's satisfaction, and neither the
custodian nor any other party will have any liability for loss of earnings or
investment gains during such period.
5. The Depositor, by written notice to the custodian, may designate one or
more beneficiaries to receive the balance (if any) remaining in the Depositor's
account after his death and the time and manner of payment of such balance
(subject to the requirements of the preceding Articles of this agreement). A
designation may be on a form provided by the custodian or on a written
instrument acceptable to the custodian executed by the Depositor and must be
filed with the custodian. The Depositor may revoke or change such designation in
like manner, at any time and from time to time. If no such designation is in
effect upon the Depositor's death, the balance in the account shall be paid in a
single sum, as soon as is practicable, to the Depositor's estate.
Subject to the requirements of the preceding Articles of this agreement,
the Depositor may designate a form of payment to the beneficiary by filing a
signed written instrument with the custodian. In the absence of such written
instructions from the Depositor, the custodian will pay the beneficiary in such
form as the beneficiary selects.
6. The custodian shall forward to the Depositor (or beneficiary where
applicable) any notices, prospectuses, reports to shareholders, financial
statements, proxies and proxy soliciting materials, relating to the shares of
the Northeast Investors Trust or Northeast Investors Growth Fund in the
Depositor's account. The custodian shall not vote any of the shares of Northeast
Investors Trust or Northeast Investors Growth Fund held in the account except in
accordance with the written instructions of the Depositor (or beneficiary where
applicable). 7. The custodian's fees for performing its duties hereunder shall
be such reasonable amounts as shall be agreed to from time to time by the
custodian and NMR. Such fee, any taxes of any kind and any liabilities with
respect to the account, and any and all expenses reasonably incurred by the
custodian shall, if not paid by the Depositor, be paid from the account.
8. The custodian shall make distributions from the account at such times
and in such manner as the Depositor directs in writing, subject to the
requirements of the preceding Articles of this agreement. Following the
Depositor's death, the Depositor's surviving spouse (if the beneficiary of the
account) may elect to comply with the distribution requirements in Article IV
using the recalculation of life expectancy method, or may elect that life
expectancy will not be recalculated; any such election may be in such form as
the surviving spouse provides (including the calculation of minimum distribution
amounts in accordance
20
<PAGE>
with a method that does not provide for recalculation of the life expectancy of
the surviving spouse and instructions to the custodian in accordance with such
method).
Notwithstanding Section 3 of Article IV above, if the Depositor dies
leaving his or her spouse as sole beneficiary, the surviving spouse may elect
not to be treated as the Depositor. If the surviving spouse so elects, all of
the provisions of Article IV and the preceding paragraph will apply, except that
distributions to him or her are not required to begin until December 31 of the
year in which the Depositor would have reached age 701/2.
9. It shall be the sole responsibility of the Depositor to determine the
time and amount of contributions to the account, the time, amount and manner of
payment of distributions from the account, and the taxability of any
distributions from the account. NMR and the custodian shall be fully protected
in following the written direction of the Depositor (or beneficiary) with
respect to the time, amount and manner of payment of such distributions, or in
not acting in the absence of such direction. If the beneficiary does not direct
the custodian to make distributions from the account by the time that such
distributions are required to commence in accordance with the preceding Articles
of this agreement, the custodian (and NMR) shall assume that the beneficiary is
meeting any applicable minimum distribution requirements from another individual
retirement arrangement and the custodian and NMR shall be fully protected in so
doing. NMR and the custodian shall not be liable for any taxes, penalties,
liabilities or other costs to the Depositor or any other person resulting from
contributions to or distributions from the Depositor's account. 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 or redemption charge as
described in the applicable prospectus.
If in the judgement of the custodian or NMR there is any ambiguity or
dispute about the application of this Agreement in any particular circumstances,
or about the entitlement of any person to any distribution from the Depositor's
account, NMR and the Custodian may refrain from taking any action until such
ambiguity or dispute has been resolved to the satisfaction of NMR and/or the
Custodian (whether by a settlement of the parties involved, court order or
otherwise), and neither the Custodian, NMR, Northeast Investors Trust, nor
Northeast Investors Growth Fund will have any responsibility or liability for
loss of earnings or investment gains or otherwise as a consequence of such
delay.
The Depositor understands and acknowledges that (i) all distributions from
Depositor's account will be reported on Form 1099-R (or such other form as may
be required by the IRS) and will be based only on the information known by the
Custodian and will not reflect accounts not under the control of the Custodian,
(ii) that consequently, the tax treatment may vary depending on whether the
Depositor has Roth IRA accounts with other custodians, and (iii) that the
Depositor (or other person making the withdrawal) is solely responsible for
tracking and accurately determining the income tax (and any penalties) due.
10. NMR, Northeast Investors Trust, Northeast Investors Growth Fund, and
the Custodian shall not be responsible for any loss or diminution in the value
of the Depositor's account arising out of the Depositor's establishment of a
Northeast Investors Individual Retirement Account or arising out of any
investment instructions of the Depositor (or beneficiary), whether relating to
the portion of contributions invested in Northeast Investors Trust and in
Northeast Investors Growth Fund, or relating to the redemption of shares of one
fund and investment of the redemption proceeds in shares of the other, or
arising out of any delay in carrying out any investment direction received from
the Depositor (or beneficiary).
11. Whenever the Depositor (or beneficiary) is responsible for any
direction, notice, representation or instruction under this agreement, NMR and
the custodian shall be entitled to assume the truth of any statement made by the
Depositor (or beneficiary) in connection therewith, and shall be under no duty
of further inquiry with respect thereto, and shall have no liability with
respect to any action taken in reliance upon such statement. Any communication
from the Depositor (or beneficiary) which under this Agreement is to be in
writing may in the discretion of NMR be made by telephone or other electronic
means (subject to such rules and requirements as NMR may impose).
12. This Agreement (and the Depositor's custodial account) shall terminate
upon the complete distribution of the account to the Depositor or his
beneficiaries or to a successor individual retirement account or annuity. The
Custodian shall have the right to terminate this account upon ninety (90) days'
notice to the Depositor, or to his beneficiaries if he is then dead. In such
event, upon expiration of such 90 day period, the Custodian shall transfer the
amount in the account into such successor individual retirement accounts or
annuities, as the Depositor (or his beneficiaries) shall designate, or, in the
absence of such designation, to the Depositor, or, if he is then dead, to the
beneficiaries as their interests shall appear.
13. The Custodian may resign at any time upon ninety (90) days' notice in
writing to NMR and may be removed by NMR at any time upon ninety (90) days'
notice in writing to the Custodian. By agreement between them, the Custodian and
NMR may waive or accelerate the notice period. Upon such resignation or removal,
NMR shall appoint a successor custodian which satisfies the requirements of
Section 408 of the Internal Revenue Code, and the Depositor (or beneficiary) is
deemed to have consented to such appointment.
14. Upon receipt by the Custodian of written notice of appointment of a
successor custodian and or written acceptance of such appointment by the
successor, the Custodian shall transfer to such successor the assets of the
account and all records pertaining thereto. The Custodian may reserve such sum
of money as it deems advisable for payment of its fees, taxes, costs, expenses
or liabilities with respect to
21
<PAGE>
the account, with the balance (if any) of such reserve remaining after the
payment of all such items to be paid over to the successor custodian. The
successor custodian shall hold the assets paid ever to it under this Agreement
(or under terms similar to those of this Agreement that satisfy the requirements
of Section 408 of the Internal Revenue Code).
15. If, within sixty (60) days after the Custodian's resignation or
removal, NMR has not appointed a successor custodian which has accepted such
appointment, the Custodian shall appoint such successor unless it elects to
terminate the custodial account pursuant to Section 12 of this Article VIII.
16. The Custodian may employ or designate NMR or one or more other parties
to serve as contractors or agents to perform certain of its duties hereunder. At
any time when the Custodian has designated NMR (or another party) to serve as
its agent hereunder, reference in any provision of this Article VIII to the
Custodian will be deemed a reference to the agent designated to perform the
particular duty.
17. Any notice sent from the Custodian to the Depositor, or to his
beneficiaries if he is then dead, shall be effective if sent by mail to him or
them at his or their last address(es) of record as provided to the Custodian.
18. Any distribution 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 of the amount thereof completely discharge the Custodian's
liability for such payment.
19. NMR may amend this agreement from time to time, and shall give written
notice of any such amendment to the Depositor within 30 days after the date the
amendment is adopted or becomes effective, whichever is later. The Depositor
hereby expressly delegates authority to NMR to amend the provisions of this
Agreement and hereby consents to any such amendment.
20. This Agreement shall be construed, administered and enforced according
to the laws of Massachusetts.
21. The Depositor acknowledges that he or she has received and read the
current Northeast Investors Trust prospectus, the current Northeast
Investors Growth Fund prospectus and the Northeast Investors Individual
Retirement Account Disclosure Statement.
22. The term "Custodian" refers to the person serving as the custodian of
the individual retirement account established hereby, and the term
"Depositor" refers to the person for whose benefit such account was
established.
23. Articles I through VII of this Agreement are in the form promulgated by
the Internal Revenue Service. It is anticipated that, if and when the Internal
Revenue Service promulgates changes to Form 5305-RA, NMR will adopt such changes
as an amendment to this Agreement. Pending the adoption of any amendment
necessary or desirable to conform this Agreement to the requirements of any
amendment to the Internal Revenue Code or regulations or rulings thereunder, the
Custodian and NMR may operate the Depositor's account in accordance with such
requirements to the extent that the Custodian and/or NMR deem necessary to
preserve the tax benefits of the account.
24. The Depositor represents that he or she is of legal age in his or her
state of residence, and agrees that this individual retirement custodial account
is subject to acceptance by Northeast Investors Trust and/or Northeast Investors
Growth Fund and to the terms of their respective prospectuses.
25. The Depositor acknowledges that the custodian or NMR may require that
different accounts be established to hold annual contributions made under Code
Section 408A(c)(2) and to hold amounts converted pursuant to Code Section
408A(c)(3)(B). Separate accounts may also be required to hold amounts converted
in different years. If separate accounts are not required, annual contributions
and conversion contributions may be made to the same account.
26. The Depositor may recharacterize any amounts converted pursuant to Code
Section 408A(d)(6) and the regulations issued thereunder. Depositor agrees to
observe any limitations that may be imposed on the number of any such
transaction in any given year, or any other limitation which may be imposed by
the IRS, the Custodian or NMR.
22
<PAGE>
NORTHEAST INVESTORS Roth IRA Transfer Form
--------------------------------------------------------------------------------
Instructions:
To make a direct transfer of amounts in an existing Traditional IRA, SEP IRA,
SIMPLE IRA or Roth IRA with another custodian or trustee, complete this form and
send it to Northeast Management & Research Company, Inc. with the other
documents establishing your Northeast Investors Roth IRA.
To:
--------------------------------------------------------------------------------
Name of Current Trustee/Custodian
--------------------------------------------------------------------------------
Address
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone Number
Re:
--------------------------------------------------------------------------------
Name Appearing on Your Current Account
--------------------------------------------------------------------------------
Account Number
--------------------------------------------------------------------------------
Your Address
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone Number
Instructions to Current Trustee/Custodian
Please transfer the following amount to my Northeast Investors Roth IRA (payee
and address directions are at the bottom of this form):
- Liquidate all assets and transfer the proceeds.- Transfer $------------- -
Liquidate -------------- shares and transfer the proceeds.
Important: If you are now receiving minimum distributions from another non-Roth
IRA in accordance with the age 701/2 rules, be sure that any amount you transfer
to a Roth IRA does not include any amounts which are required to be distributed
to you. IRS rules prohibit transferring such amounts to a Roth IRA.
Note: Any taxable amounts transferred from another non-Roth IRA to a Roth IRA as
part of this transfer must be included as part of gross income and reported to
the IRS in the year of the transfer/conversion. For such transfers completed
during 1998, you may elect to treat the income as received over the four year
period 1998-2001.
Amounts transferred from a Traditional IRA, SEP IRA or SIMPLE IRA to a Roth IRA
are considered to be income. The IRS also requires that 10% of the amount
converted be withheld for federal income tax purposes unless you elect not to
withhold below. State taxes may also apply. Consult your financial advisor to
determine whether withholding is advisable, as the expected financial benefits
from converting may be diminished if you pay income tax from the amount
converted.
- Withhold 10% for federal income taxes (also withhold state income taxes if
applicable)
- Do not withhold
Instructions continued on next page
23
<PAGE>
If you want the funds transferred directly to your existing Roth IRA with
Northeast Investors, please indicate your account number
-------------- .
If you want to establish a separate Roth IRA account to hold amounts
converted/transferred (including the transfer directed in this form), you must
complete a new Roth IRA Application for each separate Roth IRA account you want
to establish.
--------------------------------------------------------------------------------
*Your Signature Date
*Please ask your present trustee or custodian if a signature guarantee is
required.
(Below Line for Bank Use Only)
Investors Bank & Trust Company, as (successor) custodian of the above
individual's Roth IRA account, requests the transfer or direct rollover of
assets as indicated above. The Northeast Investors Roth IRA meets the
requirements of Code Section 408A and is qualified to receive the transfer
requested above.
Investors Bank & Trust Company
Custodian
--------------------------------------------------------------------------------
Date: By:
To Current Trustee/Custodian: Please return a copy of this form with your
response. Make checks payable to Northeast Management & Research Co., Inc.
Address for checks, forms, etc. Northeast Management & Research Co., Inc.,
50 Congress Street-Suite 1000, Boston, MA 02109-4096. If you have any questions
please call 617-523-3588 or 1-800-225-6704.
24
<PAGE>
NORTHEAST INVESTORS ROTH IRA APPLICATION FORM
--------------------------------------------------------------------------------
1. Account Registration
-----------------------------------------------------------------------------
First Name Middle Initial Last Name
---------------------------------------------
-----------------------------
Social Security Number Date of Birth
-----------------------------------------------------------------------------
Street Address and Apartment or Box Number
-----------------------------------------------------------------------------
City State Zip Code
--------------------------------------
------------------------------------
Home Telephone Work Telephone
--------------------------------------------------------------------------------
2. Type and Amount of Investment
Please indicate the type of Roth IRA contribution that you are making by
checking the correct box and by writing the amount of your investment under
the fund that you wish to invest in. Note that if you want to establish a
separate Roth IRA for annual contributions, and another separate Roth IRA(s)
for amounts converted from a Non-Roth IRA you must complete a separate
application form for each separate Roth IRA account. All contribution checks
should be made payable to Northeast Management & Research Company, Inc. The
minimum investment is $500 per Fund.
<TABLE>
<S> <C>
Northeast Investors Trust Northeast Investors Growth Fund
[ ] Annual Contribution
Roth IRA Annual Contribution for 19-- Tax Year $2,000 maximum contribution per year.
$ $
-------------------------------------------------------------------------------- ----------------------------------
--------------------------------------------------------------------------------
Northeast Investors Trust Northeast Investors Growth Fund
[ ] Spousal Roth IRA Annual Contribution for 19 -- Tax Year
If your spouse has less compensation or earned income than you, you and your
spouse may establish spousal Roth IRAs (one for you and one for your spouse) and
contribute up to $4,000 to both Roth IRAs (a maximum of $2,000 to either and not
more than the couple's combined compensation or earned income to both).
Complete a separate Application for each IRA.
$ $
-------------------------------------------------------------------------------- ----------------------------------
--------------------------------------------------------------------------------
Northeast Investors Trust Northeast Investors Growth Fund
[ ] Transfer* or Rollover of Non-Roth IRA
Transfer of existing Non-Roth IRA directly from current custodian or trustee,
or a rollover within 60 days after withdrawing from existing Non-Roth IRA.
Such a transfer or rollover is a taxable event.
$ $
-------------------------------------------------------------------------------- ----------------------------------
--------------------------------------------------------------------------------
Northeast Investors Trust Northeast Investors Growth Fund
[ ] Transfer* or Rollover of Roth IRA
Transfer of existing Roth IRA directly from current custodian or trustee, or a
rollover within 60 days after withdrawing from existing Roth IRA. If your
existing Roth IRA is from an earlier conversion or transfer of funds from a
Non-Roth IRA to your existing Roth IRA in 1998, check this box -.
$ $
-------------------------------------------------------------------------------- ----------------------------------
--------------------------------------------------------------------------------
Investment Options continued on next page
</TABLE>
25
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Northeast Investors Trust Northeast Investors Growth Fund
[ ] Conversion of Northeast Investors Traditional IRA
Conversion of an existing Northeast Investors Traditional (or other non-Roth)
IRA to a Roth IRA. Such a conversion is a taxable event; complete the Special
Income Tax Withholding Election enclosed with this Application. Current
Northeast Investors IRA Account Number: -----------------
$N/A $N/A
--------------------------------------------------------------------------------------- --------------------------------
</TABLE>
Amount Converted:
- All
- Part ($ ----------- or -------- % or ----------- shares)
- All
- Part ($ ----------- or -------- % or ----------- shares)
*Means complete and send us the Roth IRA transfer form.
--------------------------------------------------------------------------------
3. Designation of Beneficiary
If you do not choose to designate a beneficiary for your IRA or if no
designated beneficiary survives you, your IRA will go to your estate. The
selection of a beneficiary can have important estate and tax planning
consequences; consult a competent professional if needed. Consult your attorney
if you are a resident of a community or marital property state.
I hereby designate the person(s) named below as the primary beneficiary(ies)
in the event of my death before my account has been paid to me in full. If any
but less than all of the primary beneficiaries predecease me, the share of the
deceased primary beneficiary(ies) will be divided among the surviving primary
beneficiary(ies) in proportion to the percentages otherwise payable to each
surviving primary beneficiary. If all primary beneficiaries predecease me, the
value of my account shall be distributed to the contingent beneficiary(ies)
designated below who survive me. If any but less than all the contingent
beneficiaries predecease me, the share of the deceased contingent
beneficiary(ies) will be divided among the surviving contingent beneficiary(ies)
in proportion to the percentage(s) otherwise payable to each such surviving
contingent beneficiary. If two or more persons are named as primary or
contingent beneficiaries, and no percentage is indicated, I intend that the
surviving persons listed shall receive equal portions. (If the beneficiary is a
trust, please indicate the name, address, and date of the trust). I reserve the
right to change my beneficiary or beneficiaries by written notification to
Northeast Management and Research Co., Inc.
Pay my account to the primary beneficiary or beneficiaries named below who
are living at my death.
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
---------------
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
---------------
Primary beneficiary continued on next page
26
<PAGE>
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
---------------
If no primary beneficiary is living at my death, pay the account to the
contingent beneficiary or beneficiaries named below who are living at my death.
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
---------------
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
---------------
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
---------------
*Shares for each IRA's beneficiary must add up to 100%. Please do not indicate
fractional percentages (e.g. if there are three beneficiaries, indicate 33%, 33%
and 34%).
--------------------------------------------------------------------------------
4. Special Income Tax Withholding Election
Complete this Section 4 only if you are converting an existing Northeast
Investors Traditional (or other non-Roth) IRA to a Roth IRA.
I understand that the taxable amount converted to a Roth IRA will be treated as
taxable income to me. If I am converting in 1998, I understand that I may elect
to have the entire amount converted included as taxable income in 1998 or to
have one-quarter of the taxable amount included in my taxable income in each of
1998, 1999, 2000 and 2001. I agree that I am responsible for the tax results of
converting (including determining that I am eligible to convert). Withholding
Election continued on next page
27
<PAGE>
My current Non-Roth IRA will receive a new account number when it is converted
into a Roth IRA. My existing investments will remain unchanged until
subsequently changed by me.
I elect to have withholding or no withholding of Federal Income Tax on the
taxable amount converted as indicated below. I understand the amounts converted
from an existing Traditional IRA, SEP IRA, or SIMPLE IRA to a Roth IRA (other
than prior nondeductible contribution amounts) are subject to Federal Income Tax
withholding unless I elect no withholding. Unless I elect no withholding, 10% of
the taxable amount converted will be withheld as Federal Income Taxes. In
addition, there may be withholding of State Income Taxes depending on your state
of residence. Please note that, if you elect no withholding, you may have to pay
estimated tax. Insufficient payments of estimated tax may result in penalties. I
understand that the financial benefits of converting my existing Account to a
Roth IRA Account may depend upon converting the entire amount. Therefore, from a
financial viewpoint, it may be better for me to elect no withholding and to pay
any income taxes due from other funds of mine rather than to reduce the amount
converted from my existing IRA to my Roth IRA by applicable withholding taxes.
- I do not want to have Federal Income Tax and any applicable State
Income Tax withheld from my distribution.
- I do want to have Federal Income Tax and any applicable State Income
Tax withheld from my distribution.
--------------------------------------------------------------------------------
5. Signature
I hereby adopt with the Custodian this Northeast Investors Individual
Retirement Account (the "Account"). I agree that the Account will be governed by
the terms of this Application and the Northeast Investors Roth IRA Custodial
Agreement (which is incorporated by reference). The Account established
hereunder is designated as a Roth IRA under Internal Revenue Code Section 408A.
Once the Custodian acknowledges receipt of this Application, it shall be deemed
accepted, and therefore effective, as of the date I signed it. I have received
and read the Northeast Investors Roth IRA disclosure statement and the
prospectus(es) of the fund(s) selected. I certify under penalties of perjury
that my Social Security number above is correct, and that the other information
provided in this Application (including specifically the date(s) given above
concerning transfers or rollovers from another Roth IRA) is correct. If
applicable, I elect the Income Tax Withholding indicated in Section 4 above.
--------------------------------------------------------------------------------
Signature Date
If you wish to receive periodic withdrawals, please complete the enclosed
Withdrawal Authorization Form and return it with this Application. A signature
guarantee is not required when a request for periodic withdrawals accompanies
the new account Application.
Custodian Fee
- Check here if the $10.00 custodial fee is enclosed; if checked, annual
maintenance fees for future years will be billed to you. If not checked, the fee
will automatically be deducted at year end.
28
<PAGE>
NORTHEAST INVESTORS UNIVERSAL IRA WITHDRAWAL AUTHORIZATION FORM
--------------------------------------------------------------------------------
Please Print
-------------------------------------
Account Owner's Name
-------------------------------------
Account Owner's Date of Birth
-------------------------------------
Account Owner's Social Security Number
-------------------------------------
Account Owner's Account Number
--------------------------------------------------------------------------------
Type of Withdrawal (Check One):
NORMAL Individual is over 59-1/2
[ ]
[ ] REQUIRED Individual is age 70-1/2 or older (Non-Roth IRAs only) [ ]
DISABILITY Individual certifies that the individual is disabled and therefore
unable
to engage in any substantial gainful activity by reason of a
medically determinable physical or mental impairment which
can be expected to be of long continued or indefinite
duration or to result in death.
[ ] PREMATURE Individual is under age 59-1/2 and not disabled.
The individual acknowledges that this withdrawal may involve
a 10% IRS penalty tax on the amount withdrawn, in addition to
the inclusion of the taxable amount in income for the year
the withdrawal is received. Consult with your tax advisor for
additional information.
[ ] DEATH Each beneficiary of a deceased individual must
complete this form, have his/her signature guaranteed, and
enclose a certified copy of the death certificate. If the
beneficiary is not a named individual, the legal
representative must complete this form, have his/her
signature guaranteed, and enclose a copy of his/her court
appointment and a certified copy of the death certificate.
Individual is under age 59-1/2 and elects substantially equal
periodic
[ ] PREMATURE/
LIFE payments over his/her life expectancy or joint life
EXPECTANCY expectancy of individual and designated beneficiary. If the
individual changes the payment method prior to the later of
attaining age 59-1/2 or five years from the date of the first
payment, the IRS may impose a 10% penalty on all payments
received prior to age 59-1/2. The individual certifies that
the amount withdrawn does not exceed the
[ ] MEDICAL
EXPENSES individual's deductible medical expenses for the year of the
withdrawal. The individual certifies that (i) the amount
withdrawn does not exceed
[ ] HEALTH
INSURANCE the amount the individual paid for health insurance coverage
PREMIUMS for the individual and/or the individual's spouse or
dependents, (ii) the individual received state or federal
unemployment compensation benefits for at least 12 weeks,
(iii) the withdrawal is being made in the calendar year in
which the unemployment benefits were received or the
following calendar year, and (iv) the withdrawal is not being
made after the individual had been reemployed for 60 or more
days.
29
<PAGE>
[ ] ELIGIBLE The individual certifies that the amount withdrawn does not
HIGHER exceed eligible higher education expenses. These are
EDUCATION expenses for tuition, fees, books and supplies necessary
EXPENSES to attend an institution for post-secondary education. Room
and board are eligible expenses for students attending at
least half-time. The student may be the individual,
individual's spouse, or child or grandchild of individual or
spouse. Expenses covered by a scholarship or other
educational assistance payment or tax-advantaged source of
financing are not eligible expenses.
[ ] ELIGIBLE The individual certifies that the amount withdrawn does not
FIRST-TIME exceed eligible first-time homebuyer expenses. These include
HOMEBUYER costs of purchase, construction or reconstruction of a EXPENSES
principal residence (including normal settlement, financing
or closing costs). Thehomebuyer may be the individual, the
individual's spouse, or the child, grandchild, parent or
grandparent of the individual or individual's spouse. A
"first-time homebuyer"is an individual who has not (and, if
married, whose spouse has not) had an ownership interest in
a principal residence during the two-year period immediately
preceding the home purchase. The expenses must be paid
within 120 days after the withdrawal. There is a $10,000
lifetime limit on eligible first-time homebuyer expenses for
any individual.
[ ] OTHER ------------------------------------------------------------
--------------------------------------------------------------------------------
Method of Withdrawal (Check One):
[ ] Total Withdrawal (Account Termination) [ ] Partial Withdrawal of
$-------
[ ] Quarterly Dividends [ ] Periodic Withdrawal of $-------
[ ] Monthly (1st, 10th, 15th or 25th) [ ] Quarterly
[ ] (Jan, April, Jul, Oct),
[ ] (Feb, May, Aug, Nov),
[ ] (Mar, June, Sep. Dec.)
[ ] Semi-annually [ ] Annually
------- /------- -----------------
Months Month
If you wish to receive distributions based upon your life expectancy,
pleasecall our office at 1-800-225-6704 and we will send you IRS-approved life
expectancy tables. We also recommend that you consult with your tax advisor to
determine the required dollar amount of your distribution. Once you have
determined the correct dollar amount, submit a completed Withdrawal
Authorization Form to us at least 30 days prior to your desired withdrawal date.
--------------------------------------------------------------------------------
Form of Withdrawal (Check One):
[ ] CASH (Liquidation)
[ ] IN KIND (Shares of Northeast Investors Trust and/or Northeast
Investors Growth Fund will be re-registered to you). For new
accounts, enclose completed application.
For existing accounts, please include A/C#
-----------------------------
[ ] Electronic Funds Transfer (ACH). To have funds electronically
transferred for periodic payments only, your bank must be an
Automated Clearing House (ACH) member and you must attach a voided
check or deposit slip including your bank routing number.
30
<PAGE>
---------------------------------------------------------------------------
Withholding Election (Check One):
See Tax Information below.
[ ] I do not want to have Federal Income Tax and applicable State Income
Tax withheld from my withdrawal.
[ ] I do want to have Federal Income Tax and applicable State Income Tax
withheld from my withdrawal ($10.00 fee each time).
[ ] Please withhold $------------- from each withdrawal for Federal
Income Tax ($10.00 Tax withholding fee charged each time).
[ ] Please withhold $------------- from each withdrawal for State Income
Tax ($10.00 Tax withholding fee charged each time).
--------------------------------------------------------------------
Tax Information
The Custodian shall report withdrawals on Form 1099-R based solely on
information known by the Custodian about amounts held in your Northeast
Investors IRA account(s). However, tax on the amount withdrawn may be determined
based on amounts contributed to all of your IRA accounts, including those not
under the Custodian's control. Thus, you have sole responsibility for correctly
determining and reporting the withdrawal on your income tax returns.
Withdrawals from an IRA (other than non-taxable direct transfers to another IRA
custodian or withdrawals of nondeductible contribution amounts) are subject to
federal income tax withholding unless you elect no withholding when completing
your withdrawal authorization form. Qualifying withdrawals from a Roth IRA are
not subject to federal income tax (see the Roth IRA Disclosure Statement for an
explanation of the circumstances when qualifying withdrawals are tax-free);
therefore, for such withdrawals, you may wish to elect no withholding. Unless
you elect no withholding, 10% of each distribution will be withheld as federal
income taxes. In addition, there may be withholding of state income taxes
depending on your state of residence.
If you elect no withholding, your election will remain in effect until revoked.
You may revoke your no withholding election in writing at any time. Please note
that, if you elect no withholding or have an insufficient amount withheld from
your withdrawals, you may have to pay estimated tax. Insufficient payments of
estimated tax may result in penalties.
If you have a Massachusetts address and have federal withholding, we are
required to withhold Massachusetts income taxes also. Complete Massachusetts
Form M-4P so that your Massachusetts income taxes may be calculated correctly.
Depending on your number of exemptions and the amount of your IRA withdrawals,
there may be no actual withholding. If your legal residence is not Massachusetts
(even though you have a Massachusetts address), check the box in item 5 of the
Form M-4P to avoid Massachusetts income tax withholding.
Please contact Northeast Investors if you wish to have us send you federal form
W-4P or Massachusetts form M-4P.
The undersigned individual authorizes the withdrawal specified above and the
withholding election completed above. The undersigned acknowledges that proper
income tax reporting depends on the correct completion of this form and
certifies that the box checked under Type of Withdrawal (above) is correct; and
that it is the undersigned's responsibility to determine correctly the amount of
tax that may be due based on all IRA accounts the undersigned may own (including
those unknown by or not under the control of the Custodian); the undersigned
agrees to indemnify and hold harmless the Custodian and its agents and service
providers (including Northeast Management and Research Company, Inc.) from any
expenses incurred if such information is not correct. The undersigned
acknowledges that it is his/her responsibility properly to calculate, report,
and pay all taxes due with respect to the withdrawal specified above.
--------------------------------------------------- --------------------------
Signature** Date
**Signature must be guaranteed by a bank or trust company, securities broker or
dealer, credit union, securities exchange or association, securities clearing
agency or savings association. Notarizing or witnessing will not suffice.
31
<PAGE>
This material is authorized for distribution to prospective investors only when
preceded or accompanied by a currently effective prospectus setting forth
material information about Northeast Investors Trust and a currently effective
prospectus setting forth material information about Northeast Investors Growth
Fund.
Northeast Management & Research, Inc.
50 Congress Street
Boston, MA 02109
-------------------------------------------------------------------------------
-------------------------
Please Do Not Remove This Label
Please check here if you would
like
information concerning:
- Traditional IRA - Educational
IRA - 403-B - Keogh - Statement of
Additional Information - Northeast
Investors Growth Fund - Northeast
Investors Trust
NORTHEAST INVESTORS
EDUCATION IRA
(August, 1998)
<PAGE>
TABLE OF CONTENTS
Page
HOW TO OPEN AN EDUCATION IRA.............................................4
HOW TO OPEN A ROLLOVER EDUCATION IRA.....................................4
CUSTODIAN FEE............................................................5
IN SUMMARY, PLEASE SEND THE FOLLOWING....................................5
NORTHEAST INVESTORS EDUCATION IRA DISCLOSURE STATEMENT...................7
BRIEFLY, WHAT IS AN EDUCATION IRA?....................................7
REVOCATION............................................................8
THREE IMPORTANT POINTS................................................8
INVESTMENTS...........................................................9
ESTABLISHING AN EDUCATION IRA............................................9
HOW MUCH CAN BE CONTRIBUTED?............................................10
ANNUAL CONTRIBUTIONS.................................................10
Modified Adjusted Gross Income..........................................11
Rollover Contributions..................................................11
HOW MUCH OF THE CONTRIBUTION CAN I DEDUCT?..............................12
WHEN CAN CONTRIBUTIONS BE MADE?.........................................12
INVESTMENT CHOICES......................................................12
EXCESS CONTRIBUTIONS....................................................12
WITHDRAWALS.............................................................13
Impact on Education Tax Credits.........................................14
WHEN MUST WITHDRAWALS BE MADE?..........................................14
SOME THINGS TO AVOID....................................................15
CUSTODIAN FEE AND OTHER CHARGES.........................................15
THE TEN DOLLAR ($10) ANNUAL MAINTENANCE FEE..........................15
NORTHEAST INVESTORS TRUST............................................16
NORTHEAST INVESTORS GROWTH FUND......................................16
GROWTH OF THE EDUCATION IRA ACCOUNT.....................................16
STATE TAX RULES.........................................................17
IRS REPORTS AND RETURNS.................................................17
CUSTODIAL ACCOUNT AGREEMENT.............................................18
<PAGE>
i
Northeast Investors Education IRA
This booklet describes the Northeast Investors Education IRA, a new kind
of IRA that is first available in 1998. The booklet does not describe our
Traditional IRA which has been available for many years, nor our Roth IRA which
was introduced on January 1, 1998. If you would like to receive materials or
information on either a Northeast Investors Traditional IRA or a Northeast
Investors Roth IRA, call us at 1-800-225-6704.
In general, an individual--called the "Depositor" in this
booklet--establishes an Education IRA for another person--called the "Designated
Beneficiary"--as a means of saving money to pay for the Designated Beneficiary's
future higher education expenses. Contributions to an Education IRA are not
deductible. However, withdrawals that meet certain requirements are not included
in the Designated Beneficiary's taxable income. This means that income and
growth achieved while contributions are in the Education IRA can be withdrawn
tax-free, a unique benefit. The Designated Beneficiary's total Education IRA
account balance must be distributed out of the Education IRA within 30 days of
the date he or she reaches age 30.
Education IRA accounts can be established only for Designated
Beneficiaries who are under age 18 (unless it is a Rollover Education IRA). This
means that Designated Beneficiaries will be typically below the age of majority
in their state of residence ("the age of majority"). A parent or
guardian--called the "Responsible Individual" in this booklet--must be
designated to manage and administer the account on behalf of any Designated
Beneficiary who has not attained the age of majority. Any reference in this
booklet--or on the Application or any other form or document related to the
administration of the Education IRA account--to a duty, right or responsibility
of the Designated Beneficiary should be understood to be a reference to the
Responsible Individual, who will hold any right or exercise any such duty, right
or responsibility on behalf of a Designated Beneficiary who has not yet attained
the age of majority. In addition, the Depositor may, by checking the box on the
Application, elect to have the Responsible Individual maintain control over the
account even after the Designated Beneficiary reaches the age of majority.
The Depositor may elect (by checking the applicable box on the
Application) to permit the Responsible Individual to change the Designated
Beneficiary. If so, the Responsible Individual may appoint a different
Designated Beneficiary for the account. Federal law requires that a new
Designated Beneficiary be a member of the prior Designated Beneficiary's family
who is under age 30.
("Family members" are defined in this booklet.)
Finally, because Education IRAs are new, many of the tax law rules
governing them have not been formally clarified by the IRS. The material in this
booklet is based on the best information available at the time this booklet was
published. If you have specific questions about how the Education IRA rules
apply to your particular situation or about the latest Education IRA
developments or any changes in the rules, you should consult a qualified
professional or the IRS. If as a result of future developments or changes in the
rules, it becomes necessary to revise the Custodial Agreement or other legal
documents governing your account, Northeast Investors will send you the
necessary amendments (which we expect would not require an additional signature
by you).
<PAGE>
6
4
HOW TO OPEN AN EDUCATION IRA
1. To open a Northeast Investors Education IRA, the Depositor should complete
and sign the enclosed Education IRA Application form. The Responsible Individual
should also sign the Application, where indicated. If you are transferring
directly from another Education IRA, the Direct Transfer to Education IRA Form
should also be completed and returned. Please make sure that sections 1 through
5 of the Application are completed, and that the Depositor and the Responsible
Individual have signed in section 6.
Note: Generally, anyone who has reached the age of majority may be a Depositor
(as long as the Depositor's modified adjusted gross income does not exceed the
limits--see the Disclosure Statement), including the person who will be the
Designated Beneficiary or the Responsible Individual. However, any
Depositor--regardless of whether he or she has attained the age of majority--may
establish an Education IRA for his or her own benefit.
The Designated Beneficiary must be an individual who is alive at the time the
Education IRA is established (i.e., Education IRAs cannot be established for
children who are not yet born or for groups of individuals). If the Designated
Beneficiary is a minor (this will usually be the case with a contributory
Education IRA), a parent or guardian must be designated as Responsible
Individual. If the Designated Beneficiary has reached the age of majority in his
or her state of residence (usually this will be the case only with a rollover
Education IRA), the Designated Beneficiary may also be designated as the
Responsible Individual by checking the appropriate box on the Application form.
2. Return the completed and signed Education IRA Application form along with
either a check for the initial contribution or the Direct Transfer to Education
IRA Form if applicable.
A minimum of $500 is required to open an Education IRA account. Anytime
thereafter additional contributions may be made to the Northeast Investors
Education IRA by any Depositor, as long as the limits on contributions are not
exceeded.
For further information regarding the contribution rules, please see
pages 9-11.
HOW TO OPEN A ROLLOVER EDUCATION IRA
1. The Responsible Individual may rollover or transfer all or part of an
Education IRA account to a Northeast Investors Education IRA established for the
benefit of the Designated Beneficiary of the original Education IRA or for a
member of his or her family. For these purposes, members of the Designated
Beneficiary's family include the following who are under 30 years old at the
time of the withdrawal: the Designated Beneficiary's spouse, the Designated
Beneficiary's children and their descendants, stepchildren and their
descendants, siblings and their children, parents, grandparents, stepparents,
and spouses of all of these individuals.
Also, if the Depositor has elected on the Application to permit it, the
Responsible Individual may simply designate another member of the original
Designated Beneficiary's family (as defined above) to be the new Designated
Beneficiary for the Education IRA.
To open a Rollover Education IRA, complete the Application form,
indicating that a Rollover Education IRA is being established.
For further information regarding rollovers, please see page 10.
CUSTODIAN FEE
1. The custodian fee is a $10 Education IRA maintenance fee charged annually.
For further information regarding the $10 maintenance fee, please see page 14.
The annual maintenance fee will automatically be charged to the Education IRA
account. (However, to bill the Designated Beneficiary directly for the annual
maintenance fee (which may be paid by check), the appropriate box on the
Education IRA Application should be checked.)
IN SUMMARY, PLEASE SEND THE FOLLOWING:
1. The Education IRA Application form with sections 1 through 5 completed and
section 6 signed.
2. For a transfer Education IRA, complete the Application--if necessary--and
complete and return the Direct Transfer to Education IRA Form. More forms
are available from Northeast Investors.
3. If the annual maintenance fee is being paid by check, a check in the amount
of $10.00 should be enclosed for each Education IRA established.
All checks should be payable to
Northeast Management &
Research Co., Inc.
SEND ALL COMPLETED FORMS, CHECKS AND ANY
OTHER CORRESPONDENCE TO:
Northeast Management & Research Company, Inc.
50 Congress Street, Suite 1000
Boston, MA 02109-4096
<PAGE>
NORTHEAST INVESTORS EDUCATION IRA DISCLOSURE STATEMENT
<PAGE>
16
Briefly, What is an Education IRA?
A Northeast Investors Education Individual Retirement Account ("Education
IRA") is a convenient and sensible method of saving for higher education. Any
person--a family member, a friend, or an individual on his own behalf--may
establish an Education IRA for any living individual who is under 18 years old
(i.e., Education IRAs can not be established for children who are not yet born
or for groups of individuals). With an Education IRA, the person making the
contribution does not receive a deduction for the contributions made, but
earnings accumulate tax-free, and withdrawals for qualified education expenses
come out of the Education IRA tax-free, as well.
Here's how it works: an individual--the "Depositor"--is generally
permitted to contribute up to $500 annually (subject to certain limitations
based on annual income and filing status) to an Education IRA established for
the benefit of a living individual who is under age 18--the "Designated
Beneficiary." A parent or guardian--the "Responsible Individual"--must manage
and administer the Education IRA account on behalf of any Designated Beneficiary
who has not attained the age of majority in his or her state of residence ("age
of majority"). For this reason, all duties and responsibilities are referred to
as duties and responsibilities of the Responsible Individual. Only one parent or
guardian may act as the Responsible Individual.
Generally, a Depositor must be at least the age of majority in order to
establish an Education IRA for someone other than him- or herself. Individuals
who want to open an Education IRA for themselves, may do so even if they have
not reached the age of majority.
The Depositor may contribute up to $500 annually for as many different
Designated Beneficiaries (in as many different Education IRA accounts) as the
Depositor wishes. However, no more than a total of $500 may be contributed on
behalf of any single Designated Beneficiary in one year, counting all Education
IRA contributions from all Depositors. This means that the Designated
Beneficiary or the Responsible Individual must always check to make sure that
all contributions received in Education IRA accounts on behalf of that
particular Designated Beneficiary do not exceed $500 in a given year.
Withdrawals from an Education IRA account are tax-free if the proceeds
are used to meet the cost of qualified higher education expenses. If the amount
withdrawn is not used to meet qualified higher education expenses, or if the
amount withdrawn exceeds the amount needed in a year to meet those expenses,
then the amount subject to taxation (the earnings) will be included in the
Designated Beneficiary's taxable income for the year, and may be subject to an
additional 10% penalty.
The entire account balance in an Education IRA account must be
distributed within 30 days of the Designated Beneficiary's 30th birthday, or
within 30 days of his or her death. Any amounts not distributed by the end of
the 30-day period will be deemed distributed under federal tax law, and the
Designated Beneficiary will be taxed on the taxable amount. The additional 10%
penalty may also apply.
Account balances can also be rolled over or transferred to an Education
IRA established for a member of the Designated Beneficiary's family.
Contributions to an Education IRA are invested in shares of Northeast
Investors Trust or Northeast Investors Growth Fund, as the Depositor initially
decides (there is a $500 minimum investment for each fund). Subject to the
minimum investment rule, a portion of each contribution may be invested in each
fund, and investments can be exchanged from one fund to the other. After the
Depositor has established the account, the Responsible Individual may decide to
switch the investment elections between the two funds.
The growth in an Education IRA (both earnings and appreciation) is exempt
from federal income tax while it accrues. Withdrawals from principal can be made
at any time without tax or penalty. Withdrawals to cover the cost of qualified
higher education expenses--including withdrawals of earnings and
appreciation--may also be made without tax or penalty.
An Education IRA must meet certain requirements of the Internal Revenue
Code. The agreement establishing the Education IRA must be in writing, and it
must provide that the custodian is a bank and that contributions must be in
cash. The Northeast Investors Education IRA Custodial Agreement is designed to
meet the requirements in order to receive the favorable federal income tax
treatment provided by law. (Note: State law tax treatment may differ. Consult
your personal tax advisor.)
Revocation
The Depositor may revoke the Education IRA within seven calendar days
after Northeast Management & Research Company, Inc. receives the Education IRA
Application establishing the Education IRA. The amount of the Depositor's
initial contribution will be returned to the Depositor without penalty,
administrative charge or adjustment for dividends or investment gains or losses.
To revoke an Education IRA account, the Depositor should mail or deliver
a written notice to Northeast Management & Research Company, Inc., 50 Congress
Street, Suite 1000, Boston, Massachusetts 02109-4096. Call 617-523-3588 or
1-800-225-6704 with any questions.
Three Important Points
First, this booklet summarizes the federal tax treatment of Northeast
Investors Education IRAs. State taxes on Education IRAs may vary from federal
taxes. A further word on this can be found on page 16.
Second, uncertainty about eligibility to be either a Depositor or a
Designated Beneficiary, or about the amount of a contribution or the qualified
status of a withdrawal should be resolved through consultation with your
personal tax or financial advisor or the Internal Revenue Service. This booklet
outlines the main rules, but no summary can describe all the rules that could
apply in each individual case. Northeast Investors has no responsibility for
determining anyone's eligibility for an Education IRA, or whether a particular
withdrawal will be qualified.
Third, the Internal Revenue Service has promulgated the language of
Articles I-X of the Northeast Investors Education IRA Custodial Agreement in
Form 5305-EA to set forth the terms and conditions which must be contained in an
Education IRA agreement. This does not mean that the IRS approves the merits of
investing in a Northeast Investors Education IRA.
For further information about Education IRAs, contact any district office
of the Internal Revenue Service.
Investments
Contributions to a Northeast Investors Education IRA will be invested
exclusively in shares of Northeast Investors Trust or shares of Northeast
Investors Growth Fund, as initially chosen by the Depositor, or as subsequently
elected by the Responsible Individual (see Investment Choices on page 11).
Dividends and distributions will be automatically reinvested. For more
information about Northeast Investors Trust and Northeast Investors Growth Fund,
see the current prospectuses for the funds. Read the prospectus(es) before
investing.
ESTABLISHING AN EDUCATION IRA
Any Depositor who has reached the age of majority may establish an
Education IRA and make contributions to it. The Education IRA may be for the
benefit of any other living person, the "Designated Beneficiary," who is under
18 years old at the time of the contribution. (The requirement that the
Designated Beneficiary be a "living person" means, for example, that an
Education IRA can not be established for an individual not yet born at the time
the Education IRA is established, nor can a single Education IRA be established
for a group of individuals.) The Depositor does not have to be related to the
Designated Beneficiary. (Note: A Depositor may establish an Education IRA for
him- or herself regardless of whether he or she has reached the age of
majority.)
After the initial contribution has been made, and the Depositor
designates the initial investments, the Depositor will have no further rights
over the administration of the Education IRA account, except for exercising the
revocation rights discussed above, or unless the Depositor and the Designated
Beneficiary or the Responsible Individual are all the same person.
The Responsible Individual must manage and administer the account on
behalf of any Designated Beneficiary who has not attained the age of majority.
Any duty, right or responsibility of a Designated Beneficiary regarding the
account will be exercised or required of the Responsible Individual if the
Designated Beneficiary has not reached the age of majority. The Responsible
Individual must be a parent or guardian of the minor Designated Beneficiary.
Only one parent or guardian may be the Responsible Individual for any one
Education IRA account. In addition, the Depositor may, by checking the box on
the Application, elect to appoint the Responsible Individual to continue to
exercise responsibility for an account even after the Designated Beneficiary
reaches the age of majority. If this box has not been checked, the Designated
Beneficiary may assume responsibility for administering the account after he or
she has attained the age of majority. To do so, the Designated Beneficiary
should notify Northeast Investors in writing, at the address provided above,
that he or she wishes to assume responsibility for the Education IRA account.
Northeast Investors may require verification of the Designated Beneficiary's
age.
HOW MUCH CAN BE CONTRIBUTED?
Annual Contributions
A Depositor who files his or her federal income tax return as a single
taxpayer may contribute $500 a year to an Education IRA account established for
a Designated Beneficiary if the Depositor's modified adjusted gross income
("modified AGI") is $95,000 or less. The $500 maximum limit is reduced if a
single taxpayer's modified AGI is over $95,000 but less than $110,000 (the
Single Phase Out Range). Single taxpayers with modified AGI in excess of
$110,000 in a year may not contribute to an Education IRA for that year.
A Depositor who is married and files a joint federal income tax return
can contribute as much as $500 per year to an Education IRA account established
for a Designated Beneficiary if the Depositor and his or her spouse's modified
AGI for the year is $150,000 or less. The $500 maximum contribution amount is
reduced if a married joint filer has a modified AGI of between $150,000 and
$160,000 (the Married Phase Out Range). A married taxpayer filing jointly may
not contribute if modified AGI for the year exceeds $160,000.
The amount that may be contributed if the Depositor's modified AGI
falls in either the Single Phase Out Range or the Married Phase Out Range is
calculated as follows: in either case, the difference between the amount of
modified AGI and the lower limit of the Phase Out Range ($95,000 for single
filers, $150,000 for married joint filers) is divided by the value of the
respective Phase Out Range ($15,000 for single filers, $10,000 for married joint
filers). The resulting sum is then multiplied by $500. This number is then
subtracted from $500 to get the amount that may be contributed.
For example, in 1998, Joe, a single filer with a modified AGI of
$100,000, wants to contribute up to his maximum limit to an Education IRA
established for the benefit of his friend's son, Bill. Joe's maximum limit is
calculated as follows:
1. The difference between Joe's modified AGI and the lower limit of the Single
Phase Out Range:
($100,000-$95,000) = $5,000
2. This is divided by 15,000 (the value of the Range):
$ 5,000
$15,000 = 0.3333
3. Multiply this by $500:
0.3333 x $500 = $166.66
4. This is subtracted from the $500 contribution limit:
($500 - $166.66) = $333.34
5. In 1998, Joe may contribute up to $333.34 to an Education IRA established
for the benefit of Bill.
Two important points to note: First, in our example Joe's contribution limit is
$333.34. This means that Joe may contribute up to $333.34 in 1998 to an
Education IRA established for the benefit of any Designated Beneficiary. In
other words, if Joe wanted to contribute to Education IRAs established for Bill
and a number of other individuals (all of whom are under 18) in 1998, he could
do so, but he could not contribute more than $333.34 to each Education IRA.
Second, if Joe does contribute $333.34 to an Education IRA established
for Bill, Joe's limit has no impact on anyone else's ability to contribute in
1998 to this or any other Education IRA established for the benefit of Bill.
That is, another Depositor could contribute up to $166.66 in 1998 to this or any
other Education IRA established for the benefit of Bill, as long as the $500
limit on all contributions made in 1998 to Education IRAs on Bill's behalf is
not exceeded.
Modified Adjusted Gross Income
As indicated above, the maximum amount that may be contributed on an
annual basis to an Education IRA depends on the Depositor's modified AGI. AGI is
total income less certain adjustments such as business expenses or alimony, but
before itemized deductions. "Modified AGI" is AGI plus certain amounts that may
have been earned abroad. Depositors without foreign income, or income earned in
Guam, Puerto Rico, the Northern Mariana Islands, Guam or American Samoa, should
simply use normal AGI in place of modified AGI.
(Consult your tax advisor.)
Rollover Contributions
The account balance in an Education IRA may be rolled over to a newly
created or existing Education IRA as long as the Designated Beneficiary of the
receiving Education IRA is the same person as, or is a family member of the
Designated Beneficiary of the transferring Education IRA.
The limits on annual contributions discussed above do not apply to
rollovers.
Education IRA rollovers must be completed within 60 days of the
distribution from the first Education IRA. Also, only one Education IRA rollover
may be performed in any 12-month period.
Family members include any of the following who are under 30 years old
at the time of the distribution from the first Education IRA: the Designated
Beneficiary, his or her spouse, or the Designated Beneficiary's children and
their descendants, stepchildren and their descendants, siblings and their
children, parents, grandparents, stepparents, and spouses of all of these
individuals.
An easy way to implement a "rollover" is simply to have the Responsible
Individual of an Education IRA name a new designated beneficiary for the
account. (The new designated beneficiary must be one of the original Designated
Beneficiary's family members (as defined above) who are under age 30 at the time
the change is made.) Note: This option is available only if the Depositor has
indicated on the Application form that the Designated Beneficiary may change the
designated beneficiary named in the Application.
HOW MUCH OF THE CONTRIBUTION CAN I DEDUCT?
Unlike a Traditional IRA, contributions to an Education IRA may not be
deducted. The Education IRA simply provides a vehicle in which savings for
higher education costs may grow tax-free. When a withdrawal from the Education
IRA is made, the entire amount--principal and earnings--comes out of the account
tax-free, as long as your distribution is for qualified higher education
expenses.
WHEN CAN CONTRIBUTIONS BE MADE?
An Education IRA must be established and contributions made by the end of
a calendar year. Unlike Traditional IRAs, contributions to an Education IRA may
not be made by the due date for filing federal tax returns for that year.
INVESTMENT CHOICES
Contributions to Northeast Investors Education IRAs must be invested in
shares of Northeast Investors Trust or shares of Northeast Investors Growth
Fund. Part of each contribution may be invested in each fund (subject to fund
minimum investment rules).
The Depositor makes the initial investment election on the Application
when the account is opened. The Responsible Individual may subsequently direct
the Custodian to exchange any or a specified portion of the Northeast Investors
Trust shares in the Education IRA to Northeast Investors Grown Fund or vice
versa.
Investments or exchanges are subject to the $500 minimum investment
requirement applicable to each fund. Before investing, the Depositor and/or the
Responsible Individual should be sure to read the current prospectuses for
Northeast Investors Trust and Northeast Investors Growth Fund to become familiar
with the investment objectives and policies of each.
EXCESS CONTRIBUTIONS
An "Excess Contribution" occurs in an Education IRA in the following
ways: (i) when the $500 per Designated Beneficiary per year limit is exceeded
(not including any rollover contribution amounts), (ii) when the Depositor
exceeds his or her contribution limit based on modified AGI and filing status
(as discussed above), or (iii) when contributions are made to a state prepaid
tuition program in the same year that a contribution is made to an Education IRA
on the Designated Beneficiary's behalf.
If an Excess Contribution occurs, the Designated Beneficiary must pay
an IRS penalty of 6% of the excess contribution. (The 6% penalty tax applies for
each year that the Excess Contribution remains in the Education IRA.) The
penalty tax can be avoided for a year if the excess is withdrawn on or before
the due date (including any extensions) for filing the Federal income tax return
for that year. To correct the Excess Contribution in this manner, the net
earnings on the Excess Contribution must be withdrawn and included in income for
the tax year for which the contribution was made. An Excess Contribution can
also be corrected--and the 6% penalty possibly avoided--by contributing an
amount out of the Education IRA into a qualified state tuition program in the
same year in which the contribution was made.
If an Excess Contribution is withdrawn after the tax return due date
(including any extensions) for the year for which the contribution was made (or
any subsequent year in which it continues), then the Designated Beneficiary will
be subject to the 6% excise tax. Unless an exception applies, the amount of the
excess--plus earnings--withdrawn will be included in the Designated
Beneficiary's income and may also be subject to a 10% withdrawal penalty.
Because of the various ways in which an Excess Contribution can occur,
and because Education IRAs for a single Designated Beneficiary may be
established by more than one Depositor, the Custodian can not and will not check
whether any contribution will result in an Excess Contribution. The Responsible
Individual must be responsible for checking with friends and family to determine
whether contributions that have been made or are intended to be made will result
in an Excess Contribution being made to a Designated Beneficiary's Education
IRA.
WITHDRAWALS
Amounts equal to the principal contributions contained in an Education
IRA account are always available for withdrawal tax- and penalty-free.
However, in order for the entire amount in the account--including
earnings and growth--to be withdrawn tax free, the withdrawn amount must be used
to cover the cost of qualified higher education expenses incurred in the same
year as the withdrawal by the Designated Beneficiary while attending an eligible
educational institution. Also, the amount of the withdrawal in a year must not
exceed the qualified higher education expenses for that year.
Qualified higher education expenses include amounts contributed to a
qualified state tuition program, and expenses incurred for tuition, books,
supplies, and equipment required for enrollment or attendance at an eligible
educational institution. Qualified higher education expenses also include room
and board--which is generally the school's posted room and board charge, or
$2,500 per year for off-campus housing costs--for students attending school at
least half-time.
Most colleges, universities, vocational schools, or other
post-secondary educational institutions are considered to be eligible
educational institutions; check with the school attended to verify that it is an
eligible educational institution as described in section 481 of the Higher
Education Act of 1965.
If the rules discussed above for a tax-free withdrawal are not
satisfied, the Designated Beneficiary will have to pay an IRS penalty tax of 10%
on the "premature withdrawal" in addition to regular income taxes on the amount
withdrawn that is subject to taxation. However, the "premature withdrawal"
penalty does not apply if:
o The withdrawal is paid to the Designated Beneficiary's estate within 30 days
of his death;
o The withdrawal is paid on account of the Designated Beneficiary's
disability; or
o The withdrawal equals or is less than the amount of a scholarship or other
tax-free educational assistance the Designated Beneficiary receives.
The Responsible Individual and not the Custodian is solely responsible
for determining whether a withdrawal is being made for education expenses, and
whether any taxes or penalties apply.
If the taxable amount withdrawn exceeds the Designated Beneficiary's
qualified higher education expenses in a year, the excess amount will be subject
to taxation. The tax is calculated by first determining the ratio that the
qualified higher education expenses bear to the actual withdrawal. The portion
of the withdrawal that is potentially subject to taxation--the amount of
earnings and growth--is then multiplied by that percentage amount. The resultant
sum is the amount excludable from income. The remaining portion of the earnings
and growth is taxable.
Taxable amounts from an Education IRA are included as regular income
and are not eligible for averaging treatment (currently available to certain
lump sum distributions from qualified employer-sponsored retirement plans) or
for taxable gains tax treatment.
Impact on Education Tax Credits
None of the Designated Beneficiary's education expenses for a year may
be claimed as the basis for a Hope Scholarship Credit or Lifetime Learning
Credit if the Designated Beneficiary receives a tax-free distribution from an
Education IRA in that same year.
However, if the Designated Beneficiary waives the right to the tax-free
status of the Education IRA withdrawal, and thus subjects the withdrawal to
taxation, the Hope Scholarship Credit or Lifetime Learning Credit for education
expenses may be claimed.
Designated Beneficiaries and parents should consult with their tax
advisors to determine whether they qualify for either credit and whether waiving
the tax-free withdrawal of the Education IRA is advisable.
WHEN MUST WITHDRAWALS BE MADE?
The entire account balance must be distributed from an Education IRA
within 30 days of the Designated Beneficiary's 30th birthday. All earnings and
growth will be reported as income, and will also be subject to the 10% penalty
unless an exception applies (see above). To avoid incurring either tax or
penalty, the Responsible Individual may (if the original Depositor elected to
permit a change in Designated Beneficiary) change the Designated Beneficiary to,
or may rollover or transfer the assets to an Education IRA maintained for the
benefit of, a member of the Designated Beneficiary's family who is under age 30.
(See Rollover Contributions, discussed at page 10, above.)
The assets of the account must also be distributed to the Designated
Beneficiary's estate within 30 days after his or her death.
In the case of a Designated Beneficiary who reaches age 30 or dies, any
amounts remaining in an Education IRA at the end of the 30-day period will be
deemed to have been distributed. The earnings and growth will then be reported
as income, and the 10% penalty may apply.
SOME THINGS TO AVOID
Transactions between the Responsible Individual or the Designated
Beneficiary and the Education IRA must be avoided since they are prohibited by
Federal law. Specific "prohibited transactions" are listed in the Internal
Revenue Code. They include borrowing from the Education IRA, selling or
exchanging property with the Education IRA and similar transactions.
If the Responsible Individual or Designated Beneficiary engages in a
prohibited transaction, the Education IRA will lose its tax-exempt status. The
taxable amount in the account will be treated as taxable income of the
Designated Beneficiary in that year. In addition, the 10% penalty for premature
withdrawals may apply.
Similarly, if all or part of the Education IRA is used to secure a
loan, the part so used that is attributable to earnings or growth will be
treated as taxable income to the Designated Beneficiary in that year, and 10%
penalty may apply.
CUSTODIAN FEE AND OTHER CHARGES
The Ten Dollar ($10) Annual Maintenance Fee
Each year, a fee is charged to the account to cover the cost of the
Education IRA custodian services provided by Investors Bank & Trust Company and
other services. The amount of the fee may be changed by Northeast Management &
Research Company, Inc. As a matter of convenience, we offer a choice of two ways
to pay this fee:
1. Automatic Deduction: Automatic deduction is the most convenient
method. The $10 fee is automatically deducted from the Education
IRA account in December, and the deduction will be reflected in the
year-end statement.
2. Payment by Check: If the appropriate box is checked on the
Education IRA Application form, we will send the Designated
Beneficiary a yearly invoice for this fee.
The payment option selected on the Application form will remain the
method of payment for the Education IRA annual maintenance fees in the future,
unless the Responsible Individual notifies us in writing of a change. For
example, if the fee is to be automatically deducted this year, we will not mail
the Responsible Individual a notice requesting payment in the future. If payment
by check is chosen, we will mail the Responsible Individual a reminder of
payment due in each following year. If the Education IRA is terminated during a
year, the Responsible Individual must pay that year's fee or else it will be
deducted from the account.
PLEASE TAKE NOTE:
Any fees that are to be paid by check should be made payable and sent
directly to:
Northeast Management & Research Company, Inc.
50 Congress Street, Suite 1000
Boston, MA 02109-4096
Northeast Investors Trust
The trustees of Northeast Investors Trust are entitled to receive an
annual fee equal to 1/2 of 1% of the principal of the Trust, computed at the end
of each quarter at the rate of 1/8 of 1% of the principal at the close of the
quarter. For this purpose, the principal of the Trust is the total value of the
Trust's investment portfolio and other assets, less all liabilities except
accrued trustees' fees.
The trustees of Northeast Investors Trust are entitled to charge a
redemption fee of up to 1% of the net asset value of the shares redeemed. It is
the present policy of the trustees not to charge such a fee, but this policy may
be changed by the trustees without notice to the shareholders.
For further information on the Trustees' annual fee and the redemption
of shares, see the current Northeast Investors Trust prospectus.
Northeast Investors Growth Fund
Northeast Investors Growth Fund has an Advisory and Service Contract
with Northeast Management & Research Company, Inc. ("NMR") under which NMR
provides investment advice and other services to the Fund. As its compensation
under the contract, NMR receives a monthly fee calculated at an annual rate of
1% of the daily average net assets of the Fund up to and including $10,000,000,
3/4 of 1% of such daily average net assets above $10,000,000 up to and including
$30,000,000 and 1/2 of 1% of such daily average net assets in excess of
$30,000,000.
Under the contract, NMR pays a portion of operating and bookkeeping
expenses of the Fund. The Fund is required to pay its legal fees, auditing fees,
cost of reports to shareholders and expense of shareholders' meetings, and
certain other expenses.
For more information on the contractual fees, and other expenses of the
Fund, see the current prospectus relating to Northeast Investors Growth Fund.
GROWTH OF THE EDUCATION IRA ACCOUNT
Dividends and any capital gains distributions on the shares of
Northeast Investors Trust or Northeast Investors Growth Fund in an Education IRA
account will be reinvested in additional shares and fractional shares.
Shareholders of Northeast Investors Trust are entitled to receive
dividends approximately equal to the net income of the Trust, plus other cash
distributions as the Trustees may declare. Net income is the gross earnings of
the Trust less expenses, and each share is entitled to receive a proportionate
amount of a dividend or distribution.
Shareholders of Northeast Investors Growth Fund receive income
dividends equal to substantially all of the net investment income of the Fund,
generally paid annually. In addition, shareholders receive an annual capital
gains distribution equal to substantially all of the Fund's net realized capital
gains (reduced by any available capital loss carry forwards). Each share
receives a proportionate amount of any dividend or distribution.
Because the net income of Northeast Investors Trust and or Northeast
Investors Growth Fund may fluctuate from year to year, fixed dividends cannot be
promised. Also, because the value of their investment portfolios may fluctuate,
the amount available for distribution to you from your account cannot be
projected or guaranteed.
For further information on dividends and distributions, see the current
Northeast Investors Trust prospectus or Northeast Investors Growth Fund
prospectus.
STATE TAX RULES
The tax rules discussed in this booklet are based on federal law. Tax
treatment of Education IRAs under state law varies from state to state.
Non-residents of Massachusetts are not liable for Massachusetts income
tax on taxable amounts earned by or withdrawn from a Northeast Investors
Education IRA. For advice on treatment of IRAs under the tax laws of
Massachusetts or other states, consult your tax advisor or legal counsel.
IRS REPORTS AND RETURNS
If an IRS penalty is owed due to an excess contribution, a
non-qualified withdrawal, a withdrawal in excess of the amount needed to meet
educational expenses, the failure to withdraw the account balance within 30 days
of the attainment of age 30 or the Designated Beneficiary's estate within 30
days of death, the appropriate IRS reporting form must be filed with an
individual tax return.
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17
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Northeast Investors
Education IRA
CUSTODIAL ACCOUNT AGREEMENT
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26
Article I.
The Custodian may accept additional cash contributions. These contributions
may be from the Depositor, or from any other individual, for the benefit of the
Designated Beneficiary, provided the Designated Beneficiary has not attained the
age of 18 as of the date such contributions are made. Total contributions that
are not rollover contributions described in section 530(d)(5) are limited to a
maximum amount of $500 for the taxable year.
Article II.
The maximum aggregate contribution that an individual may make to the
Custodial Account in any year may not exceed the $500 in total contributions
that the Custodial Account can receive. In addition, the maximum aggregate
contribution that an individual may make to the Custodial Account in any year is
phased out for unmarried individuals who have modified adjusted gross income
(AGI) between $95,000 and $110,000 for the year of the contribution and for
married individuals who file joint returns with modified AGI between $150,000
and $160,000 for the year for the contribution. Unmarried individuals with
modified AGI above $110,000 for the year and married individuals who file joint
returns and have modified AGI above $160,000 for the year may not make a
contribution for that year. Modified AGI is defined in section 530(c)(2).
Article III.
No part of the Custodial Account 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 investment fund (within the meaning of section
530(b)(1)(D)).
Article IV.
1. Any balance to the credit of the Designated Beneficiary on the date on
which such Designated Beneficiary attains age 30 shall be distributed to
the Designated Beneficiary within 30 days of such date.
2. Any balance to the credit of the Designated Beneficiary shall be
distributed to the estate of the Designated Beneficiary within 30 days of
the date of such Designated Beneficiary's death.
Article V.
The Depositor shall have the power to direct the Custodian regarding the
investment of the above-listed amount assigned to the Custodial Account
(including earnings thereon) in the investment choices offered by the Custodian.
The Responsible Individual, however, shall have the power to redirect the
Custodian regarding the investment of such amounts, as well as the power to
direct the Custodian regarding the investment of all additional contributions
(including earnings thereon) to the Custodial Account. In the event that the
Responsible Individual does not direct the Custodian regarding the investment of
additional contributions (including earnings thereon), the initial investment
direction of the Depositor also will govern all additional contributions made to
the Custodial Account until such time as the Responsible Individual otherwise
directs the Custodian. Unless otherwise provided in this Agreement, the
Responsible Individual also shall have the power to direct the Custodian
regarding the administration, management, and distribution of the Account.
Article VI.
The "Responsible Individual" named by the Depositor shall be a parent or
guardian of the Designated Beneficiary. The Custodial Account shall have only
one Responsible Individual at any time. If the Responsible Individual becomes
incapacitated or dies while the Designated Beneficiary is a minor under state
law, the successor Responsible Individual shall be the person named to succeed
in that capacity by the preceding Responsible Individual in a witnessed writing
or, if no successor is so named, the successor Responsible Individual shall be
the Designated Beneficiary's other parent or successor guardian. At the time
that the Designated Beneficiary attains the age of majority under state law, the
Designated Beneficiary becomes the Responsible Individual. Unless otherwise
directed by checking the option below, at the time the Designated Beneficiary
attains the age of majority under state law, the Designated Beneficiary becomes
the Responsible Individual.
Option. (This provision is effective if checked): The Responsible Individual
shall continue to serve as the Responsible Individual for the Custodial Account
after the Designated Beneficiary attains the age of majority under state law and
until such time as all assets have been distributed from the Custodial Account
and the Custodial Account terminates. If the Responsible Individual becomes
incapacitated or dies after the Designated Beneficiary reaches the age of
majority under state law, the Responsible Individual shall be the Designated
Beneficiary.
Article VII.
The Responsible Individual ____ may or _____ may not change the Beneficiary
designated under this Agreement to another member of the Designated
Beneficiary's family described in section 529(e)(2) in accordance with the
Custodian's procedures.
Article VIII.
1. The Depositor agrees to provide the Custodian with the information
necessary for the Custodian to prepare any reports required under
section 530(h).
2. The Custodian agrees to submit reports to the Internal Revenue
Service and the Responsible Individual as prescribed by the
Internal Revenue Service.
Article IX.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV will be controlling. Any additional articles
that are not consistent with section 530 and related regulations will be
invalid.
Article X.
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 Depositor and the Custodian whose signatures appear on
the Adoption Agreement.
Article XI
1. The following terms have the following meaning:
The "Account" or "Custodial Account" is the account being established
hereunder, according to the terms of this Custodial Account Agreement and the
Application form ("Application").
The "Depositor" is the individual whose name appears on the Application
and who is establishing an education individual retirement account ("IRA")
(under section 530 of the Internal Revenue Code ("Code")) for the benefit of the
"Designated Beneficiary" identified on the Application to pay for the qualified
higher education expenses (as defined in section 530(b)(2) of the Code) of such
Designated Beneficiary. A Depositor who is not also a Designated Beneficiary
must be at least the age of majority in his or her state of residence ("age of
majority") to establish an Education IRA for the benefit of a Designated
Beneficiary. However, any Depositor may establish an Education IRA for him- or
herself irrespective of his or her age (in which case the Depositor and
Designated Beneficiary are the same person), subject to the rules governing the
age of a Designated Beneficiary (see below).
The "Designated Beneficiary" is a living individual who is under age 18
for an annual contribution Education IRA Account and under age 30 for a rollover
Education IRA Account and for whose benefit this Education IRA Account is being
established.
The "Responsible Individual" is a parent or guardian of the Designated
Beneficiary. If the Designated Beneficiary identified in the Application has not
yet reached the age of majority, the Responsible Individual must execute the
Application and the Responsible Individual shall exercise all rights and
responsibilities accorded to the Designated Beneficiary in this Custodial
Account Agreement, the Disclosure Statement, and any and all forms or other
documents related to this Account. Only one parent or guardian may serve as
Responsible Individual (and sign the Application) for any Education IRA Account.
2. The amount of each contribution credited to this Education individual
retirement custodial account shall (except to the extent applied to pay fees or
other charges under Section 9 below) be applied to purchase full and fractional
shares of Northeast Investors Trust or Northeast Investors Growth Fund (provided
always that such shares may legally be offered for sale in the state of the
Designated Beneficiary's residence) in accordance with instructions initially
given by the Depositor in accordance with Section 4, or subsequently by the
Responsible Individual, in accordance with Section 5 below. The Custodian (or
Northeast Management & Research company, Inc. ("NMR") acting as agent for the
Custodian under Section 18 of this Article XI) may retain the Depositor's
initial deposit for a period of up to ten days after receipt thereof, without
liability for interest or for loss of earnings or appreciation, and may invest
the initial deposit at the end of such period. The Depositor may revoke the
account by written notice to the Custodian received by the Custodian within
seven calendar days after the Depositor establishes the account. Upon
revocation, the amount of the Depositor's initial deposit will be returned to
him.
After the Depositor has made the initial deposit and indicated the
initial investment elections, the rights to, and responsibilities for, the
Account shall inure irrevocably to the Designated Beneficiary, and the Depositor
shall have no further rights or responsibilities to or for the Account, except
to the extent the Depositor exercises the revocation rights described above, or
except in those cases when the Depositor and the Designated Beneficiary or
Responsible Individual are the same person.
3. All dividends and capital gains or other distributions received on the
shares of Northeast Investors Trust held in the Account shall be retained in the
Account and (unless received in additional shares) shall be reinvested in full
and fractional shares of Northeast Investors Trust. Similarly, all dividends and
capital gains or other distributions received on the shares of Northeast
Investors Growth Fund held in the Account shall be retained in the Account and
(unless received in additional shares) shall be reinvested in full and
fractional shares of Northeast Investors Growth Fund.
4. For the original contribution, the Depositor shall initially designate
the portion that will be invested in shares of Northeast Investors Trust and the
portion that will be invested in shares of Northeast Investors Growth Fund. A
contribution may be initially invested entirely in Northeast Investors Trust,
entirely in Northeast Investors Growth Fund, or partly in each fund. However,
all investment directions (including those under this Section 4 or under Section
5) will be subject to the minimum initial or additional investment and minimum
balance requirements of the funds.
The Depositor shall make such designation on the Application or other
written notice acceptable to the Custodian. If any such designation or other
investment instructions are, in the opinion of the Custodian, ambiguous or
incomplete, the Custodian may hold such amount uninvested (without crediting any
interest thereon) until the designation or other investment instructions have
been clarified or completed to the Custodian's satisfaction, and neither the
Custodian nor any other party will have any liability for loss of interest,
earnings or investment gains during such period.
5. After the Depositor has made the initial investment election, the
Responsible Individual may at any time direct the Custodian to redeem all or a
specified portion of the Northeast Investors Trust shares in the Account and to
invest the redemption proceeds in shares and fractional shares of Northeast
Investors Growth Fund, or to redeem all or a portion of the Northeast Investors
Growth Fund shares in the Account and to invest the redemption proceeds in
shares and fractional shares of Northeast Investors Trust.
The Responsible Individual shall give such directions on an Investment
Instructions Form or other written notice acceptable to the Custodian, and the
Custodian will process such directions as soon as practicable after receipt
thereof. If any such directions are, in the opinion of the Custodian, ambiguous
or incomplete, the Custodian may refrain from acting thereon until the
directions have been clarified or completed to the Custodian's satisfaction, and
neither the Custodian nor any other party will have any liability for loss of
earnings or investment gains during such period.
6. An Account is established by the Depositor for the benefit of a Designated
Beneficiary. When the Account is established, the Depositor must also indicate
who the Responsible Individual shall be for the Account. The Responsible
Individual shall sign the Application and will be responsible for administering
and maintaining the Account on behalf of the Designated Beneficiary. Any
instance in which this Custodial Account Agreement, the Disclosure Statement,
the Application or any other form or document related to the Account refers to a
right or responsibility of a Designated Beneficiary should be understood to be
exercised by the Responsible Individual.
If the Depositor so elects on the Application, the Responsible
Individual shall continue to control the Account for the Designated Beneficiary,
irrespective of the Designated Beneficiary's age. If the Depositor does not make
such an election on the Application, the Custodian shall deem the Depositor to
have specified that the Designated Beneficiary shall, upon reaching the age of
majority as recognized by the laws of his or her state of residence ("age of
majority") and so notifying the Custodian (along with such documentation as the
Custodian may require), assume sole responsibility for maintaining and
administering the Account. The Designated Beneficiary shall thereupon become the
Responsible Individual for the Account and the Custodian shall deal exclusively
with the Designated Beneficiary as the Responsible Individual controlling the
administration of the Account.
Note: If no written notice is provided to the Custodian upon the
attainment of the age of majority by the Designated Beneficiary, the Custodian
shall have no obligation to acknowledge the Designated Beneficiary's right to
exercise such powers and authority.
7. The Responsible Individual may--using such forms and providing such
documentation as the Custodian may require--name a new Designated Beneficiary
for the Account if the Depositor has elected on the Application to permit the
Responsible Individual to exercise such right. The Responsible Individual shall
not be permitted to change the initial Designated Beneficiary if the Depositor
elects not to permit the Responsible Individual to have this power. If the
Depositor has made no specific election in the Application, the Depositor is
deemed to have specified that the Responsible Individual may name a new
designated beneficiary for the Account.
Any new Designated Beneficiary must be under age 30 and a member of
the family of the original Designated Beneficiary within the meaning of Code
Section 529(e)(2).
8. The Custodian shall initially provide to the Depositor and
Responsible Individual all applicable prospectuses, financial statements and
such other information relating to the Northeast Investors Trust or Northeast
Investors Growth Fund and the Depositor shall determine the initial investment
elections. Subsequently, the Custodian shall forward to the Responsible
Individual any notices, prospectuses, reports to shareholders, financial
statements, proxies and proxy soliciting materials, relating to the shares of
the Northeast Investors Trust or Northeast Investors Growth Fund in the Account.
The Custodian shall not vote any of the shares of Northeast Investors Trust or
Northeast Investors Growth Fund held in the Account except in accordance with
the written instructions of the Responsible Individual.
9. The Custodian's fees for performing its duties hereunder shall be such
reasonable amounts as shall be agreed to from time to time by the Custodian and
NMR. Such fees, any taxes of any kind and any liabilities with respect to the
account, and any and all expenses reasonably incurred by the Custodian shall, if
not paid by the Depositor or Responsible Individual, as the case may be, be paid
from the Account.
10. The Custodian shall make distributions from the Account at such times
and in such manner as the Responsible Individual directs in writing, subject to
the requirements of the preceding Articles of this Agreement. The entire Account
balance must be distributed within 30 days of the Designated Beneficiary's 30th
birthday, or within 30 days of his or her death. Any amounts not distributed by
the end of the 30-day period will be deemed distributed and taxable as income.
11. The Responsible Individual shall be solely responsible to determine
whether any contribution to the Account shall result in an excess contribution
being made to the Account, the time, amount and manner of payment of
distributions from the Account, and the taxability of any distributions from the
Account. NMR and the Custodian shall be fully protected in following the written
direction of the Responsible Individual with respect to the time, amount and
manner of payment of such distributions, or in not acting in the absence of such
direction.
If the Responsible Individual does not direct the Custodian to make
distributions from the Account by the time that such distributions are required
to commence in accordance with the preceding Articles of this Agreement, the
Custodian (and NMR) shall cause the Account balance to be distributed to the
Designated Beneficiary or his estate, as the case may be, and the Custodian and
NMR shall be fully protected in so doing; any such distribution may be effected
by reregistering the shares of Northeast Investors Trust or Northeast Investors
Growth Fund in the Account in the name of the Designated Beneficiary or his
estate. Alternatively, if permitted or required by Internal Revenue Service
regulations or rulings, the Custodian may deem the Account to have been
distributed when required and to file IRS reporting forms accordingly without
physically distributing the assets in the Account. NMR and the Custodian shall
not be liable for any taxes, penalties, liabilities or other costs to the
Depositor, the Designated Beneficiary or any other person resulting from
contributions to or distributions from the Account. Any purchase, exchange,
transfer or redemption of shares of a fund for or from the Account will be
subject to any applicable sales or redemption charge as described in the
applicable prospectus.
If in the judgment of the Custodian or NMR there is any ambiguity or
dispute about the application of this Agreement in any particular circumstances,
or about the entitlement of any person to any distribution from the Account, NMR
and the Custodian may refrain from taking any action until such ambiguity or
dispute has been resolved to the satisfaction of NMR and/or the Custodian
(whether by a settlement of the parties involved, court order or otherwise), and
neither the Custodian, NMR, Northeast Investors Trust, nor Northeast Investors
Growth Fund will have any responsibility or liability for loss of earnings or
investment gains or otherwise as a consequence of such delay.
12. NMR, Northeast Investors Trust, Northeast Investors Growth Fund, and
the Custodian shall not be responsible for any loss or diminution in the value
of the Account arising out of the Depositor's establishment of a Northeast
Investors Education Individual Retirement Account or arising out of any
investment instructions of the Depositor or Responsible Individual, as the case
may be, whether relating to the portion of contributions invested in Northeast
Investors Trust and in Northeast Investors Growth Fund, or relating to the
redemption of shares of one fund and investment of the redemption proceeds in
shares of the other, or arising out of any delay in carrying out any investment
direction received from the Depositor or the Responsible Individual.
13. Whenever the Depositor, Responsible Individual or Designated
Beneficiary is responsible for any direction, notice, representation or
instruction under this Agreement, NMR and the Custodian shall be entitled to
assume the truth of any statement made by the Depositor, Responsible Individual
or Designated Beneficiary in connection therewith, and shall be under no duty of
further inquiry with respect thereto, and shall have no liability with respect
to any action taken in reliance upon such statement. Any communication from the
Depositor, Responsible Individual or Designated Beneficiary, which under this
Agreement is to be in writing may in the discretion of NMR be made by telephone
or other electronic means (subject to such rules and requirements as NMR may
impose).
14. This Agreement (and the Custodial Account) shall terminate upon the
complete distribution of the Account to the Designated Beneficiary, the
Designated Beneficiary's estate or a successor education individual retirement
account. The Custodian shall have the right to terminate this Account upon 90
days' notice to the Responsible Individual. In such event, upon expiration of
such 90 day period, the Custodian shall distribute the amount in the Account to
the Designated Beneficiary, or, if he is then dead, to the Designated
Beneficiary's estate.
15. The Custodian may resign at any time upon 90 days' notice in writing
to NMR and may be removed by NMR at any time upon 90 days' notice in writing to
the Custodian. By agreement between them, the Custodian and NMR may waive or
accelerate the notice period. Upon such resignation or removal, NMR shall
appoint a successor Custodian which satisfies the requirements of the Internal
Revenue Code, and the Responsible Individual is deemed to have consented to such
appointment.
16. Upon receipt by the Custodian of written notice of appointment of a
successor Custodian and or written acceptance of such appointment by the
successor, the Custodian shall transfer to such successor the assets of the
account and all records pertaining thereto. The Custodian may reserve such sum
of money as it deems advisable for payment of its fees, taxes, costs, expenses
or liabilities with respect to the account, with the balance (if any) of such
reserve remaining after the payment of all such items to be paid over to the
successor Custodian. The successor Custodian shall hold the assets paid over to
it under this Agreement (or under terms similar to those of this Agreement that
satisfy the requirements of Section 530 of the Internal Revenue Code).
17. If, within 60 days after the Custodian's resignation or removal, NMR
has not appointed a successor Custodian which has accepted such appointment, the
Custodian shall appoint such successor unless it elects to terminate the
custodial account pursuant to Section 14 of this Article XI.
18. The Custodian may employ or designate NMR or one or more other
parties to serve as contractors or agents to perform certain of its duties
hereunder. At any time when the Custodian has designated NMR (or another party)
to serve as its agent hereunder, reference in any provision of this Article XI
to the Custodian will be deemed a reference to the agent designated to perform
the particular duty.
19. Any notice sent from the Custodian to the Depositor or Responsible
Individual shall be effective if sent by mail to him or them at his or their
last address(es) of record as provided to the Custodian.
20. Any distribution 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 of the amount thereof completely discharge the Custodian's
liability for such payment.
21. NMR may amend this Agreement from time to time, and shall give
written notice of any such amendment to the Responsible Individual within 30
days after the date the amendment is adopted or becomes effective, whichever is
later. The Depositor, the Responsible Individual and the Designated Beneficiary
hereby expressly delegate authority to NMR to amend the provisions of this
Agreement and hereby consent to any such amendment.
22. This Agreement shall be construed, administered and enforced
according to the laws of Massachusetts.
23. The Depositor and Responsible Individual, and each of them, hereby
acknowledge that they have received and read the current Northeast Investors
Trust prospectus, the current Northeast Investors Growth Fund prospectus and the
Northeast Investors Education Individual Retirement Account Disclosure
Statement.
24. The term "Custodian" refers to the person serving as the Custodian of
the education individual retirement account established hereby.
25. Articles I through X of this Agreement are in the form promulgated by
the Internal Revenue Service as Form 5305-EA. It is anticipated that, if and
when the Internal Revenue Service promulgates changes to Form 5305-EA, NMR will
adopt such changes as an amendment to this Agreement. Pending the adoption of
any amendment necessary or desirable to conform this Agreement to the
requirements of any amendment to the Internal Revenue Code or regulations or
rulings thereunder, the Custodian and NMR may operate the Account in accordance
with such requirements to the extent that the Custodian and/or NMR deem
necessary to preserve the tax benefits of the Account.
26. The Depositor and Responsible Individual, as the case may be,
represent that the amount contributed to this Education IRA will not constitute
an "excess contribution" under Section 4973 of the Internal Revenue Code and
that the Designated Beneficiary is under age 18 in the case of an annual
contribution Education IRA, and, in the case of a rollover, transfer or change
of Designated Beneficiary that the Designated Beneficiary is under age 30 at the
time of the distribution or at the time the change is made and (if applicable) a
member of the Designated Beneficiary's family (as defined in Section 529(e)(2)
of the Internal Revenue Code), and agree that this individual retirement
custodial account is subject to acceptance by Northeast Investors Trust and/or
Northeast Investors Growth Fund and to the terms of their respective
prospectuses.
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NORTHEAST INVESTORS Direct Transfer to Education IRA Form
PART 1: INSTRUCTIONS
To transfer amounts in an existing Education IRA with another custodian or
trustee, complete this form and send it to Northeast Management & Research
Company, Inc. If the transfer is to a new Northeast Investors Education, please
complete, sign and enclose a Northeast Investors Education IRA Application Form.
PART 2: IDENTIFY EXISTING EDUCATION IRA ACCOUNT
Name of Current Trustee/Custodian
Address
City State Zip
Name of Contact Person
Telephone Number
Name of Existing Education IRA Account's Designated Beneficiary
Account Number
Name of Existing Education IRA Account's Responsible Individual
Responsible Individual's Address
City State Zip
Responsible Individual's Telephone Number
PART 3: INSTRUCTIONS TO CURRENT TRUSTEE/CUSTODIAN
Please transfer the following amount from the Education IRA established for the
benefit of the Designated Beneficiary identified in Part 2 (payee and address
directions are at the bottom of this form):
Liquidate all assets and transfer the proceeds.
Transfer $ .
-----------
Liquidate shares and transfer the proceeds.
-----------
PART 4: NORTHEAST INVESTORS
EDUCATION IRA ACCOUNT
INFORMATION
The name of the Designated Beneficiary for the new Northeast Investors Education
IRA is: _______________________________.
Social Security Number
To transfer accounts to an existing Education IRA with Northeast Investors,
please indicate the account number: .
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PART 5: CERTIFICATION AND SIGNATURE
The undersigned certifies that the Designated Beneficiary of the Northeast
Investors Education IRA is under age 30 and a family member (as defined in Code
Section 529(e)(2)) of the Designated Beneficiary of the transferring Education
IRA.
Signature of Responsible Individual
(of existing Education IRA)
Date
(Please ask your present trustee or Custodian if a signature guarantee is
required.) If required, the following signature guarantee should be completed.
Your signature may be guaranteed by a Bank, a member of a stock exchange, or
other eligible guarantor. Notarizations are not acceptable.
-------------------------------------
Name of Bank or Firm
-------------------------------------
Signature of Authorized Officer or Signatory
---------------------------------------
Print name of Officer or other Authorized Signatory and Title
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30
(Below Line for Bank Use Only)
Investors Bank & Trust Company, as (successor) Custodian of the Education IRA
account established for the benefit of the Designated Beneficiary identified in
Part 4 above, requests the direct transfer of assets as indicated above. The
Northeast Investors Education IRA meets the requirements of Code Section 530 and
is qualified to received the transfer requested above.
Investors Bank & Trust Company
Custodian
Date: By:
To Current Trustee/Custodian: Please return a copy of this form with your
response. Make checks payable to Northeast Management & Research Co., Inc.
Address for checks, forms, etc. Northeast Management & Research Co., Inc.,
50 Congress Street-Suite 1000, Boston, MA 02109-4096. If you have any questions
please call 617-523-3588 or 1-800-225-6704.
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NORTHEAST INVESTORS EDUCATION IRA APPLICATION FORM
1. Account Registration
Designated Beneficiary
Name (First, Middle, Last)
Social Security Number Date of Birth
Daytime Telephone Number
Street Address City State Zip
Responsible Individual
Same as Designated Beneficiary (Do not complete this section.)
Parent or Guardian:
Mother Father Guardian
----------------------------------------
Name (First, Middle, Last) Relationship to Designated Beneficiary
(Check One. Provide proof of guardianship, if applicable.)
Social Security Number Daytime Telephone Number
Street Address City State Zip
Depositor
Name (First, Middle, Last)
Social Security Number Date of Birth
Daytime Telephone Number
Street Address City State Zip
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2. Type and Amount of Investment
Please indicate the type of Education IRA contribution being made by
checking the correct box and by writing the amount of the contribution which
should be invested in a particular investment. Note: the Depositor makes the
initial investment election; subsequent changes are made by the Responsible
Individual. All contribution checks should be made payable to Northeast
Management & Research Company, Inc. The minimum initial investment is $500 per
Fund.
<TABLE>
<S> <C> <C>
Northeast Northeast Investors
Investors Trust Growth Fund
Annual Contribution
Education IRA Annual Contribution: $___________ $______________
($500 maximum contribution per year.)
Rollover From Education IRA.
Rollover within 60 days after withdrawing from prior Education IRA. No
other rollover completed within last 12 months. Designated Beneficiary
is under 30 and is either the same person as or a family member (as
defined by Section 529(e)(2) of the Internal Revenue $___________
$______________ Code) of the designated beneficiary of the prior
Education IRA.
Transfer of Education IRA Account. (Complete, sign,
and enclose the Direct Transfer to Education IRA Form.)
$----------- $--------------
</TABLE>
3. Change Designated Beneficiary.
Change the Designated Beneficiary of the existing Northeast Investors
Education IRA. The existing Education IRA account number is
_________________. The new Designated Beneficiary is the person
specified in Part 1 of this Application Form. (Note: Available only if
existing Education IRA permits change of Designated Beneficiary. New
Designated Beneficiary must be a family member, as defined in Code
Section 529(e)(2), of the prior Designated Beneficiary.)
4. Custodian Fee
Check here if the $10.00 custodial fee is enclosed. If checked, annual
maintenance fees for future years will be billed to the Designated
Beneficiary. If not checked, the fee will automatically be deducted
from the account at year end.
5. ACCOUNT OPTIONS. (Depositor should check one or both if desired).
CONTROL OF ACCOUNT. Check this box to provide that the Responsible
Individual named in Section 1 will continue to serve as the
"Responsible Individual" with power to control the investments and
administration of the Account even after the Designated Beneficiary has
attained the age of majority. If this box is not checked, upon
obtaining the age of majority, the Designated Beneficiary may notify
the Custodian that the Designated Beneficiary is assuming the power to
control the investments and to administration of the Account. (If the
box is checked, Responsible Individual's control shall terminate only
after all of the assets of the Custodial Account have been distributed
and the Account terminates. Note: If the Responsible Individual dies or
becomes incapacitated after the Designated Beneficiary reaches the age
of majority, then the Designated Beneficiary shall become the
Responsible Individual.)
NOTE: LEAVE THIS BOX BLANK IF YOU WANT THE DESIGNATED BENEFICIARY TO
HAVE THE RIGHT TO ASSUME CONTROL OF THE ACCOUNT UPON REACHING THE
AGE OF MAJORITY.
POWER TO CHANGE DESIGNATED BENEFICIARY. Check this box to provide that
the Responsible Individual MAY NOT change the beneficiary designated
for this Custodial Account to another member of the original Designated
Beneficiary's family. Otherwise, the Responsible Individual will have
the power to change the beneficiary to another member of the original
Designated Beneficiary's family.
NOTE: LEAVE THIS BOX BLANK IF YOU WANT THE RESPONSIBLE INDIVIDUAL TO
HAVE THE POWER TO CHANGE THE DESIGNATED BENEFICIARY FOR THE
ACCOUNT.
6. SIGNATURES AND CERTIFICATIONS.
The undersigned hereby establish with the Custodian this Northeast
Investors Education Individual Retirement Account, (the "Account"). We agree
that the Account will be governed by the terms of this Application and the
Northeast Investors Education IRA Custodial Agreement (which is incorporated by
reference). The Account established hereunder is designated as an Education IRA
under Internal Revenue Code Section 530 for the benefit of the Designated
Beneficiary identified in Section 1 above. Once the Custodian acknowledges
receipt of this Application, it shall be deemed accepted, and therefore
effective, as of the date signed.
We have received and read the Northeast Investors Education IRA
Disclosure Statement and the prospectus(es) of the fund(s) selected. We certify
under penalties of perjury that the Social Security numbers provided above are
correct, and that the other information provided in this Application is correct.
Further, the undersigned certify that: in the case of an annual
contributions Education IRA, the Designated Beneficiary is less than 18 years
old, and contributions made on the Designated Beneficiary's behalf to this and
all other Education IRAs in a single tax year do not exceed $500; in the case of
a Rollover Education IRA, the Designated Beneficiary is less than 30 years old,
and all assets transferred are the same assets received in a distribution being
rolled over, no rollover into any Education IRA has been made within the one
year period immediately preceding this rollover, and the distribution being
rolled over was received within 60 days of making this rollover. The Designated
Beneficiary identified in Section 1 above is either the person for whom the
prior Education IRA was established or a family member of such person (within
the meaning of Internal Revenue Code section 529(e)(2)). The Depositor certifies
that he or she is at least the age of majority in his or her state of residence
(not applicable if Depositor and Designated Beneficiary are the same person),
acknowledges receipt of the Custodial Account Agreement and Disclosure Statement
at least seven (7) days before the date of signature (as indicated below), and
acknowledges that no further right of revocation exists.
Responsible Individual's Signature Date
Depositor's Signature Date
NORTHEAST
INVESTORS
TRADITIONAL
IRA
50 Congress Street
Suite 1000
Boston, Massachusetts 02109-4096
Telephone: 617-523-3588
800-225-6704
TABLE OF CONTENTS
Page
HOW TO OPEN A TRADITIONAL IRA ........................... 4
INFORMATION ABOUT A NORTHEAST INVESTORS IRA ............. 6
Briefly, what is an IRA? ............................... 6
Revocation ............................................. 6
Three Important Points ................................. 6
Investments ............................................ 7
WHO MAY ESTABLISH A TRADITIONAL IRA? .................... 7
Individual Traditional IRA ............................. 7
Spousal Traditional IRAs ............................... 7
Traditional IRAs for Divorced Individuals .............. 7
HOW MUCH CAN I CONTRIBUTE? ............................. 7
HOW MUCH CAN I DEDUCT? .................................. 8
ACTIVE PARTICIPANT ..................................... 8
DEDUCTION LIMITS ....................................... 8
NON-DEDUCTIBLE CONTRIBUTIONS ........................... 9
WHEN CAN I MAKE CONTRIBUTIONS? .......................... 9
INVESTMENT CHOICES ...................................... 10
EXCESS CONTRIBUTIONS .................................... 10
TAXATION OF WITHDRAWALS ................................. 10
WHEN CAN I MAKE WITHDRAWALS? ............................ 11
WHEN MUST I MAKE WITHDRAWALS? ........................... 12
HOW TO MAKE WITHDRAWALS ................................. 13
DEATH BENEFITS .......................................... 13
TAX-FREE ROLLOVERS: ANOTHER ADVANTAGE ................... 13
IRA-to-IRA Rollover .................................... 14
Rollovers From Qualified Plan or 403(b) ................ 14
Rollovers by a Surviving Spouse ........................ 15
SOME THINGS TO AVOID .................................... 15
CUSTODIAN FEE AND OTHER CHARGES ......................... 15
The Ten Dollar ($10.00) Annual Maintenance Fee ......... 15
Tax Withholding Fee ($10.00) ........................... 16
NORTHEAST INVESTORS TRUST ............................... 16
NORTHEAST INVESTORS GROWTH FUND ......................... 16
GROWTH OF YOUR ACCOUNT .................................. 16
STATE TAX RULES ......................................... 17
IRS REPORTS AND RETURNS ................................. 17
TRADITIONAL IRA DEDUCTION WORKSHEET ..................... 17
NORTHEAST INVESTORS TRADITIONAL IRA CUSTODIAL
AGREEMENT ............................................. 18
NORTHEAST INVESTORS TRADITIONAL IRA TRANSFER/
DIRECT ROLLOVER OF CURRENT RETIREMENT ASSETS
FORM .................................................. 23
NORTHEAST INVESTORS TRADITIONAL IRA APPLICATION
FORM .................................................. 25
NORTHEAST INVESTORS UNIVERSAL IRA WITHDRAWAL
AUTHORIZATION FORM ................................... 29
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TRADITIONAL IRA
THIS BOOKLET DESCRIBES THE NORTHEAST INVESTORS TRADITIONAL IRA. TRADITIONAL IRAS
HAVE BEEN AVAILABLE SINCE 1975. THE BOOKLET DOES NOT DESCRIBE THE NEW ROTH IRA,
A NEW KIND OF IRA THAT BECAME AVAILABLE STARTING JANUARY 1, 1998.
The main difference between a Traditional IRA and a Roth IRA is as follows.
With a Traditional IRA, contributions may be deductible on your federal income
tax return. Later, withdrawals are taxable (except for previous non-deductible
contributions). Contributions to a Roth IRA are never deductible, but
withdrawals that meet certain requirements are not included in your taxable
income. Another difference is that contributions to a Traditional IRA may not be
made after age 70-1/2, but contributions to a Roth IRA may continue after that
age. Also, Traditional IRAs are subject to required distribution rules starting
at age 70-1/2, but these rules do not apply to Roth IRAs during the lifetime of
the IRA owner.
The different features of Traditional IRAs and Roth IRAs may make one or
the other better for you. Consult your own tax or financial advisor for more
information. If you would like materials for a Roth IRA, please call us at
1-800-225-6704, or write to us at the address on this booklet.
Finally, this booklet also does not cover SIMPLE IRAs. These are IRAs that
operate in connection with an Employer SIMPLE IRA plan. Northeast Investors has
materials to start a SIMPLE IRA for use in connection with an Employer SIMPLE
IRA plan. Please call or write to us if you would like copies of these
materials. If you own a business or you would like to provide information to
your Employer about SIMPLE IRAs, we have information for Employers as well.
3
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HOW TO OPEN A TRADITIONAL IRA
1. To open a Northeast Investors Traditional IRA, please complete and sign the
enclosed Traditional IRA Application form, and the Transfer/Direct Rollover of
Current Retirement Assets form, if applicable. Please make sure that sections 1
through 3 of the Application are completed, and that you sign in section 4. 2.
Send the signed Traditional IRA Application along with a check for your initial
contribution made payable to Northeast Management & Research Co., Inc. or the
Transfer/Direct Rollover of Current Retirement Assets form if applicable.
A minimum of $500.00 is required to open your IRA. Anytime thereafter you
may make contributions of any amount to your Northeast Investors Traditional IRA
as long as you do not exceed the limits on contributions. You may continue to
make contributions to a Traditional IRA until you reach the age of 70-1/2. For
further information regarding the eligibility and deduction rules, please see
pages 7-9.
HOW TO OPEN A ROLLOVER TRADITIONAL IRA
1. You may establish a Northeast Investors Traditional IRA to receive a direct
rollover of an eligible rollover distribution from your account in an employer
plan or 403(b) arrangement (for employees of certain tax-exempt employers). A
direct rollover is the only way to avoid 20% income tax withholding on most
distributions from such plans.
A rollover from another Traditional IRA or, in some instances from a SIMPLE
IRA (but not a Roth IRA), may also be available. For a rollover, complete
the IRA Application and the Transfer/Direct Rollover of Current Retirement
Assets form. Send the
completed forms to Northeast Management & Research Co., Inc.
HOW TO OPEN A SPOUSAL IRA
1. For a spousal Traditional IRA, your spouse must complete an IRA Application
(sections 1 through 4) and a Transfer/Direct Rollover of Current Retirement
Assets Form if applicable. Your spouse may open a spousal IRA if your spouse has
less compensation or earned income than you. You may be eligible for a deduction
of up to a combined maximum of $4,000.00. For further information regarding
spousal Traditional IRAs, please see page 7.
HOW TO OPEN A SEP-IRA
1. To open an IRA that is part of a Simplified Employee Pension (SEP) Plan
maintained by your employer, you must complete the Traditional IRA Application.
Please indicate in section 2 of the Application that your account is to be
registered as a SEP-IRA. You may also transfer assets from an existing custodian
into a new Northeast Investors SEP-IRA.
2. In addition, the employer should complete Form 5305-SEP (available from the
IRS or Northeast Investors). This form is completed and kept by the employer to
establish a SEP. Attach a copy of Form 5305-SEP with your application; do not
send a copy to the IRS.
3. Your employer can contribute as much as 15% of your calendar-year
compensation (up to $24,000--this amount will be indexed to inflation in future
years, but will not exceed $30,000) to your SEP-IRA. The initial contribution
required to open a SEP-IRA is $500.00. Make checks payable to Northeast
Management & Research Co., Inc. Do Not use this kit for an IRA that is part of
an employer SIMPLE IRA program. Northeast Investors has separate materials for
SIMPLE IRA plans and employee IRAs that are part of a SIMPLE IRA plan.
CUSTODIAN FEE
1. The custodian fee is a $10.00 IRA maintenance fee charged annually.
This applies to each IRA you maintain. For further information regarding the
$10.00
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<PAGE>
maintenance fee, please see page 15. The annual maintenance fee will
automatically be charged to your IRA account. (However, if you want to be billed
for the annual maintenance fee and pay by check, please check the appropriate
box on the Traditional IRA Application.)
WITHDRAWALS
1. A Withdrawal Authorization Form is enclosed in this booklet and additional
forms may be requested from Northeast Investors. For methods of withdrawal refer
to the withdrawal form. You generally must be at least age 59-1/2 to take a
withdrawal without penalty.
2. If you are not 59-1/2, you are generally subject to a 10% IRS penalty (in
addition to regular income taxes) unless the withdrawal is for a rollover or a
direct transfer to another IRA, or an exception applies (see page 11).
IN SUMMARY, PLEASE SEND THE FOLLOWING:
1. The Traditional IRA Application with sections 1 through 3 completed and
section 4 signed.
2. For regular or spousal Traditional IRAs (but not for transfer or direct
rollover Traditional IRAs), a check in the amount of your initial
contribution, made payable to Northeast Management & Research Company,
Inc.
SEND ALL COMPLETED FORMS, CHECKS AND ANY OTHER CORRESPONDENCE TO:
Northeast Management & Research Co., Inc.
50 Congress Street, Suite 1000
Boston, MA 02109-4096
5
<PAGE>
INFORMATION ABOUT A NORTHEAST INVESTORS
TRADITIONAL IRA
Briefly, what is a Traditional IRA?
A Northeast Investors Traditional Individual Retirement Account ("IRA") is
a convenient, tax-deferred method of saving for retirement. It is called a
"Traditional IRA" to distinguish it from new Roth IRAs and SIMPLE IRAs (which
are not described in this booklet).
Everyone who receives compensation or earned income and who is under age
70-1/2 can have a Traditional IRA, including participants in an
employer-sponsored retirement, 401(k) or profit-sharing plan, or a SIMPLE IRA
plan maintained by the employer.
However, under the tax laws, if you (or, in certain cases of high income
couples, your spouse) are an active participant in such a plan and your income
exceeds a certain level, all or part of your IRA contribution may not be
tax-deductible.
You can contribute up to $2,000 per year (or your total compensation or
earned income if less) to your Northeast Investors Traditional IRA. Your
contributions are invested in shares of Northeast Investors Trust or Northeast
Investors Growth Fund, as you decide. You can invest a portion of each
contribution in each fund, and you can exchange investments from one fund to the
other.
The dividends on the shares in your IRA are exempt from federal income tax
until you begin to make withdrawals. You may make withdrawals from your
Traditional IRA at any time, but you may have to pay a penalty tax on
withdrawals before age 59-1/2. Withdrawals are taxed as ordinary income when you
receive them (except for amounts considered a withdrawal of prior nondeductible
contributions). If you wait until after retirement to make withdrawals, you may
be in a lower income tax bracket or have a greater number of exemptions.
A Traditional IRA must meet certain requirements of the Internal Revenue
Code. The agreement establishing the Traditional IRA must provide that the
custodian is a bank, that contributions will be in cash, and that the assets in
the account will be distributed beginning not later than April 1 of the year
following the year in which you reach age 70-1/2. The Northeast Investors
Traditional Individual Retirement Account Custodial Agreement uses the same
language as the IRS model Custodial Agreement, Form 5305-A; the Agreement is
designed to meet the requirements so that your Traditional IRA will receive the
favorable federal income tax treatment provided by law.
Revocation
You may revoke your Traditional IRA within seven calendar days after
Northeast Management & Research Company receives your IRA Application
establishing your IRA. The amount of your deposit will be returned to you
without penalty, administrative charge or adjustment for dividends or investment
gains or losses.
To revoke your account, mail or deliver a written notice to Northeast
Management & Research Company, Inc., 50 Congress Street-Suite 1000, Boston,
Massachusetts 02109-4096. If you have any questions, call 617-523-3588 or
1-800-225-6704.
Three Important Points
First, this booklet summarizes the federal tax treatment of Northeast
Investors Traditional IRAs. State taxes on Traditional IRAs may vary from
federal taxes. A further word on this can be found on page 17. Second, If you
are uncertain about whether you are eligible for a Northeast
6
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Investors Traditional IRA, or about when or how much you should contribute to or
withdraw from your IRA, consult your tax advisor or the Internal Revenue
Service. This booklet outlines the main rules, but no summary can describe all
the rules that could apply in your individual case. Northeast Investors has no
responsibility for determining your eligibility for a Traditional IRA, the tax
deductibility of your contributions, or the proper time or amount of any
contribution or withdrawal.
Third, the Internal Revenue Services has promulgated the language of
Articles I-VII of Northeast Investors Traditional IRA Custodial Agreement to set
forth the terms or conditions which must be contained in a Traditional IRA
agreement. This use of the IRS-approved language does not mean that the IRS
approves the merits of investing in a Northeast Investors Traditional IRA.
If you have any questions about your Traditional IRA, you can obtain
further information at any district office of the Internal Revenue Service.
Investments
Your contributions will be invested exclusively in shares of Northeast
Investors Trust or shares of Northeast Investors Growth Fund as you choose--see
Investment Choices on page 10. Dividends and distributions will be automatically
reinvested. For more information about Northeast Investors Trust and Northeast
Investors Growth Fund, see the current prospectuses for the funds.
WHO MAY ESTABLISH A TRADITIONAL IRA?
Individual Traditional IRA
To make contributions to a Traditional IRA for yourself, you must have
received compensation or earned income during the year for personal services,
and you must not have reached age 70-1/2 during the year for which you are
making the contribution.
Spousal Traditional IRAs
If your spouse has less compensation or earned income than you and is under
age 70-1/2, contributions to a spousal Traditional IRA for your spouse may be
made from your compensation or earned income. This is available only if you file
a joint tax return with your spouse. The contribution limits for spousal
Traditional IRA contributions by a married couple are summarized below.
Traditional IRAs for Divorced Individuals
If you are divorced, for IRA purposes "compensation" includes any amounts
you receive under a divorce or separation order or agreement and which you must
include in your taxable income. Therefore, if you are under age 70-1/2, you may
have a Traditional IRA and contribute to it from your alimony (and any other
actual compensation or earned income you have).
HOW MUCH CAN I CONTRIBUTE?
You may contribute to your individual Traditional IRA in cash up to $2,000
in total (or your total compensation or earned income if less) each year. Thus,
if a husband and wife each earn at least $2,000 and each establishes a separate
Traditional IRA, they may be able to contribute as much as $2,000 each (or a
total of $4,000) to their Northeast Investors Traditional IRA accounts. The
$2,000 limit is the maximum on contributions to all Traditional IRAs (and any
Roth IRAs) covering a single individual. (In fact, any amount you contribute to
a Traditional IRA for a particular year reduces the maximum you can contribute
to a Roth IRA for the same year).
In addition, if both spouses set up Traditional IRAs, you and your spouse
may contribute up to $2,000 to each IRA as long as your combined compensation
7
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as shown on your joint tax return is at least $4,000. If your combined
compensation is less than $4,000, then the higher paid spouse's contribution may
be any amount up to his or her compensation. The lower paid spouse's
contribution may be any amount up to his or her compensation, plus any excess of
the first spouse's pay above the first spouse's contribution. Of course, the
maximum contribution to either IRA is $2,000, regardless of compensation or
earned income levels.
HOW MUCH CAN I DEDUCT?
The tax laws restrict the income tax deduction for Traditional IRA
contributions. The deductibility of your Traditional IRA contribution depends on
whether you are an active participant in an Employer retirement plan and on your
income level.
If you are not an active participant in a retirement plan, you may deduct
your full Traditional IRA contribution (up to the contribution limits)
regardless of your income level.
If you are an active participant in a retirement plan, the deductibility of
your IRA contribution depends on your income level. If you are married and
contribute to a spousal Traditional IRA for your spouse, the deductibility
of the contribution to the
spousal Traditional IRA depends upon whether your spouse is an active
participant in an Employer plan for a year (and upon income level). If your
spouse is not an active participant, the contribution to your spouse's
Traditional IRA will be deductible.
There is an exception to these rules for married persons with a joint
income of $150,000 or more in a year. If the exception applies and either you or
your spouse (but not the other) is an active participant in a retirement plan,
contributions to the non-active participant's Traditional IRA will be only
partly deductible or not deductible at all. Your ability to deduct contributions
to the non-active participant's Traditional IRA phases out, as explained below.
Finally, as a further exception, if you are married but filing separately, and
if you lived apart from your spouse at all times during a year, one spouse's
active participant status will not affect the other's ability to deduct a
contribution to the other's Traditional IRA regardless of income level.
Active Participant
You are an "active participant" for a Year if at any time during the year
you are covered by any Employer plan under which contributions are made to your
account (including a required or voluntary employee contribution by you) or
under which you are eligible to earn pension benefit credits. For example, if
you participated during a year in a pension or annuity plan, a profit sharing or
stock bonus plan, a 401(k) plan, a self-employed plan, a 403(b) plan (or "tax
deferred annuity"), a simplified employee pension plan (or "SEP"), a SIMPLE IRA
Plan, or a governmental retirement plan, you are probably an active participant.
You are considered an active participant even if you are not vested under the
plan.
Your W-2 form will indicate whether you were an active participant for the
year.
Deduction Limits
If the active participant rules apply to you, the deductibility of your
Traditional IRA contribution depends on your adjusted gross income ("AGI"). AGI
is your total income less certain adjustments such as business expenses or
alimony, but before itemized deductions and before your IRA deduction.
The following chart shows the Low Limit and the High Limit for married
taxpayers (filing jointly) and single taxpayers. As you will see, the limits are
increasing over the next several years. (For married taxpayers filing
separately,
8
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the Low Limit is always zero and the High Limit is $10,000.)
Deductibility of
IRA Contributions Low Limit and High Limit (AGI Levels)
Married Single
Low High Low High
Year Limit Limit Limit Limit
1998 $50,000 $ 60,000 $30,000 $40,000
1999 $51,000 $ 61,000 $31,000 $41,000
2000 $52,000 $ 62,000 $32,000 $42,000
2001 $53,000 $ 63,000 $33,000 $43,000
2002 $54,000 $ 64,000 $34,000 $44,000
2003 $60,000 $ 70,000 $40,000 $50,000
2004 $65,000 $ 75,000 $45,000 $55,000
2005 $70,000 $ 80,000 $50,000 $60,000
2006 $75,000 $ 85,000 $50,000 $60,000
2007 $80,000 $100,000 $50,000 $60,000
Here are the deduction rules if you are an active participant:
o If your AGI is any amount up to the Low Limit, your entire Traditional IRA
contribution is deductible.
o If your AGI falls between the Low Limit and the High Limit, your
contribution is partly deductible. You must figure out how much is
deductible by using the formula described below.
o If your AGI is equal to or above the High Limit, your contribution is not
deductible.
If you are in the partly deductible range (in between Low and High Limits),
you can determine how much of your contribution is deductible as follows:
First, subtract your AGI from the applicable High Limit (for 1998, this is
$40,000 for single taxpayers, $60,000 for married taxpayers filing jointly), and
divide by $10,000. Second, multiply this amount by your maximum contribution
($2,000 for your Traditional IRA or for a spousal Traditional IRA) to get the
amount that is deductible.
For example, in 1998 suppose you are a married joint filer with AGI of
$52,500. If you contribute $2,000 to your own Traditional IRA, how much can you
deduct? First, subtract your AGI from $60,000 (the 1998 High Limit for married,
filing jointly). $60,000 minus $52,500 is $7,500. $7,500 divided by $10,000 is
.75 or 75%. Therefore, 75% of $2,000, or $1,500 is deductible. In fact, any
contribution up to $1,500 is deductible. If you contribute just $1,500, the
entire contribution would be deductible.
If your deductible amount is not evenly divided by $10, round down to the
nearest $10. Also, if your AGI is less than the High Limit that applies to you
(married or single) you are always entitled to a minimum deduction of $200.
If you are under the special rule for high income married persons (those
with joint income of over $150,000 or more) where only one is an active
participant in an Employer plan, the deduction phase out described above applies
to the contribution for the non-active participant spouse. When using the
formula, $150,000 is the Low Limit and $160,000 is the High Limit.
Non-deductible Contributions
You can still make a full contribution to your Traditional IRA even if the
entire contribution is not deductible. The earnings on your contribution will
build up in your Northeast Investors Traditional IRA without income tax until
distributed to you. This can make non-deductible contributions to your Northeast
Investors Traditional IRA superior to other investment options.
You must designate the amount of any nondeductible contribution to a
Traditional IRA on your tax return for the year.
WHEN CAN I MAKE CONTRIBUTIONS?
You may establish and make a contribution to your Northeast Investors
Traditional IRA for a particular year if you do so by the due date for filing
your federal income tax return for that year (not including any extensions).
Normally, this
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will be April 15 of the following year. Of course, you may make your
contribution earlier and it will start earning tax-deferred income sooner.
INVESTMENT CHOICES
Contributions to your Northeast Investors Traditional IRA may be invested
in shares of Northeast Investors Trust or in shares of Northeast Investors
Growth Fund. You may also invest part of each contribution in each fund. To
indicate your choice, simply fill out and sign the Application and send it to
Northeast Investors with your contribution.
Also, you can direct the custodian to exchange a specified number of the
Northeast Investors Trust shares in your Traditional IRA to Northeast Investors
Growth Fund, or vice versa.
Be sure to read the current prospectuses for Northeast Investors Trust and
Northeast Investors Growth Fund to familiarize yourself with the investment
objectives and policies of each as well as fees.
EXCESS CONTRIBUTIONS
An "excess contribution" occurs if you contribute more to your Traditional
IRA or a spousal Traditional IRA than the maximum allowed. The excess is the
difference between the amount you actually contributed and the maximum allowed.
Remember, an excess results if you contribute above the maximum
contribution (generally $2,000 per IRA), not the maximum deductible amount. For
example, if you contributed $2,500 to your own Traditional IRA in a particular
year, you would have a $500 excess contribution. Also, if you contribute in a
year when you are not eligible (because you were age 701/2 or you had no
compensation or earned income), the entire contribution is an excess
contribution.
If you have an excess contribution, you must pay an IRS penalty tax of 6%
of the excess contribution. You can avoid paying the penalty tax if you
withdraw the excess contribution on or before the due date (including any
extensions) for filing your federal income tax return for the year for which the
excess contribution was made. Net income on the excess must accompany the
withdrawal.
Such a withdrawal is not treated as a taxable distribution from your
Traditional IRA, but you must include net income on your tax return for the year
for which the excess contribution was made. Also, if you are under age 591/2,
you may have to pay an IRS premature withdrawal penalty equal to 10% of the
amount of the net income, unless an exception applies (see below).
If you do not withdraw the amount of the excess contribution in time, you
must pay the 6% penalty for the year for which the excess contribution was made.
You will have to pay another 6% penalty tax in each subsequent taxable year
during which the excess remains in your Traditional IRA.
You can reduce or avoid the penalty tax in later years by reducing or
eliminating the excess in your Traditional IRA. To reduce the excess, simply
contribute less than the maximum amount allowed in any later year. The
difference between the maximum allowed and the amount you did contribute reduces
the excess in your Traditional IRA dollar for dollar. Also, the amount by which
you reduce the excess is treated as a contribution to your Traditional IRA in
the later year and may be deductible on your tax return for the later year
depending on your active participant status and AGI for the year (see pages
8-9).
TAXATION OF WITHDRAWALS
The tax treatment of withdrawals from your Traditional IRA depends on
whether you made any non-deductible
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contributions. If you never made a non-deductible contribution, each withdrawal
from your Traditional IRA will be included in your taxable income for the year
of the withdrawal.
If you made non-deductible contributions (because of the active participant
rules), each withdrawal is considered in part a return of your nondeductible
contributions. The non-deductible contributions returned are not subject to
federal income tax. The balance of the withdrawal is taxed.
There are specific rules for determining the non-taxable part of a
withdrawal. The year-end value of all your Traditional IRAs is added (with any
withdrawals during the year added back for this purpose). Your withdrawals
during the year are multiplied by a fraction. The numerator of the fraction is
your total non-deductible contributions to your Traditional IRA (reduced by
non-deductible contributions considered withdrawn in prior years) and the
denominator is the year-end value of your Traditional IRAs. The resulting amount
is the non-taxable part of the withdrawals.
When doing these calculations, treat all your Traditional IRAs as one IRA.
The rules for calculating the non-taxable part apply even if you keep separate
Traditional IRAs for your deductible and non-deductible contributions and you
take your entire withdrawal from the non-deductible Traditional IRA. You are
responsible for keeping records of your deductible and non-deductible
contributions so you can determine your income taxes correctly.
Withdrawals from a Traditional IRA are not subject to the required 20%
income tax withholding rules that apply to most distributions from qualified
employer plans and 403(b) arrangements. Withdrawals are subject to income tax
withholding unless you elect not to have withholding. The withdrawal
authorization form has additional information about withholding.
WHEN CAN I MAKE WITHDRAWALS?
You can make withdrawals from your Traditional IRA at any time. Any taxable
amounts you withdraw are included in your income for the year you receive them.
If you withdraw any funds from your Traditional IRA before reaching age
59-1/2 (except for certain withdrawals of excess contributions and certain
substantially equal payments over the life expectancy of you, or you and a
designated beneficiary), you must pay an IRS penalty tax of 10% of the
"premature withdrawal" in addition to regular income taxes on the amount
withdrawn. However, there are certain exceptions to the "premature withdrawal"
penalties. These are described in the following paragraphs.
If you are disabled, you may make withdrawals immediately and you will not
be subject to the premature withdrawal penalty. You are considered "disabled" if
you are unable to engage in any substantial gainful activity because of a
physical or mental impairment which can be expected to result in death or to be
of long-lasting or indefinite duration.
If you die, your beneficiary may withdraw from your IRA without the IRS
premature withdrawal penalty.
The premature withdrawal penalty does not apply if the withdrawal does not
exceed the amount of "eligible higher education expenses" or "eligible
first-time homebuyer expenses" during the year.
"Eligible higher education expenses" include tuition, fees, books and
supplies needed to attend a post-secondary institution of higher learning. Also,
room and board may qualify if the student is attending at least half-time. The
expenses may be for you or your spouse, child or grandchild.
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"First-time homebuyer expenses" include the cost of purchase or
construction of a principal residence (including financing or closing costs) for
you, your spouse, or a child, grandchild, parent or grandparent of you or your
spouse. A person is a "first-time homebuyer" for this purpose if he or she (and
his or her spouse if married) did not own an interest in a principal residence
during the two years before the date of purchase or construction of the new
home. For any individual, a lifetime maximum of $10,000 may be treated as
eligible first-time homebuyer expenses, regardless of the number of homes
purchased.
If your medical expenses in a year exceed 7-1/2% of your AGI for that year,
then IRA withdrawals in that year up to the amount of the excess medical
expenses are not subject to the 10% penalty tax. Withdrawals also are not
subject to the 10% penalty tax up to the amount that you paid for health
insurance premiums for yourself, your spouse and dependents if you are
unemployed. This exception applies only if you have received unemployment
compensation for at least 12 weeks, and only to withdrawals you made in the year
that you received the unemployment compensation and the following year. Any
withdrawals made after you have been reemployed for at least 60 days will not be
exempt.
Starting in the year 2000, any amounts taken from your IRA under an IRS tax
levy for unpaid taxes are not subject to the penalty.
WHEN MUST I MAKE WITHDRAWALS?
You must make withdrawals from your Traditional IRA in amounts sufficient
to meet IRS minimum distribution rules. Otherwise there is a penalty tax for
late withdrawals. Under the rules, the first withdrawal must be made no later
than April 1 of the year following the calendar year in which you reach age
70-1/2 (the "required beginning date"). Thereafter, withdrawals must be made so
that your entire account will be distributed over your life expectancy or the
joint life expectancies of you and a designated beneficiary. (The life
expectancy of the oldest person who is a designated beneficiary on your required
beginning date is used for this purpose.) Other limits on the period over which
Traditional IRA distributions may be paid may also apply. You can recalculate
your life expectancy and your spouse's life expectancy (if your spouse is your
designated beneficiary) each year. Your choice of recalculation or not must be
made by your required beginning date and, under IRS guidelines, cannot be
changed thereafter. Consult a qualified tax advisor for information on the pros
and cons of recalculating your life expectancy.
If you have more than one Traditional IRA, the required minimum is
calculated separately for each IRA. However, the total minimum may be satisfied
by withdrawals from any one or more of your Traditional IRAs as you choose
(withdrawals from any ROTH IRA you may have cannot be used to satisfy the
minimum withdrawal requirements for your Traditional IRAs).
If you have spousal Traditional IRAs, the minimum required annual
distribution from each spousal IRA is determined using the life expectancy of
the spouse who established the IRA.
You can receive installment payments larger than the minimum amount.
However, if the amount distributed in installments at the end of any year is
less than the minimum required amount, a penalty tax must be paid.
The IRS penalty tax is 50% of the difference between the amount that should
have been distributed and the amount that was distributed from your account. The
IRS may waive the penalty tax if you can show that the shortfall was due
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to reasonable error and you are taking steps to remedy the shortfall.
HOW TO MAKE WITHDRAWALS
You can withdraw the amount in your Traditional IRA in installment payments
over a specified period that meets the IRS minimum distribution rules. Or you
can withdraw the total amount in one lump sum payment.
Lump sum payments from a Traditional IRA do not receive the special tax
treatment available in certain cases for lump sum distributions from most
retirement plans. Therefore, it may be advantageous for you to withdraw the
account in periodic installments.
Amounts withdrawn are subject to withholding of federal income tax unless
you direct no withholding. The Withdrawal Authorization Form provides a space to
elect against withholding, and contains additional information on
withholding--see Tax Withholding Fee on page 16.
To make a withdrawal or to establish a program of installment withdrawals,
simply complete the Withdrawal Authorization Form and send the form to Northeast
Management & Research Company, Inc.
Be sure to start withdrawals no later than the required beginning date to
avoid penalties for insufficient withdrawals. You are responsible for meeting
the minimum withdrawal rules; the custodian will not process any withdrawals
without your written instructions. Also, remember that the minimum amount
required to be withdrawn may change from year to year because of earnings or
fluctuations in the value of the shares in your account or because you
recalculated your life expectancy. Therefore, if you have established a program
of installment withdrawals, you should submit a new Withdrawal Authorization
Form each year if you need (or want) to adjust the amount of each installment.
If tax, estate, or financial planning considerations affect the timing or
amount of your Traditional IRA withdrawals, be sure to consult a qualified
professional.
DEATH BENEFITS
You can name a beneficiary on the Designation of Beneficiary (Section 3 of
the Application) or in another written instrument filed with Northeast
Management & Research Company, Inc. You can change a previous designation at any
time by filing a new form or instrument.
If you die before your entire Traditional IRA has been distributed to you,
the balance in your account will be paid to your beneficiary. Distribution may
be in the form of a lump sum payment or installments. If installment
distributions had begun before your death but after your required beginning
date, installments may continue over the remainder of the installment period or
may be accelerated. Otherwise, installment distributions to your designated
beneficiary must be made over a period no longer than the beneficiary's life
expectancy and must begin by the end of the year following the year of your
death. However, if the beneficiary is your spouse, payments to your spouse need
not begin until you would have reached age 70-1/2 had you lived. If no other
rule applies, payment of your remaining account balance must be made by the end
of the fifth year after the year of your death. Even though you have named a
beneficiary, the amount in your Traditional IRA at your death will be included
in your estate for federal estate tax purposes.
TAX-FREE ROLLOVERS: ANOTHER ADVANTAGE
Under certain circumstances, you can receive a distribution from one
Traditional IRA, or from a qualified plan, or
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a tax-sheltered annuity or another arrangement under Section 403(b) of the Code,
and deposit the amount received in another Traditional IRA without including the
distribution in your income for federal income tax purposes. Such a "tax-free
rollover" must be completed within 60 days after you receive the distribution. A
payment of your account balance under a qualified plan or 403(b) arrangement
directly to a Northeast Investors Traditional IRA is a way to avoid the 20%
income tax withholding requirements. Most distributions from qualified plans or
403(b) accounts (other than financial hardship withdrawals) are subject to 20%
withholding unless paid directly to another plan or 403(b) or to an IRA (this is
called a "direct rollover").
There are complex, specific rules for each kind of transfer, so you should
consult your tax advisor or the IRS if you have questions about the rules.
Rollover contributions are not subject to the limits on annual
contributions to a Traditional IRA. However, all amounts in your Traditional
IRA, including rollover contributions, are subject to the rules discussed above
concerning the time and method of withdrawal.
IRA-to-IRA Rollover
If you have another Traditional IRA (for example with a bank), you can
withdraw all or part of the amount in that account and rollover all or part of
the amount withdrawn to a Northeast Investors Traditional IRA. Or, you can
withdraw all or part of the amount in your Northeast Investors Traditional IRA
and rollover all or part of the amount withdrawn to another Traditional IRA or
individual retirement annuity. The amount rolled over will not be subject to
federal income tax (or the 10% IRS premature withdrawal penalty) if you complete
the rollover within 60 days after the withdrawal. After an IRA-to-IRA tax-free
rollover; you must wait at least a full year (365 days) before making another
IRA-to-IRA rollover.
As an alternative to a rollover; arrangements may be made for a direct
transfer from your current Traditional IRA custodian or trustee to a Northeast
Investors Traditional IRA. The one-year waiting period does not apply to direct
transfers from one IRA custodian or trustee to another.
You should not make a rollover or transfer from a Traditional IRA to a
SIMPLE IRA.
You may make a rollover or transfer from a Traditional IRA to a Roth IRA
you establish. This will cause all taxable amounts rolled over or transferred to
be taxed (a Roth IRA rule). Such rollovers (Traditional IRA to Roth IRA) are
discussed more fully in the Northeast Investors Roth IRA kit.
Rollovers From Qualified Plan or 403(b) Arrangement to Traditional IRA Most
distributions from a qualified plan or 403(b) arrangement are now eligible for
rollover to a Traditional IRA. The main exceptions are: o payments over the
lifetime or life expectancy of the participant (or
participant and a designated beneficiary), o installment payments for a
period of 10 years or more, and o required distributions under the age 701/2
rules. o starting in 1999, withdrawals from a 401(k) Plan or 403(b) arrangement
because of financial hardship
If you will receive an eligible distribution from a qualified plan or
403(b) or a distribution upon termination of such a plan, you can defer paying
taxes by requesting the plan administrator or 403(b) sponsor to transfer the
distribution amount (except amounts previously contributed by you) directly to a
North-
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east Investors Traditional IRA in a direct rollover. Or, you may receive the
distribution and roll it over to a Northeast Investors Traditional IRA within 60
days after you receive the distribution. However, unless you elect a direct
rollover of your distribution, the person making payment MUST WITHHOLD 20% OF
YOUR DISTRIBUTION for federal income taxes. Your plan or 403(b) sponsor will
provide you with a notice concerning direct rollovers, regular 60-day rollovers
and withholding taxes before you receive your distribution.
If you already have one Traditional IRA, you should establish a separate
Traditional IRA to receive any rollover contribution from a qualified plan or
403(b). This preserves your ability to transfer the separate rollover IRA into a
different employer plan or 403(b) later if you desire and the plan permits such
transfers.
Rollovers by a Surviving Spouse
If a surviving spouse receives a distribution from a qualified plan or
403(b) arrangement because of the employee/ spouse's death, the surviving spouse
may be able to defer income taxes by having all or a part of the distribution
(other than employee contributions to the plan) transferred directly to a
Traditional IRA established for the spouse.
SOME THINGS TO AVOID
Transactions between you and your Traditional IRA are not allowed. Specific
"prohibited transactions" are listed in the Internal Revenue Code. They include
borrowing from your IRA, selling or exchanging property with your IRA and
similar transactions.
If you engage in a prohibited transaction, your Traditional IRA will lose
its tax-exempt status. The value of your account (except for any nondeductible
contributions by you) will be treated as taxable income to you in that year. In
addition, you must pay the 10% IRS penalty for premature withdrawals if you are
under age 591/2.
If you use all or part of your Traditional IRA as security for a loan, the
part so used will be treated as taxable income to you in that year. Again, you
may have to pay the tax for premature withdrawals in addition to regular income
taxes on the amount used as security.
CUSTODIAN FEE AND OTHER CHARGES
The Ten Dollar ($10.00) Annual Maintenance Fee
Each year, a fee of $10.00 is charged to your account to cover the cost of
the custodian services provided by Investors Bank & Trust Company. The amount of
the fee may be changed by agreement between the Custodian and Northeast
Management & Research Company, Inc. For your convenience, we offer a choice of
two ways to pay this fee:
1. Automatic Deduction: This method of automatic deduction is the most
convenient for you. The fee of $10.00 is automatically deducted from
your IRA in December, and the deduction will be reflected in your
year-end statement.
2. Payment by Check: This method requires that you check the appropriate
box on the Application. We will send you a yearly invoice for this
fee during the month of December and you must pay it directly.
If you terminate your Traditional IRA during a year, you must pay that
year's fee or else it will be deducted from your account. The payment option you
select now will remain your method of payment for IRA fees in the future, unless
you notify us in writing of a change. For example, if you have the fee
automatically deducted this year, we will not mail you a notice requesting
payment in the
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future. If you choose payment by check, we will mail you a reminder of payment
due in each following year.
Tax Withholding Fee ($10.00)
This fee of $10.00 is payable each time you request tax withholding on any
withdrawal. Separate withholding fees apply for federal and state tax
withholding.
PLEASE TAKE NOTE:
The fee should be made payable and sent directly to:
Northeast Management & Research Company, Inc.
50 Congress Street-Suite 1000
Boston, MA 02109-4096
Northeast Investors Trust
The trustees of Northeast Investors Trust are entitled to receive an annual
fee equal -1/2 of 1% of the principal of the Trust, computed at the end of each
quarter at the rate of -1/8 of 1% of the principal at the close of the quarter.
For this purpose, the principal of the Trust is the total value of the Trust's
investment portfolio and other assets, less all liabilities except accrued
trustees' fees.
The trustees of Northeast Investors Trust are entitled to charge a
redemption fee of up to 1% of the net asset value of the shares redeemed. It is
the present policy of the trustees not to charge such a fee, but this policy may
be changed by the trustees without notice to the shareholders.
For further information on the trustees' annual fee and the redemption of
shares, see the current Northeast Investors Trust prospectus.
Northeast Investors Growth Fund
Northeast Investors Growth Fund has an Advisory and Service Contract with
Northeast Management & Research Company, Inc. ("NMR") under which NMR provides
investment advice and other services to the Fund. As its compensation under the
contract, NMR receives a monthly fee calculated at an annual rate of 1% of the
daily average net assets of the Fund up to and including $10,000,000, -3/4 of 1%
of such daily average net assets above $10,000,000 up to and including
$30,000,000 and -1/2 of 1% of such daily average net assets in excess of
$30,000,000.
Under the contract, NMR pays a portion of operating and bookkeeping
expenses of the Fund. The Fund is required to pay its legal fees, auditing fees,
cost of reports to shareholders and expense of shareholders' meetings, and
certain other expenses.
For more information on the contractual fees, and other expenses of the
Fund, see the current prospectus relating to Northeast Investors Growth Fund.
GROWTH OF YOUR ACCOUNT
Dividends and any capital gains distributions on the shares of Northeast
Investors Trust or Northeast Investors Growth Fund in your account will be
reinvested in additional shares and fractional shares.
Shareholders of Northeast Investors Trust are entitled to receive dividends
approximately equal to the net income of the Trust, plus other cash
distributions as the Trustees may declare. Net income is the gross earnings of
the Trust less expenses, and each share is entitled to receive a proportionate
amount of a dividend or distribution.
Shareholders of Northeast Investors Growth Fund receive income dividends
equal to substantially all of the net investment income of the Fund, generally
paid annually. In addition, shareholders receive an annual capital gains
distribution equal to substantially all of the Fund's net realized capital gains
(reduced by any available capital loss carryforwards). Each share receives a
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proportionate amount of any dividend or distribution. Because the net income of
Northeast Investors Trust and of Northeast Investors Growth Fund may fluctuate
from year to year, no fixed dividends can be promised. Also, because the value
of their investment portfolios may fluctuate, the amount available for
distribution to you from your account cannot be projected or guaranteed.
For further information on dividends and distributions, see the current
Northeast Investors Trust prospectus or Northeast Investors Growth Fund
prospectus.
STATE TAX RULES
The tax rules discussed in this booklet are based on federal law. Tax
treatment of Traditional IRAs under state law varies from state to state. For
purposes of the Massachusetts income tax on residents, contributions to a
Traditional IRA are not deductible. Dividends and other income received by your
IRA are not currently taxed. Excess contributions, early withdrawals and late
withdrawals are not subject to any penalties or special taxes in Massachusetts.
Withdrawals are not included in income in the year received until the amount
withdrawn equals the amount of your contributions. A transaction which is a
tax-free rollover for federal tax purposes will also be tax-free for
Massachusetts tax purposes.
Non-residents of Massachusetts are not liable for Massachusetts income tax
on amounts earned by or withdrawn from a Northeast Investors Traditional IRA.
For advice on treatment of Traditional IRAs under the tax laws of Massachusetts
or other states, consult your tax advisor or legal counsel.
IRS REPORTS AND RETURNS
If you owe an IRS penalty tax for an excess contribution, a premature
withdrawal, or the failure to withdraw the required minimum amount, you must
file Form 5329 with your individual tax return. If your only Traditional IRA
transactions in a year are your contributions or withdrawals from the account,
you need not file Form 5239.
TRADITIONAL IRA DEDUCTION WORKSHEET
If you are an active participant in an employer retirement plan and your
adjusted gross income (AGI) falls in the partly deductible range, use this
worksheet to calculate the maximum Traditional IRA contribution that is
deductible on your federal income tax return. To help you, there is an example
of a married couple filing jointly with adjusted gross income of $52,500. The
example shows the maximum deductible amount if one spouse is an active
participant and contributes $2,000 to his or her individual Traditional IRA.
You Example
1. Insert High Limit that applies to you for the year $ 60,000*
2. Insert your adjusted gross income $ 52,500
3. Subtract (2) from (1) $ 7,500
4. Divide by $10,000 .75
5. Insert maximum contribution of $2,000 $ 2,000
6. Multiply (4) by (5). Round up to the nearest $10. $ 1,500
7. Enter the amount on line (7) or $200, whichever is
greater. This is the deductible limit. Contributions
up to this amount are deductible. Contributions
above this amount are not deductible. $ 1,500
* 1998 High Limit. In 1999, the High Limit is $61,000.
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Northeast Investors Traditional IRA Custodial Agreement
Articles I-VII of this Custodial Agreement (the "Agreement") are in the
form promulgated by the Internal Revenue Service in Form 5305-A (Revised January
1998) for 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 provision 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 (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 reached 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.
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(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.
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 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 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 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 below.
Article VIII
1. The amount of each contribution credited to the Depositor's individual
retirement custodial account shall (except to the extent applied to pay fees or
other charges under Section 7 below) be applied to purchase full and fractional
shares of Northeast Investors Trust or Northeast Investors Growth Fund (provided
always that such shares may legally be offered for sale in the state of the
Depositor's residence) in accordance with instructions of the Depositor given
under Section 3 below. The custodian (or Northeast Management & Research
Company, Inc. ("NMR") acting as agent for the custodian under section 16 of this
Article VIII) may retain the Depositor's initial deposit for a period of up to
ten days after receipt thereof, without liability for interest or for loss of
earnings or appreciation, and may invest the initial deposit at the end of such
period. The Depositor may revoke the account by written notice to the custodian
received by the custodian within seven calendar days after the Depositor
establishes the account. Upon revocation, the amount of the Depositor's initial
deposit will be returned to him.
2. All dividends and capital gains or other distributions received on the
shares of Northeast Investors Trust held in the Depositor's account shall be
retained in the account and (unless received in additional shares) shall be
reinvested in full and fractional shares of Northeast Investors Trust.
Similarly, all dividends and capital gains or other distributions received on
the shares of Northeast Investors Growth Fund held in the Depositor's account
shall be retained in the account and (unless received in additional shares)
shall be reinvested in full and fractional shares of Northeast Investors Growth
Fund.
3. For each contribution, the Depositor shall designate the portion that
will be invested in shares of Northeast Investors Trust and the portion that
will be invested in shares of Northeast Investors Growth Fund. A contribution
may be invested entirely in Northeast Investors Trust, entirely in Northeast
Investors Growth Fund, or partly in each fund. However, all investment
directions (including those under this Section 3 or under Section 4) will be
subject to the minimum initial or additional investment and minimum balance
requirements of the funds.
The Depositor shall make such designation on an Investment Instructions
Form or other written notice acceptable to the custodian. If any such
designation or other investment instructions are, in the opinion of the
custodian, ambiguous or incomplete, the custodian may hold such amount
uninvested (without crediting any interest thereon) until the designation or
other investment instructions have been clarified or completed to the
custodian's satisfaction, and neither the custodian nor any other party will
have any liability for loss of interest, earnings or investment gains during
such period.
4. The Depositor may at any time direct the custodian to redeem all or a
specified portion of the Northeast Investors Trust shares in the Depositor's
account and to invest the redemption proceeds in shares and fractional shares of
Northeast Investors Growth Fund, or to redeem all or a portion of the
19
<PAGE>
Northeast investors Growth Fund shares in the Depositor's account and to invest
the redemption proceeds in shares and fractional shares of Northeast Investors
Trust.
The Depositor shall give such directions on an Investment Instructions Form
or other written notice acceptable to the custodian, and the custodian will
process such directions as soon as practicable after receipt thereof. If any
such directions are, in the opinion of the custodian, ambiguous or incomplete,
the custodian may refrain from acting thereon until the directions have been
clarified or completed to the custodian's satisfaction, and neither the
custodian nor any other party will have any liability for loss of earnings or
investment gains during such period.
5. The Depositor, by written notice to the custodian, may designate one or
more beneficiaries to receive the balance (if any) remaining in the Depositor's
account after his death and the time and manner of payment of such balance
(subject to the requirements of the preceding Articles of this agreement). A
designation may be on a form provided by the custodian or on a written
instrument acceptable to the custodian executed by the Depositor and must be
filed with the custodian. The Depositor may revoke or change such designation in
like manner, at any time and from time to time. If no such designation is in
effect upon the Depositor's death, the balance in the account shall be paid in a
single sum, as soon as is practicable, to the Depositor's estate.
Subject to the requirements of the preceding Articles of this agreement,
the Depositor may designate a form of payment to the beneficiary by filing a
signed written instrument with the custodian. In the absence of such written
instructions from the Depositor, the custodian will pay the beneficiary in such
form as the beneficiary selects.
6. The custodian shall forward to the Depositor (or beneficiary where
applicable) any notices, prospectuses, reports to shareholders, financial
statements, proxies and proxy soliciting materials, relating to the shares of
the Northeast Investors Trust or Northeast Investors Growth Fund in the
Depositor's account. The custodian shall not vote any of the shares of Northeast
Investors Trust or Northeast Investors Growth Fund held in the account except in
accordance with the written instructions of the Depositor (or beneficiary where
applicable).
7. The custodian's fees for performing its duties hereunder shall be such
reasonable amounts as shall be agreed to from time to time by the custodian and
NMR. Such fee, any taxes of any kind and any liabilities with respect to the
account, and any and all expenses reasonably incurred by the custodian shall, if
not paid by the Depositor, be paid from the account.
8. The custodian shall make distributions from the account at such times
and in such manner as the Depositor directs in writing, subject to the
requirements of the preceding Articles of this agreement. 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) 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 to the custodian in accordance with such
method).
9. It shall be the sole responsibility of the Depositor to determine the
time and amount of contributions to the account, the time, amount and manner of
payment of distributions from the account, the federal income tax deductibility
of any contributions to the account and the taxability of any distributions from
the account. NMR and the custodian shall be fully protected in following the
written direction of the Depositor (or beneficiary) with respect to the time,
amount and manner of payment of such distributions, or in not acting in the
absence of such direction. If the Depositor (or beneficiary) does not direct the
custodian to make distributions from the account by the time that such
distributions are required to commence in accordance with the preceding Articles
of this agreement, the custodian (and NMR) 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 NMR shall be fully protected in so doing. NMR and the
custodian shall not be liable for any taxes, penalties, liabilities or other
costs to the Depositor or any other person resulting from contributions to or
distributions from the Depositor's account. 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 or redemption charge as described in the
applicable prospectus.
If in the judgement of the custodian or NMR there is any ambiguity or
dispute about the application of this Agreement in any particular circumstances,
or about the entitlement of any person to any distribution from the Depositor's
account, NMR and the Custodian may refrain from taking any action until such
ambiguity or dispute has been resolved to the satisfaction of NMR and/or the
Custodian (whether by a settlement of the parties involved, court order or
otherwise), and neither the Custodian, NMR, Northeast Investors Trust, nor
Northeast Investors Growth Fund will have any responsibility or liability for
loss of earnings or investment gains or otherwise as a consequence of such
delay.
The Depositor understands and acknowledges that (i) all distributions from
Depositor's account will be reported on Form 1099-R (or such other form as may
be required by the IRS) and will be based only on the information known by the
Custodian and will not reflect accounts not under the control of the
20
<PAGE>
Custodian, (ii) that consequently, the tax treatment may vary depending on
whether the Depositor has IRA accounts with other custodians, and (iii) that the
Depositor (or other person making the withdrawal) is solely responsible for
tracking and accurately determining the income tax (and any penalties) due.
10. NMR, Northeast Investors Trust, Northeast Investors Growth Fund, and
the Custodian shall not be responsible for any loss or diminution in the value
of the Depositor's account arising out of the Depositor's establishment of a
Northeast Investors Individual Retirement Account or arising out of any
investment instructions of the Depositor (or beneficiary), whether relating to
the portion of contributions invested in Northeast Investors Trust and in
Northeast Investors Growth Fund, or relating to the redemption of shares of one
fund and investment of the redemption proceeds in shares of the other, or
arising out of any delay in carrying out any investment direction received from
the Depositor (or beneficiary).
11. Whenever the Depositor (or beneficiary) is responsible for any
direction, notice, representation or instruction under this agreement, NMR and
the custodian shall be entitled to assume the truth of any statement made by the
Depositor (or beneficiary) in connection therewith, and shall be under no duty
of further inquiry with respect thereto, and shall have no liability with
respect to any action taken in reliance upon such statement. Any communication
from the Depositor (or beneficiary) which under this Agreement is to be in
writing may in the discretion of NMR be made by telephone or other electronic
means (subject to such rules and requirements as NMR may impose).
12. This Agreement (and the Depositor's custodial account) shall terminate
upon the complete distribution of the account to the Depositor or his
beneficiaries or to a successor individual retirement account or annuity, to a
qualified plan, or to an annuity or custodial account under Section 403(b) of
the Internal Revenue Code. The Custodian shall have the right to terminate this
account upon ninety (90) days' notice to the Depositor, or to his beneficiaries
if he is then dead. In such event, upon expiration of such 90 day period, the
Custodian shall transfer the amount in the account into such successor
individual retirement accounts or annuities, qualified plans, or annuities or
custodial accounts as the Depositor (or his beneficiaries) shall designate, or,
in the absence of such designation, to the Depositor, or, if he is then dead, to
the beneficiaries as their interests shall appear.
13. The Custodian may resign at any time upon ninety (90) days' notice in
writing to NMR and may be removed by NMR at any time upon ninety (90) days'
notice in writing to the Custodian. By agreement between them, the Custodian and
NMR may waive or accelerate the notice period. Upon such resignation or removal,
NMR shall appoint a successor custodian which satisfies the requirements of
Section 408 of the Internal Revenue Code, and the Depositor (or beneficiary) is
deemed to have consented to such appointment.
14. Upon receipt by the Custodian of written notice of appointment of a
successor custodian and or written acceptance of such appointment by the
successor, the Custodian shall transfer to such successor the assets of the
account and all records pertaining thereto. The Custodian may reserve such sum
of money as it deems advisable for payment of its fees, taxes, costs, expenses
or liabilities with respect to the account, with the balance (if any) of such
reserve remaining after the payment of all such items to be paid over to the
successor custodian. The successor custodian shall hold the assets paid ever to
it under this Agreement (or under terms similar to those of this Agreement that
satisfy the requirements of Section 408 of the Internal Revenue Code).
15. If, within sixty (60) days after the Custodian's resignation or
removal, NMR has not appointed a successor custodian which has accepted such
appointment, the Custodian shall appoint such successor unless it elects to
terminate the custodial account pursuant to Section 12 of this Article VIII.
16. The Custodian may employ or designate NMR or one or more other parties
to serve as contractors or agents to perform certain of its duties hereunder. At
any time when the Custodian has designated NMR (or another party) to serve as
its agent hereunder, reference in any provision of this Article VIII to the
Custodian will be deemed a reference to the agent designated to perform the
particular duty.
17. Any notice sent from the Custodian to the Depositor, or to his
beneficiaries if he is then dead, shall be effective if sent by mail to him or
them at his or their last address(es) of record as provided to the Custodian.
18. Any distribution 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 of the amount thereof completely discharge the Custodian's
liability for such payment.
19. NMR may amend this agreement from time to time, and shall give written
notice of any such amendment to the Depositor within 30 days after the date the
amendment is adopted or becomes effective, whichever is later. The Depositor
hereby expressly delegates authority to NMR to amend the provisions of this
Agreement and hereby consents to any such amendment.
20. This Agreement shall be construed, administered and enforced according
to the laws of Massachusetts.
21. The Depositor acknowledges that he or she has received and read the
current Northeast Investors Trust prospectus, the current Northeast Investors
Growth Fund prospectus and the Northeast Investors Individual Retirement Account
Disclosure Statement.
21
<PAGE>
22. The term "Custodian" refers to the person serving as the custodian of
the individual retirement account established hereby, and the term "Depositor
refers to the person for whose benefit such account was established.
23. Articles I through VII of this Agreement are in the form promulgated by
the Internal Revenue Service. It is anticipated that, if and when the Internal
Revenue Service promulgates changes to Form 5305-A, NMR will adopt such changes
as an amendment to this Agreement. Pending the adoption of any amendment
necessary or desirable to conform this Agreement to the requirements of any
amendment to the Internal Revenue Code or regulations or rulings thereunder, the
Custodian and NMR may operate the Depositor's account in accordance with such
requirements to the extent that the Custodian and/or NMR deem necessary to
preserve the tax benefits of the account.
24. The Depositor represents that he or she is of legal age in his or her
state of residence, and agrees that this individual retirement custodial account
is subject to acceptance by Northeast Investors Trust and/or Northeast Investors
Growth Fund and to the terms of their respective prospectuses.
22
NORTHEAST INVESTORS Traditional IRA Transfer/Direct Rollover
--------------------------
of Current Retirement Assets
Instructions:
--------------------------------------------------------------------------------
To transfer an existing IRA or to make a direct rollover of eligible funds from
your employer's qualified plan or 403(b) arrangement, complete this
authorization form and send it to Northeast Management & Research Co., Inc. with
the other documents establishing your Northeast Investors Traditional IRA.
IMPORTANT: If you are now receiving minimum distributions in accordance with the
age 70-1/2 rules, be sure that the amount to be transferred does not include any
amounts which are required to be distributed to you; also, you should be sure to
file a Withdrawal Authorization Form with Northeast Investors indicating the
amount that should be distributed to you annually under the age 701/2 rules to
avoid possible penalties.
To:
--------------------------------------------------------------------------------
Name of Current Trustee/Custodian/Plan Administrator
--------------------------------------------------------------------------------
Address
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone Number
Re:
--------------------------------------------------------------------------------
Name Appearing on Your Current Account
--------------------------------------------------------------------------------
Your Address
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Your Current Account Number
Instructions to Current Trustee/Custodian Plan Administrator:
Please transfer or direct rollover (if qualified plan or 403(b) assets) the
following amount to my Northeast Investors Traditional IRA (payee and address
directions are at the bottom of this form):
[ ] Liquidate all assets and transfer the proceeds[ ]Transfer $-------------
[ ] Liquidate ------- shares and transfer the proceeds
This transfer is to be executed from fiduciary to fiduciary in a manner that
will not place me in actual or constructive receipt of any of the transferred
assets. (However, please note that direct rollovers are subject to IRS
reporting.) A completed IRA application must accompany this form unless you
already have a Northeast Investors Traditional IRA.
--------------------------------------------------------------------------------
Your Signature* Date
If you want the funds transferred directly to your existing Traditional IRA with
Northeast Investors, please indicate your account number ---------------------
*Please ask your present trustee or custodian if a signature guarantee is
required.
CURRENT ACCOUNT TYPE:
-Rollover IRA - Traditional IRA - SEP-IRA - SIMPLE-IRA - Qualified Plan - 403(b)
(Below Line for Bank Use Only)
Investors Bank & Trust Company, as (successor) custodian of the above
individual's Northeast Investors Traditional IRA retirement account, requests
the transfer or direct rollover of assets as indicated above. The Northeast
Investors Traditional IRA meets the requirements of Code Section 408(a) and is
qualified to receive the transfer or direct rollover requested above.
Investors Bank & Trust Company
Custodian
--------------------------------------------------------------------------------
Date: By:
To Current Trustee/Custodian: Please return a copy of this form with your
response. Make checks payable to Northeast Management & Research Co., Inc.
Address for checks, forms, etc.: Northeast Management & Research Co., Inc.,
50 Congress Street-Suite 1000, Boston, MA 02109-4096. If you have any questions
please call 617-523-3588 or 1-800-225-6704.
23
<PAGE>
24
<PAGE>
NORTHEAST INVESTORS TRADITIONAL IRA APPLICATION
--------------------------------------------------------------------------------
1. Account Registration
-----------------------------------------------------------------------
First Name Middle Initial Last Name
----------------------------------------
-----------------------------
Social Security Number Date of Birth
-----------------------------------------------------------------------
Street Address and Apartment or Box Number
-----------------------------------------------------------------------
City State Zip Code
----------------------------------------
-----------------------------
Home Telephone Work Telephone
--------------------------------------------------------------------------------
2. Type and Amount of Investment
Please indicate the type of IRA that is to be opened by writing the
amount of your investment under the fund that you wish to invest in. All
contribution checks should be made payable to Northeast Management &
Research Co., Inc.
<TABLE>
<S> <C>
[ ] Northeast Investors Trust [ ] Northeast Investors Growth Fund
Annual Traditional IRA Contribution for ---- Tax Year
$2,000 maximum contribution per year. The minimum initial investment is $500 per fund.
$ $
-------------------------------------------------------------------------------- --------------------------------------
--------------------------------------------------------------------------------
[ ] Northeast Investors Trust [ ] Northeast Investors Growth Fund
SEP IRA Contribution for ---- Tax Year
Simplified employee pension plan contribution. Attach a copy of your employer's form
5305-SEP to your application. - Employer contribution - Employee annual contribution
$ $
-------------------------------------------------------------------------------- --------------------------------------
--------------------------------------------------------------------------------
[ ] Northeast Investors Trust [ ] Northeast Investors Growth Fund Spousal
Traditional IRA Contribution for ---- Tax Year If your spouse has less
compensation or earned income than you, you may establish spousal Traditional
IRAs (one for you and one for your spouse) and contribute up to $4,000 to both
IRAs (a maximum of $2,000 to either) if you have this much compensation or
earned income. Complete a separate Application for each Traditional IRA.
$ $
-------------------------------------------------------------------------------- --------------------------------------
--------------------------------------------------------------------------------
[ ] Northeast Investors Trust [ ] Northeast Investors Growth Fund Transfer or
Rollover of Existing IRA Transfer of existing Traditional IRA directly from
current custodian or trustee, or a rollover within 60 days after withdrawing
from existing Traditional IRA.
$ $
-------------------------------------------------------------------------------- --------------------------------------
--------------------------------------------------------------------------------
[ ] Northeast Investors Trust [ ] Northeast Investors Growth Fund Transfer or
Rollover of Employer Plan or 403(b) Account Transfer ("direct rollover") of
existing qualified Employer plan or 403(b) account, or a regular rollover of
account within 60 days after distribution to you.
$ $
-------------------------------------------------------------------------------- --------------------------------------
--------------------------------------------------------------------------------
Investment Options continued on next page
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
[ ] Northeast Investors Trust [ ] Northeast Investors Growth Fund
Transfer or Rollover of SIMPLE IRA
Transfer or regular rollover (within 60 days after distribution to you) from existing SIMPLE IRA. Caution: Do Not transfer to this
Traditional IRA from a SIMPLE IRA during the first two years after the SIMPLE IRA was established
$ $
-------------------------------------------------------------------------------- -------------------------------------
--------------------------------------------------------------------------------
</TABLE>
Custodian Fee
- Check here if the $10.00 custodial fee is enclosed; if checked, annual
maintenance fees for future years will be billed to you. If not checked, the fee
will automatically be deducted at year end.
--------------------------------------------------------------------------------
3. Designation of Beneficiary
If you do not choose to designate a beneficiary for your Traditional IRA or if
no designated beneficiary survives you, your Traditional IRA will go to your
estate. The selection of a beneficiary can have important estate and tax
planning consequences; consult a competent professional if needed. Consult your
attorney if you are a resident of a community or marital property state for
legal requirements.
I hereby designate the person(s) named below as the primary beneficiary(ies) in
the event of my death before my account has been paid to me in full. If any but
less than all of the primary beneficiaries predecease me, the share of the
deceased primary beneficiary(ies) will be divided among the surviving primary
beneficiary(ies) in proportion to the percentage otherwise payable to each
surviving primary beneficiary. If all primary beneficiaries predecease me, the
value of my account shall be distributed to the contingent beneficiary(ies)
designated below who survive me. If any but less than all the contingent
beneficiaries predecease me, the share of the deceased contingent
beneficiary(ies) will be divided among the surviving contingent beneficiary(ies)
in proportion to the percentage otherwise payable to each such surviving
contingent beneficiary. If two or more persons are named as primary or
contingent beneficiaries, and no percentage is indicated, I intend that the
surviving persons listed shall receive equal portions. (If the beneficiary is a
trust, please indicate the name, address, and date of the trust). I reserve the
right to change my beneficiary or beneficiaries by written notification to
Northeast Management and Research Co., Inc. Pay my account to the primary
beneficiary or beneficiaries named below who are living at my death.
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
---------------
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
---------------
Primary Beneficiary continued on next page
26
<PAGE>
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
---------------
If no primary beneficiary is living at my death, pay the account to the
contingent beneficiary or beneficiaries named below who are living at my death.
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
---------------
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
---------------
Name Social Security
Number
Address
Relationship Date of Birth %*
/ /
*Shares for each IRA's beneficiary must add up to 100%. Please do not indicate
fractional percentages (e.g. if there are three beneficiaries, indicate 33%, 33%
and 34%).
--------------------------------------------------------------------------------
4. Signature
I hereby adopt with the Custodian this Northeast Investors Traditional
Individual Retirement Account under Internal Revenue Code Section 408(a), using
the Northeast Investors Traditional IRA Custodial Agreement (which is
incorporated by reference). Once the Custodian acknowledges receipt of this
form, it shall be deemed accepted, and therefore effective, as of the date I
signed it. I have received and read the Northeast Investors Traditional IRA
disclosure statement and the prospectus(es) of the fund(s) selected. I certify
under penalties of perjury that my Social Security number above is correct.
----------------------------------------- -----------------------------
Signature Date
If you wish to receive periodic withdrawals, please complete the enclosed
Withdrawal Authorization Form and return it with this application. A signature
guarantee is not required when a request for periodic withdrawals accompanies
the new account application.
27
<PAGE>
28
<PAGE>
NORTHEAST INVESTORS UNIVERSAL IRA WITHDRAWAL AUTHORIZATION FORM
--------------------------------------------------------------------------------
Please Print
-------------------------------------
Account Owner's Name
-------------------------------------
Account Owner's Date of Birth
-------------------------------------
Account Owner's Social Security Number
-------------------------------------
Account Owner's Account Number
--------------------------------------------------------------------
Type of Withdrawal (Check One):
NORMAL Individual is over 59-1/2.
[ ]
[ ] REQUIRED Individual is age 701/2 or older (Non-Roth IRAs only).
[ ] DISABILITY Individual certifies that the individual is disabled and
therefore unable to engage in any substantial gainful
activity by reason of a medically determinable physical or
mental impairment which can be expected to be of long
continued or indefinite duration or to result in death.
[ ] PREMATURE Individual is under age 59-1/2 and not disabled.
The individual acknowledges that this withdrawal may involve
a 10% IRS penalty tax on the amount withdrawn, in addition to
the inclusion of the taxable amount in income for the year
the withdrawal is received. Consult with your tax advisor for
additional information.
[ ] DEATH Each beneficiary of a deceased individual must
complete this form, have his/her signature guaranteed, and
enclose a certified copy of the death certificate. If the
beneficiary is not a named individual, the legal
representative must complete this form, have his/her
signature guaranteed, and enclose a copy of his/her court
appointment and a certified copy of the death certificate.
Individual is under age 59-1/2 and elects substantially equal
periodic
[ ] PREMATURE/
LIFE payments over his/her life expectancy or joint life
EXPECTANCY expectancy of individual and designated beneficiary. If the
individual changes the payment method prior to the later of
attaining age 59-1/2 or five years from the date of the first
payment, the IRS may impose a 10% penalty on all payments
received prior to age 59-1/2. The individual certifies that
the amount withdrawn does not exceed the
[ ] MEDICAL
EXPENSES individual's deductible medical expenses for the year of the
withdrawal. The individual certifies that (i) the amount
withdrawn does not
[ ] HEALTH
INSURANCE exceed the amount the individual paid for health
insurance coverage PREMIUMS for the individual and/or the
individual's spouse or dependents, (ii)
the individual received state or federal unemployment
compensation benefits for at least 12 weeks, (iii) the
withdrawal is being made in the calendar year in which the
unemployment benefits were received or the following calendar
year, and (iv) the withdrawal is not being made after the
individual had been reemployed for 60 or more days.
Withdrawal Options continued on next page
29
<PAGE>
The individual certifies that the amount withdrawn does not exceed
[ ] ELIGIBLE
HIGHER eligible higher education expenses. These are expenses for
EDUCATION tuition, fees, books and supplies necessary to attend an
EXPENSES nstitution for post- secondary education. Room and board are
eligible expenses for students attending at least half-time.
The student may be the individual, individual's spouse, or
child or grandchild of individual or spouse. Expenses covered
by a scholarship or other educational assistance payment or
tax-advantaged source of financing are not eligible expenses.
The individual certifies that the amount withdrawn does not
exceed
[ ] ELIGIBLE
FIRST-TIME eligible first-time homebuyer expenses. These include costs of
HOMEBUYER purchase, construction or reconstruction of a principal
EXPENSES residence (including normal settlement, financing or closing
costs). The homebuyer may be the individual, the
individual's spouse, or the child, grandchild, parent
or grandparent of the individual or individual's spouse.
A "first-time homebuyer" is an individual who has not (and,
if married, whose spouse has not) had an ownership interest
in a principal residence during the two-year period
immediately preceding the home purchase. The expenses must be
paid within 120 days after the withdrawal. There is a $10,000
lifetime limit on eligible first-time homebuyer expenses for
any individual.
[ ] OTHER -------------------------------------------------------------
--------------------------------------------------------------------------------
Method of Withdrawal (Check One):
[ ] Total Withdrawal (Account Termination) [ ] Partial Withdrawal of
$-------
[ ] Quarterly Dividends [ ] Periodic Withdrawal of $-------
[ ] Monthly (1st, 10th, 15th or 25th) [ ] Quarterly
[ ] (Jan, April, Jul, Oct),
[ ] (Feb, May, Aug, Nov),
[ ] (Mar, June, Sep. Dec.)
[ ] Semi-annually [ ] Annually
------- /------- -----------------
Months Month
If you wish to receive distributions based upon your life expectancy, please
call our office at 1-800-225-6704 and we will send you IRS-approved life
expectancy tables. We also recommend that you consult with your tax advisor to
determine the required dollar amount of your distribution. Once you have
determined the correct dollar amount, submit a completed Withdrawal
Authorization Form to us at least 30 days prior to your desired withdrawal date.
--------------------------------------------------------------------------------
Form of Withdrawal (Check One):
[ ] CASH (Liquidation)
[ ] IN KIND (Shares of Northeast Investors Trust and/or Northeast Investors
Growth Fund will be re-registered to you). For new accounts, enclose completed
application.
For existing accounts, please include A/C#
--------------------------------
[ ] Electronic Funds Transfer (ACH) To have funds electronically transferred
for periodic payments only, your bank must be an Automated Clearing House
(ACH) member and you must attach a voided check or deposit slip including
your bank routing number.
30
<PAGE>
Withholding Election (Check One):
See the Tax information below.
[ ] I do not want to have Federal Income Tax and applicable State Income Tax
withheld from my withdrawal.
[ ] I do want to have Federal Income Tax and applicable State Income Tax
withheld from my withdrawal ($10.00 fee each time).
[ ] Please withhold $-------------- from each withdrawal for
Federal Income Tax ($10.00 Tax withholding fee charged each
time).
[ ] Please withhold $-------------- from each withdrawal for
State Income Tax ($10.00 Tax withholding fee charged each
time).
--------------------------------------------------------------------
Tax Information
Withdrawals from an IRA (other than non-taxable direct transfers to another IRA
custodian or withdrawals of nondeductible contribution amounts) are subject to
federal income tax withholding unless you elect no withholding when completing
your withdrawal authorization form. Qualifying withdrawals from a Roth IRA are
not subject to federal income tax (see the Roth IRA Disclosure Statement for an
explanation of the circumstances when qualifying withdrawals are tax-free);
therefore, for such withdrawals you may wish to elect no withholding. Unless you
elect no withholding, 10% of each distribution will be withheld as federal
income taxes. In addition, there may be withholding of state income taxes
depending on your state of residence. If you elect no withholding, your election
will remain in effect until revoked. You may revoke your no withholding election
in writing at any time. Please note that, if you elect no withholding or have an
insufficient amount withheld from your withdrawal, you may have to pay estimated
tax. Insufficient payments of estimated tax may result in penalties. If you have
a Massachusetts address and have federal withholding, we are required to
withhold Massachusetts income taxes also. Complete Massachusetts Form M-4P so
that your Massachusetts income taxes may be calculated correctly. Depending on
your number of exemptions and the amount of your IRA withdrawals, there may be
no actual withholding. If your legal residence is not Massachusetts (even though
you have a Massachusetts address), check the box in item 5 of the Form M-4P to
avoid Massachusetts income tax withholding. Please contact Northeast Investors
if you wish to have us send you federal form W-4P or Massachusetts form M-4P.
The undersigned individual authorizes the withdrawal specified above and the
withholding election completed above. The undersigned acknowledges that proper
income tax reporting depends on the correct completion of this form and
certifies that the box checked under Type of Withdrawal (above) is correct; and
that it is the undersigned's responsibility to determine correctly the amount of
tax that may be due based on all IRA accounts the undersigned may own (including
those unknown by or not under the control of the Custodian); the undersigned
agrees to indemnify and hold harmless the Custodian and its agents and service
providers (including Northeast Management and Research Co., Inc.) from any
losses or expenses incurred if such information is not correct. The undersigned
acknowledges that it is his/her responsibility to properly calculate, report,
and pay all taxes due with respect to the withdrawal specified above.
Signature** Date
**Signature must be guaranteed by a bank or trust company, securities broker or
dealer, credit union, securities exchange or association, securities clearing
agency or savings association. Notarizing or witnessing will not suffice.
31
<PAGE>
This material is authorized for distribution to prospective investors only when
preceded or accompanied by a currently effective prospectus setting forth
material information about Northeast Investors Trust and a currently effective
prospectus setting forth material information about Northeast Investors Growth
Fund.
Northeast Management & Research, Inc.
50 Congress Street
Boston, MA 02109
Please Do Not Remove This Label
Please check here if you would
like
information concerning:
- Roth IRA - Educational IRA -
403-B - Keogh - Statement of
Additional Information - Northeast
Investors Growth Fund - Northeast
Investors Trust
NORTHEAST MANAGEMENT & RESEARCH COMPANY, INC.
CODE OF ETHICS
1. Definitions
(a) "Fund" means Northeast Investors Growth Fund.
(b) "Company" means Northeast Management & Research Company, Inc.
(c) "Access person" means any director, officer or advisory person
of the Company.
(d) "Advisory person" means any employee of the Company who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase
or sale of a security by the Fund, or whose functions relate
to the making of any recommendations with respect to such
purchases or sales.
(e) "Approval" means the approval of Ernest E. Monrad or Robert B.
Minturn, Jr., applying the standard that granting such
approval would be consistent with the interests of the Fund
and its shareholders.
(f) A security is "being considered for purchase or sale" when a
recommendation or decision to purchase or sell a security has
been made and communicated or, with respect to a person who
will actually make such recommendation or decision, when such
person is seriously considering such recommendation or
decision.
(g) "Beneficial ownership" shall be interpreted in the same manner
as it would be in determining whether a person is subject to
the provisions of Section 16 of the Securities Exchange Act of
1934 and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial ownership shall
apply to all securities in which an access person has or
acquires such beneficial ownership.
(h) "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the Investment Company Act.
(i) "Purchase or sale of a security" includes, inter alia, the
writing of an option to purchase or sell a security and
includes all transactions in any security in which a person
has, or by reason of such transaction acquires, direct or
indirect beneficial ownership of a security.
(j) "Security" shall have the meaning set forth in Section
2(a)(36) of the Investment Company Act, except that it shall
not include securities issued by the Government of the United
States, short term debt securities which are "government
securities" within the meaning of Section 2(a)(16) of the
Investment Company Act of 1940, bankers acceptances, bank
certificates of deposit, commercial paper and shares of
registered open-end investment companies.
2. Exempted Transactions
The prohibitions of Section 3 of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the
access person has no direct or indirect influence or control.
(b) Purchases or sales of securities which are not eligible for
purchase or sale by the Fund.
(c) Purchases or sales which are non-volitional on the part of
either the access person or the Fund.
(d) Purchases which are part of an automatic dividend reinvestment
plan.
(e) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
to the holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such
rights so acquired.
(f) Purchases or sales which are only remotely potentially harmful
to the Fund because they would be very unlikely to affect a
highly institutional market, or because they clearly are not
related economically to the securities to be purchased, sold
or held by the Fund.
3. Prohibited Purchases and Sales
3.1 No access person shall purchase or sell, directly or
indirectly, any security which to his or her actual knowledge
at the time of such purchase of sale:
(a) is being considered for purchase or sale by the Fund;
or
(b) is being purchased or sold by the Fund.
3.2 In addition to the prohibitions described in Section 3.1
above, no access person:
(a) shall purchase, directly or indirectly, any security
in the initial public offering of such security;
(b) shall purchase or sell, directly or indirectly, any
security in a private placement, unless the access
person shall have received prior to such purchase or
sale written approval describing the proposed
purchase and sale, such approval to include the
signed undertaking of the access person to disclose
again such purchase and sale in the future if and
when the access person is involved in the Fund's
consideration of an investment in any securities of
that issuer;
(c) shall purchase or sell, directly or indirectly, any
security, if the Fund shall have purchased or sold
such security within either a prior or subsequent
seven day period, and, if the access person purchases
or sells a security in violation of this section
3.2(c), any profit obtained thereby shall be
disgorged to the Fund;
(d) shall obtain any profit from the purchase and sale,
or sale and purchase, of the same (or equivalent)
securities within any 60 calendar day period, and if
the access person obtains any profit in violation of
this Section 3.2(d), it shall be disgorged to the
Fund; provided, however, that this Section 3.2(d)
shall not apply to any two or more trades within a
60-day period entered into for personal tax purposes,
if the access person obtains written approval prior
to making the first such trade.
(e) shall receive any gift or other thing, of more than
de minimus value, from any person or entity that does
business with or on behalf of the Fund unless the
access person obtains prior written approval; or
(f) shall serve on the Board of Directors of any
publicly-traded company which is the issuer of any
security, unless the access person obtains prior
written approval.
4. Reporting
(a) Every access person shall report to the Company the
information described in Section 4(c) of the Code with respect
to transactions in any security in which such access person
has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership in the security; provided,
however, that an access person shall not be required to make a
report with respect to transactions effected for any account
over which such person does not have any direct or indirect
influence.
(b) Every report shall be made not later than 10 days after the
end of the calendar quarter in which the transaction to which
the report relates was effected, and shall contain the
following information:
(i) The date of the transaction, the title and the number
of shares, and the principal amount of each security
involved;
(ii) The nature of the transaction (i.e., purchase, sale
or any other type of acquisition or disposition);
(iii) The price at which the transaction was effected; and
(iv) The name of the broker, dealer or bank with or
through whom the transaction was effected.
(c) Any such report may contain a statement that the report shall
not be construed as an admission by the person making such
report that he or she has any direct or indirect beneficial
ownership in the security to which the report relates.
5. Sanctions
Upon discovering a violation of this Code, the directors of the Company
may impose sanctions as they deem appropriate, including, inter alia, a
letter of censure or suspension or termination of the employment of the
violator.
NORTHEAST INVESTORS GROWTH FUND
CODE OF ETHICS
1. Definitions
(a) "Fund" means Northeast Investors Growth Fund.
(b) "Access person" means any trustee, officer, or advisory person
of the Fund.
(c) "Advisory person" means (i) any employee of the Fund, the
Fund's investment adviser, or of any company in a control
relationship to the Fund, who, in connection with his or her
regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of a
security by the Fund, or whose functions relate to the making
of any recommendations with respect to such purchases or
sales; and (ii) any natural person in a control relationship
to the Fund who obtains information concerning recommendations
made to the Fund with regard to the purchase or sale of a
security.
(d) "Approval" means the approval of Ernest E. Monrad or Robert B.
Minturn, Jr., applying the standard that granting such
approval would be consistent with the interests of the Fund
and its shareholders.
(e) A security is "being considered for purchase or sale" when a
recommendation or decision to purchase or sell a security has
been made and communicated or, with respect to a person who
will actually make such recommendation or decision, when such
person is seriously considering such recommendation or
decision.
(f) "Beneficial ownership" shall be interpreted in the same manner
as it would be in determining whether a person is subject to
the provisions of Section 16 of the Securities Exchange Act of
1934 and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial ownership shall
apply to all securities in which an access person has or
acquires such beneficial ownership.
(g) "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the Investment Company Act.
(h) "Disinterested trustee" means a trustee of the Fund who is not
an "interested person" of the Fund within the meaning of
Section 2(a)(19) of the Investment Company Act.
(i) "Purchase or sale of a security" includes, inter alia, the
writing of an option to purchase or sell a security and
includes all transactions in any security in which a person
has, or by reason of such transaction acquires, direct or
indirect beneficial ownership of a security.
(j) "Security" shall have the meaning set forth in Section
2(a)(36) of the Investment Company Act, except that it shall
not include securities issued by the Government of the United
States, short term debt securities which are "government
securities" within the meaning of Section 2(a)(16) of the
Investment Company Act of 1940, bankers acceptances, bank
certificates of deposit, commercial paper and shares of
registered open-end investment companies.
2. Exempted Transactions
The prohibitions of Section 3 of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the
access person has no direct or indirect influence or control.
(b) Purchases or sales of securities which are not eligible for
purchase or sale by the Fund.
(c) Purchases or sales which are non-volitional on the part of
either the access person or the Fund.
(d) Purchases which are part of an automatic dividend reinvestment
plan.
(e) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
to the holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such
rights so acquired.
(f) Purchases or sales which are only remotely potentially harmful
to the Fund because they would be very unlikely to affect a
highly institutional market, or because they clearly are not
related economically to the securities to be purchased, sold
or held by the Fund.
3. Prohibited Purchases and Sales
3.1 No access person shall purchase or sell, directly or
indirectly, any security which to his or her actual knowledge
at the time of such purchase of sale:
(a) is being considered for purchase or sale by the Fund;
or
(b) is being purchased or sold by the Fund.
3.2 In addition to the prohibitions described in Section 3.1
above, no access person except a disinterested trustee of the
Fund:
(a) shall purchase, directly or indirectly, any security
in the initial public offering of such security;
(b) shall purchase or sell, directly or indirectly, any
security in a private placement, unless the access
person shall have received prior to such purchase or
sale written approval describing the proposed
purchase and sale, such approval to include the
signed undertaking of the access person to disclose
again such purchase and sale in the future if and
when the access person is involved in the Fund's
consideration of an investment in any securities of
that issuer;
(c) shall purchase or sell, directly or indirectly, any
security, if the Fund shall have purchased or sold
such security within either a prior or subsequent
seven day period, and, if the access person purchases
or sells a security in violation of this section
3.2(c), any profit obtained thereby shall be
disgorged to the Fund;
(d) shall obtain any profit from the purchase and sale,
or sale and purchase, of the same (or equivalent)
securities within any 60 calendar day period, and if
the access person obtains any profit in violation of
this Section 3.2(d), it shall be disgorged to the
Fund; provided, however, that this Section 3.2(d)
shall not apply to any two or more trades within a
60-day period entered into for personal tax purposes,
if the access person obtains written approval prior
to making the first such trade.
(e) shall receive any gift or other thing, of more than
de minimus value, from any person or entity that does
business with or on behalf of the Fund unless the
access person obtains prior written approval; or
(f) shall serve on the Board of Directors of any
publicly-traded company which is the issuer of any
security, unless the access person obtains prior
written approval.
4. Reporting
(a) Every access person shall report to the Fund the information
described in Section 4(c) of the Code with respect to
transactions in any security in which such access person has,
or by reason of such transaction acquires, any direct or
indirect beneficial ownership in the security; provided,
however, that an access person shall not be required to make a
report with respect to transactions effected for any account
over which such person does not have any direct or indirect
influence.
(b) A disinterested trustee of the Fund need only report a
transaction in a security if such trustee, at the time of that
transaction, knew or, in the ordinary course of fulfilling his
or her official duties as a trustee of the Fund, should have
known that, during the 15-day period immediately preceding the
date of the transaction by the trustee, such security was
purchased or sold by the Fund or was being considered for
purchase or sale by its investment officer.
(c) Every report shall be made not later than 10 days after the
end of the calendar quarter in which the transaction to which
the report relates was effected, and shall contain the
following information:
(i) The date of the transaction, the title and the number
of shares, and the principal amount of each security
involved;
(ii) The nature of the transaction (i.e., purchase, sale
or any other type of acquisition or disposition);
(iii) The price at which the transaction was effected; and
(iv) The name of the broker, dealer or bank with or
through whom the transaction was effected.
(d) Any such report may contain a statement that the report shall
not be construed as an admission by the person making such
report that he or she has any direct or indirect beneficial
ownership in the security to which the report relates.
5. Sanctions
Upon discovering a violation of this Code, the trustees of the Fund may
impose sanctions as they deem appropriate, including, inter alia, a
letter of censure or suspension or termination of the employment of the
violator.
24
CUSTODIAN AGREEMENT
AGREEMENT made as of this ___ day of ________________, 1998, between
NORTHEAST INVESTORS GROWTH FUND, a Massachusetts business trust (the "Fund"),
and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank").
The Fund, an open-end management investment company, desires to place
and maintain all of its portfolio securities and cash in the custody of the
Bank. The Bank has at least the minimum qualifications required by Section
17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to act as
custodian of the portfolio securities and cash of the Fund, and has indicated
its willingness to so act, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on Appendix A
hereto.
2. Definitions. Whenever used herein, the terms listed below will
have the following meaning:
-----------
2.1 Authorized Person. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board, and set forth in a
certificate as required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of
Trustees of the Fund, as the case may be.
2.3 Security. The term security as used herein will have the same
meaning as when such term in the Securities Act of 1933, as amended, including,
without limitation, any note, stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or participation in any profit sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 Portfolio Security. Portfolio Security will mean any security
owned by the Fund.
------------------
2.5 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.6 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 Proper Instructions. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person
as shall have been designated in an Officers' Certificate, such instructions to
be given in such form and manner as the Bank and the Fund shall agree upon from
time to time, and (ii) instructions (which may be continuing instructions)
regarding other matters signed or initialed by such one or more persons from
time to time designated in an Officers' Certificate as having been authorized by
the Board. Oral instructions will be considered Proper Instructions if the Bank
reasonably believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause all
oral instructions to be promptly confirmed in writing. The Bank shall act upon
and comply with any subsequent Proper Instruction which modifies a prior
instruction and the sole obligation of the Bank with respect to any follow-up or
confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent such action requires the Bank
to act, the Fund shall give the Bank specific Proper Instructions as to the
action required. Upon receipt by the Bank of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Fund, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices provided that the Fund
and the Bank agree in writing that such procedures afford adequate safeguards
for the Fund's assets.
2.9 Foreign Securities. The term Foreign Securities as used herein
will have the same meaning as when such term is used in Rule 17f-5 of the 1940
Act.
3. Separate Accounts. If the Fund has more than one series or
portfolio, the Bank will segregate the assets of each series or portfolio to
which this Agreement relates into a separate account for each such series or
portfolio containing the assets of such series or portfolio (and all investment
earnings thereon). Unless the context otherwise requires, any reference in this
Agreement to any actions to be taken by the Fund shall be deemed to refer to the
Fund acting on behalf of one or more of its series, any reference in this
Agreement to any assets of the Fund, including, without limitation, any
portfolio securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable series, any duty or obligation of the Bank
hereunder to the Fund shall be deemed to refer to duties and obligations with
respect to such individual series and any obligation or liability of the Fund
hereunder shall be binding only with respect to such individual series, and
shall be discharged only out of the assets of such series.
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of beneficial interest in
the Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below:
5.1 Purchase of Securities. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the
repurchase or redemption of shares of beneficial interest in the Fund offered
for repurchase or redemption in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection
with the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund,
but, in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for
the purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
-----------------------------
(a) For payments in connection with foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements")which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as
hereinafter set forth pursuant to Section 8 and Section 16 of this Agreement.
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and
hold pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. The Bank will use its best efforts
to the end that the specific Portfolio Securities held by it hereunder will at
all times be identifiable.
The Fund will from time to time furnish to the Bank
appropriate instruments to enable it to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any Portfolio
Securities which may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials delivered to the Bank with respect to such
Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). Except for instances where the Bank receives notice of a Corporate
Action three business days or less before the expiration of that Corporate
Action, the Response Deadline shall not be prior to the close of the second
business day after actual receipt by the Fund of such notification. The Bank
shall forward to the Fund via telecopier and/or overnight courier all notices,
information statements or other materials relating to the Corporate Action
promptly after receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after
receipt by the Bank of Proper Instructions from the Fund no later than 5:00 p.m.
on the date specified as the Response Deadline and only if the Bank (or its
agent or subcustodian hereunder) has actual possession of all necessary
Securities subject to pending or failed buy transactions, consents and other
materials no later than 5:00 p.m. on the date specified as the Response
Deadline.
(b) The Bank shall have no duty to act upon a required
Response if Proper Instructions relating to such Response and all necessary
Securities subject to pending or failed buy transactions, consents and other
materials are not received by and in the possession of the Bank no later than
5:00 p.m. on the date specified as the Response Deadline. Notwithstanding, the
Bank may, in its sole discretion, use its best efforts to act upon a Response
for which Proper Instructions and/or necessary Securities subject to pending or
failed buy transactions, consents or other materials are received by the Bank
after 5:00 p.m. on the date specified as the Response Deadline, it being
acknowledged and agreed by the parties that any undertaking by the Bank to use
its best efforts in such circumstances shall in no way create any duty upon the
Bank to complete such Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a
Corporate Action requiring a Response and the Bank has received no other notice
of such Corporate Action, the Response Deadline shall be 48 hours prior to the
Response expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(e) of this Agreement shall govern any
Corporate Action involving Foreign Portfolio Securities held by a Selected
Foreign Sub-Custodian.
6.4 Book-Entry System. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits of
Fund assets in the Book-Entry System, and (ii) for any subsequent changes to
such arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect
to the Fund's participation in the Book-Entry System through the Bank (or any
such agent) will identify by book entry the Portfolio Securities which are
included with other securities deposited in the Account and shall at all times
during the regular business hours of the Bank (or such agent) be open for
inspection by duly authorized officers, employees or agents of the Fund. Where
securities are transferred to the Fund's account, the Bank shall also, by book
entry or otherwise, identify as belonging to the Fund a quantity of securities
in a fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased
for the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment for
securities sold or payment of the initial cash collateral against the delivery
of securities loaned by the Fund has been transferred to the Account; and
(ii) the making of an entry on the records of the Bank (or its agent) to
reflect such transfer and payment for the account of the Fund. Copies of all
advices from the Book-Entry System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall
send the Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of
any transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
(e) The Bank shall be liable to the Fund for any loss or
damage to the Fund resulting from use of the Book-Entry System by reason of any
negligence, willful misfeasance or bad faith of the Bank or any of its agents or
any of its or their employees or from any reckless disregard by the Bank or any
such agent of its duty to use its best efforts to enforce such rights as it may
have against the Book-Entry System; at the election of the Fund, it shall be
entitled to be subrogated for the Bank in any claim against the Book-Entry
System or any other person which the Bank or its agent may have as a consequence
of any such loss or damage if and to the extent that the Fund has not been made
whole for any loss or damage.
6.5 Use of a Depository. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in
the name of any nominee or nominees used by such
Depository;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of the Fund and the Fund shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund only upon delivery of the Securities to
or for the account of the Fund; and upon any sale of Portfolio Securities,
delivery of the Securities will be made only against payment therefor or, in the
event Portfolio Securities are loaned, delivery of Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Fund; and
(d) The Bank shall be liable to the Fund for any loss or
damage to the Fund resulting from use of a Depository by reason of any
negligence, willful misfeasance or bad faith of the Bank or its employees or
from any reckless disregard by the Bank of its duty to use its best efforts to
enforce such rights as it may have against a Depository. In this connection, the
Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated Portfolio Security
deposited with it in the event such Security is lost, destroyed, wrongfully
taken or otherwise not available to be returned to the Bank upon its request;
(ii) Proxy materials received by a Depository with respect to Portfolio
Securities deposited with such Depository are forwarded immediately to the Bank
for prompt transmittal to the Fund;
(iii) Such Depository immediately forwards to the Bank confirmation of any
purchase or sale of Portfolio Securities and of the appropriate book entry made
by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such records with
respect to the performance of the Bank's obligations and duties hereunder
as may be necessary for the Fund to comply with the recordkeeping requirements
of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank all internal accounting control
reports, whether or not audited by an independent public accountant, as
well as such other reports as the Fund may reasonably request in order
to verify the Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry
Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Fund in an account
of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to the Fund's
purchase of Book-Entry Paper through the Bank will identify, by book-entry,
commercial paper belonging to the Fund which is included in the Book-Entry
System and shall at all times during the regular business hours of the Bank be
open for inspection by duly authorized officers, employees or agents of the
Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation
upon the maturity thereof upon contemporaneous (i) receipt of advice that
payment for such Book-Entry Paper has been transferred to the Fund, and (ii) the
making of an entry on the records of the Bank to reflect such payment for the
account of the Fund; and
(e) The Bank shall transmit to the Fund a transaction journal
confirming each transaction in Book-Entry Paper for the account of the Fund on
the next business day following the transaction; and
(f) The Bank will send to the Fund such reports on its system
of internal accounting control with respect to the Book-Entry Paper as the Fund
may reasonably request from time to time.
.
6.7 Use of Immobilization Programs. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Portfolio Securities are identified on the books of the Bank
as belonging to the Fund and that the books of the Bank identify the European
Branch holding such Portfolio Securities. Notwithstanding any other provision of
this Agreement to the contrary, except as stated in the first sentence of this
subsection 6.8, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund.
6.9 Options and Futures Transactions.
--------------------------------
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or Over-the-Counter.
(i) The Bank shall take action as to put options ("puts") and call options
("calls") purchased or sold (written) by the Fund regarding escrow or other
arrangements (i) in accordance with the provisions of any agreement entered into
upon receipt of Proper Instructions among the Bank, any broker-dealer registered
with the National Association of Securities Dealers, Inc. (the "NASD"), and, if
necessary, the Fund, relating to the compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange, or of
any similar organization or organizations.
(ii) Unless another agreement requires it to do so, the Bank shall be under no
duty or obligation to see that the Fund has deposited or is maintaining
adequate margin, if required, with any broker in connection with any option,
nor shall the Bank be under duty or obligation to present such option to the
broker for exercise unless it receives Proper Instructions from the Fund. The
Bank shall have no responsibility for the legality of any put or call purchased
or sold on behalf of the Fund, the propriety of any such purchase or sale, or
the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined
in subsection 6.10 below). The Bank specifically, but not by way of
limitation, shall not be under any duty or obligation to: (i) periodically
check or notify the Fund that the amount of such collateral held by a broker or
held in a Segregated Account is sufficient to protect such broker or the Fund
against any loss; (ii) effect the return of any collateral delivered to a
broker; or (iii) advise the Fund that any option it holds, has or is about to
expire. Such duties or obligations shall be the sole responsibility of the
Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and futures contracts
("Futures") purchased or sold by the Fund in accordance with the provisions of
any agreement entered into upon the receipt of Proper Instructions among the
Fund, the Bank and a Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account deposits in
connection with transactions by the Fund.
(ii) The responsibilities of the Bank as to futures, puts and calls traded
on commodities exchanges, any Futures Commission Merchant account and
the Segregated Account shall be limited as set forth in subparagraph (a)(ii) of
this Section 6.9 as if such subparagraph referred to Futures Commission
Merchants rather than brokers, and Futures and puts and calls thereon instead of
options.
6.10 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any agreement among the Fund, the Bank
and a broker-dealer registered under the Exchange Act and a member of the NASD
or any Futures Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Options Clearing Corporation and of
any registered national securities exchange or the Commodity Futures Trading
Commission or any registered Contract Market, or of any similar organizations
regarding escrow or other arrangements in connection with transactions by the
Fund;
(ii)for the purpose of segregating cash or securities in connection with options
purchased or written by the Fund or commodity futures purchased or written by
the Fund;
(iii)for the deposit of liquid assets, such as cash, U.S. Government securities
or other high grade debt obligations, having a market value (marked to market
on a daily basis) at all times equal to not less than the aggregate purchase
price due on the settlement dates of all the Fund's then outstanding
forward commitment or "when-issued" agreements relating to the purchase of
Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv)for the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance of
Segregated Accounts by registered investment companies;
(v)for other proper corporate purposes, but only, in the case of this clause (v)
upon receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board, or of the Executive Committee of the Board signed by an
officer of the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such Segregated Account and declaring
such purposes to be proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i)with respect to assets deposited in accordance with the provisions of any
agreements referenced in (a)(i) or (a)(ii) above, in accordance with the
provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii) or (a)(iv) above,
for sale or delivery to meet the Fund's obligations under outstanding forward
commitment or when-issued agreements for the purchase of Portfolio
Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or greater value deposited
in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward commitment or when-issued
agreements for the purchase of portfolio securities or reverse repurchase
agreements are sold to other parties or the Fund's obligations thereunder are
met from assets of the Fund other than those in the Segregated Account;
(v) for delivery upon settlement of a forward commitment or when-issued
agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(v) above, in
accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.12 Transfer of Securities. The Bank will transfer, exchange,
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section only upon receipt of
Proper Instructions. The Proper Instructions shall state that such transfer,
exchange or delivery is for a purpose permitted under the terms of this Section
6.12, and shall specify the applicable subsection, or describe the purpose of
the transaction with sufficient particularity to permit the Bank to ascertain
the applicable subsection. After receipt of such Proper Instructions, the Bank
will transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided, however, that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank by the Response Deadline as provided for in Section 6.3 , and unless
the Bank (or its agent or subcustodian hereunder) has actual possession of such
Security at least two business days prior to the date of tender or the Bank has
failed to provide the Fund with timely notice of such tender event;
(c) Upon conversion of Portfolio Securities pursuant to their terms into
other securities;
(d) For the purpose of redeeming in-kind shares of the Fund upon
authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for presentation to
the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or retired or
otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender, that an event of deficiency or default on the
loan has occurred, the Bank may deliver such pledged Portfolio Securities to or
for the account of the lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund
to a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. In the case of payment of assets of the Fund held by
the Bank in connection with redemptions and repurchases by the Fund of
outstanding shares of beneficial interests in the Fund , the Bank will rely on
notification by the Fund's transfer agent of receipt of a request for redemption
and certificates, if issued, in proper form for redemption before such payment
is made. Payment shall be made in accordance with the Articles of Incorporation
or Declaration of Trust and By-laws of the Fund (the "Articles"), from assets
available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate.
9. Actions of Bank Without Prior Authorization. Notwithstanding
anything herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name
of the Fund all checks, drafts, or other negotiable or transferable instruments
or other orders for the payment of money received by it for the account of the
Fund and hold for the account of the Fund all income, dividends, interest and
other payments or distributions of cash with respect to the Portfolio Securities
held thereunder;
9.2 Present for payment all coupons and other income items held by
it for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued thereunder, or by the laws of
any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. If the Bank knows or should have known
that any funds become collectible arising from Portfolio Securities, the Bank
shall collect such funds, including dividends, interest and other income, except
to the extent that such collection would require the Bank to undertake efforts
outside of the ordinary course of business in light of industry standards. If
Portfolio Securities upon which such income is payable are in default or payment
is refused after due demand or presentation, the Bank will notify the Fund in
writing of any default or refusal to pay within one business day from the day on
which it receives knowledge of such default or refusal. In addition, the Bank
will send the Fund a written report once each month showing any income on any
Portfolio Security held by it which is more than ten days overdue on the date of
such report and which has not been previously reported.
11. Maintenance of Records and Accounting Services. The Bank will
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act and will furnish the Fund
daily with a statement of condition of the Fund. The books and records of the
Bank pertaining to its actions under this Agreement and reports by the Bank or
its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. [Reserved]
13. Additional Services. The Bank shall perform the additional services
for the Fund as are set forth on Appendix B hereto. Appendix B may be amended
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in Appendix A shall be appropriately increased.
14. Duties of the Bank.
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14.1 Performance of Duties and Standard of Care. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will
not be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the
purchases thereof or the propriety of the price
incurred therefor;
(b) the legality of any sale of any Portfolio Securities
by or for the Fund or the propriety of the amount for
which the same are sold;
(c) the legality of an issue or sale of any shares of
beneficial interest in the Fund or the sufficiency of
the amount to be received therefor;
(d) the legality of the repurchase of any shares of
beneficial interest in the Fund or the propriety of
the amount to be paid therefor;
(e) the legality of the declaration of any dividend by
the Fund or the legality of the distribution of any
Portfolio Securities as payment in kind of such
dividend; and
(f) any property or moneys of the Fund unless and until
received by it, and any such property or moneys delivered or paid by it pursuant
to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Trust Instrument, By-laws, any federal or state
statutes or any rule or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Fund
Held in the United States. The Bank may employ agents of its own selection in
the performance of its duties hereunder and shall be responsible for the acts
and omissions of such agents as if performed by the Bank hereunder. Without
limiting the foregoing, certain duties of the Bank hereunder may be performed by
one or more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ
subcustodians selected by or at the direction of the Fund, provided that any
such subcustodian meets at least the minimum qualifications required by Section
17(f)(1) of the 1940 Act to act as a custodian of the Fund's assets with respect
to property of the Fund held in the United States. The Bank shall have no
liability to the Fund or any other person by reason of any act or omission of
any such subcustodian and the Fund shall indemnify the Bank and hold it harmless
from and against any and all actions, suits and claims, arising directly or
indirectly out of the performance of any subcustodian. Upon request of the Bank,
the Fund shall assume the entire defense of any action, suit, or claim subject
to the foregoing indemnity. The Fund shall pay all fees and expenses of any
subcustodian.
14.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Custody Manager.
--------------------------------------
(i) If the Fund has appointed the Bank Foreign Custody Manager (as that term is
defined in Rule 17f-5 under the 1940 Act), the Bank's duties and obligations
with respect to the Fund's Portfolio Securities and other assets maintained
outside the United States shall be, to the extent not set forth herein, as set
forth in the Delegation Agreement between the Fund and the Bank (the "Delegation
Agreement").
(ii)If the Fund has appointed any other person or entity Foreign Custody Manager
the Bank shall act only upon Proper Instructions from the Fund with regard to
any of the Fund's Portfolio Securities or other assets held or to be held
outside of the United States, and the Bank shall be without liability for any
Claim (as that term is defined in Section 15 hereof) arising out of maintenance
of the Fund's Portfolio Securities or other assets outside of the United States.
The Fund also agrees that it shall enter into a written agreement with such
Foreign Custody Manager that shall obligate such Foreign Custody Manager to
provide to the Bank in a timely manner all information required by the Bank in
order to complete its obligations hereunder. The Bank shall not be liable for
any Claim arising out of the failure of such Foreign Custody Manager to provide
such information to the Bank.
(b) Segregation of Securities. The Bank shall identify on its
books as belonging to the Fund the Foreign Portfolio Securities held by each
foreign sub-custodian (each an "Eligible Foreign Custodian") selected by the
Foreign Custody Manager, subject to receipt by the Bank of the necessary
information from such Eligible Foreign Custodian if the Foreign Custody Manager
is not the Bank.
(c) Access of Independent Accountants of the Fund. If the Bank
is the Fund's Foreign Custody Manager, upon request of the Fund, the Bank will
use its best efforts to arrange for the independent accountants of the Fund to
be afforded access to the books and records of any foreign banking institution
employed as an Eligible Foreign Custodian insofar as such books and records
relate to the performance of such foreign banking institution with regard to the
Fund's Portfolio Securities and other assets.
(d) Reports by Bank. If the Bank is the Fund's Foreign Custody
Manager, the Bank will supply to the Fund the reports required under the
Delegation Agreement.
(e) Transactions in Foreign Custody Account. Transactions with
respect to the assets of the Fund held by an Eligible Foreign Custodian shall be
effected pursuant to Proper Instructions from the Fund to the Bank and shall be
effected in accordance with the applicable agreement between the Foreign Custody
Manager and such Eligible Foreign Custodian. If at any time any Foreign
Portfolio Securities shall be registered in the name of the nominee of the
Eligible Foreign Custodian, the Fund agrees to hold any such nominee harmless
from any liability by reason of the registration of such securities in the name
of such nominee.
Notwithstanding any provision of this Agreement to the contrary, settlement and
payment for Foreign Portfolio Securities received for the account of the Fund
and delivery of Foreign Portfolio Securities maintained for the account of the
Fund may be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or dealer.
In connection with any action to be taken with respect to the Foreign Portfolio
Securities held hereunder, including, without limitation, the exercise of any
voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Eligible Foreign Custodian, and shall promptly forward to the applicable
Eligible Foreign Custodian any instructions, forms or certifications with
respect to such Rights, and any instructions relating to the actions to be taken
in connection therewith, as the Bank shall receive from the Fund pursuant to
Proper Instructions. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Fund is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Fund
or by the applicable Eligible Foreign Custodian will comply with all applicable
terms and conditions of any such Rights or any applicable laws or regulations,
or market practices within the market in which such action is to be taken or
omitted.
(f) Tax Law. The Bank shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund or the Bank
as custodian of the Fund by the tax laws of any jurisdiction, and it shall be
the responsibility of the Fund to notify the Bank of the obligations imposed on
the Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Eligible Foreign Custodian with regard
to such tax law shall be to use reasonable efforts to assist the Fund with
respect to any claim for exemption or refund under the tax law of jurisdictions
for which the Fund has provided such information.
14.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
14.5. Fees and Expenses of the Bank. The Fund will pay or reimburse
the Bank from time to time for any transfer taxes payable upon transfer of
Portfolio Securities made hereunder, and for all necessary proper disbursements,
expenses and charges made or incurred by the Bank in the performance of this
Agreement (including any duties listed on any Schedule hereto, if any) including
any indemnities for any loss, liabilities or expense to the Bank as provided for
in Section 15 hereof. For the services rendered by the Bank hereunder, the Fund
will pay to the Bank such compensation or fees at such rate and at such times as
shall be agreed upon in writing by the parties from time to time.
14.6 Advances by the Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Fund payable on demand. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness or to the
extent required by law, whichever is greater, in and to any property at any time
held by it for the Fund's benefit or in which the Fund has an interest and which
is then in the Bank's possession or control (or in the possession or control of
any third party acting on the Bank's behalf). The Fund authorizes the Bank, in
the Bank's sole discretion, at any time to charge any overdraft or indebtedness,
together with interest due thereon, against any balance of account standing to
the credit of the Fund on the Bank's books.
15. Limitation of Liability.
-----------------------
15.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except to the extent any Claim results from the negligence, willful
misfeasance or bad faith in the performance of its duties or reckless disregard
of obligations and duties hereunder of the Bank or any Indemnified Party.
Without limiting the foregoing, neither the Bank nor the Indemnified Parties
shall be liable for, and the Bank and the Indemnified Parties shall be
indemnified against, any Claim arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party
in good faith reliance upon the terms of this Agreement, any Officer's
Certificate, Proper Instructions, resolution of the Board, telegram, telecopier,
notice, request, certificate or other instrument reasonably believed by the Bank
to genuine;
(b) Any act or omission of any subcustodian selected by
or at the direction of the Fund;
(c) Any act or omission of any Foreign Custody Manager
other than the Bank or any act or omission of any
Eligible Foreign Custodian if the Bank is not the
Foreign Custody Manager;
(d) Any Corporate Action, distribution or other event related
to Portfolio Securities which, at the direction of the Fund, have not been
registered in the name of the Bank or its nominee;
(e) Any Corporate Action requiring a Response for which the
Bank has not received Proper Instructions or obtained actual possession of all
necessary Securities subject to pending or failed buy transactions, consents or
other materials by 5:00 p.m. on the date specified as the Response Deadline;
(f) Any act or omission of any European Branch of a U.S.
banking institution that is the issuer of Eurodollar
CDs in connection with any Eurodollar CDs held by
such European Branch;
(g) Any acts of God, earthquakes, fires, floods, storms or
other disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation or computers (hardware or software) and
computer facilities (other than those of the Bank), the unavailability of energy
sources and other similar happenings or events.
15.2 Notwithstanding anything to the contrary in this Agreement, in
no event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder, even if the Bank has been advised of the
possibility of such damages.
16. Termination.
16.1 The term of this Agreement shall be three years commencing upon
the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive three-year terms (each a "Renewal
Term") unless notice of non-renewal is delivered by the non-renewing party to
the other party no later than ninety days prior to the expiration of the Initial
Term or any Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure or undertake specific measures to cure such violation within
30 days of receipt of such notice. The non-violating party may terminate this
agreement in the event that the violating party does not cure the material
breach so specified in such notice within 60 days.
(b) Either party may terminate this Agreement during any
Renewal Term upon ninety days written notice to the other party. Any termination
pursuant to this paragraph 16.1(b) shall be effective upon expiration of such
ninety days, provided, however, that the effective date of such termination may
be postponed to a date not more than one-hundred twenty days after delivery of
the written notice: (i) at the request of the Bank, in order to prepare for the
transfer by the Bank of all of the assets of the Fund held hereunder; or (ii) at
the request of the Fund, in order to give the Fund an opportunity to make
suitable arrangements for a successor custodian.
(c) If the Bank has undergone a change of control, whether
through merger, takeover, consolidation, or by any other means, the Fund may
terminate this Agreement at any time upon providing ninety days prior written
notice to the Bank, in accordance with Section 18 of the Agreement."
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 16.3, deliver the Portfolio Securities and cash of the
Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Fund with the same effect as though selected by the Board. Thereafter, the Bank
shall be released from any and all obligations under this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 The Fund shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement by the
Fund under 16.1(b) or 16.1(c).
16.5 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of the Bank
relating to its performance of its duties as custodian.
17. Year 2000 Compliance. The Bank certifies that the occurrence in or
use by the Bank's own proprietary internal systems (the "Systems") of dates on
or after January 1, 2000 (the "Millennial Dates") will not adversely affect the
performance of the Systems with respect to date dependent data, computations,
output or other functions (including, without limitation, calculating, computing
and sequencing) and that the Systems will create, store and generate output data
related to or including Millennial Dates without errors or omissions ("Year 2000
Compliance"). In addition, the Bank has or will have in place detailed
contingency plans with respect to failure of remediation efforts by the Bank or
a third party. To the extent applicable, these contingency plans will be tested
prior to December 31, 1999. These contingency plans have been and will be
reviewed by examiners from the FDIC and the Federal Reserve Bank of Boston.
The parties to this Agreement acknowledge that the Bank can make no
certification as to the Year 2000 Compliance of third-party systems utilized by
the Bank in its day to day operations or with which the Systems interact or
communicate, from which the Systems receive data or to which the Systems send
data. The parties further acknowledge that while the Bank has contacted such
third-party providers regarding Year 2000 Compliance and will use reasonable
efforts to monitor the status of such third-party providers' Year 2000
Compliance, failure by such third-party providers to achieve timely Year 2000
Compliance could adversely affect the Bank's performance of its obligations
hereunder.
18. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
19. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (i) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Northeast Investors Growth Fund
50 Congress Street
Room 1000
Boston, Massachusetts 02109-4096
Attention: Gordon Barrett
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Andrew M. Nesvet Director - Client Management
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time
designate in writing.
20. Amendments. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by the Board.
21. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
22. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
23. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
24. Entire Agreement. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
25. Limitation of Liability. A copy of the Declaration of the Trust of
the Fund is on file with the Secretary of the Fund and notice is hereby given
that this Agreement has been executed on behalf of the Fund by an officer of the
Fund as an officer and not individually. The Bank agrees that the obligations
assumed by the Fund hereunder shall be limited in all cases to the assets of the
Fund and that the Bank shall not seek satisfaction of any such obligation from
the officers, agents, employees, trustees, or shareholders of the Fund.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
NORTHEAST INVESTORS GROWTH FUND
By:__________________________________________________
Name:
Title:
Investors Bank & Trust Company
By:__________________________________________________
Name:
Title:
<PAGE>
Appendices
Appendix A............................... Fee Schedule
Appendix B........................ Additional Services
<PAGE>
Appendix B
Additional Services
The Bank will provide IRA Custodial services, as will be determined from time to
time, for certain IRA accounts, qualified plans and 403(b) accounts.
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby represents that this
filing meets the requirements for filing under Rule 485(b) and has duly caused
this Amendment to its Registration to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 28th day of April, 1999.
NORTHEAST INVESTORS GROWTH FUND
William A. Oates, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment has been signed below by the following persons in the capacities and
on the dates indicated:
Signature Title Date
S/William A. Oates, Jr. Trustee and person performing April 28, 2000
William A. Oates, Jr. functions of principal executive
officer and principal financial
and accounting officer
S/Robert B. Minturn, Jr.* Trustee April 28, 2000
---------------------------
Robert B. Minturn, Jr.
Trustee April 28, 2000
S/John C. Emery
Trustee April 28, 2000
S/John R. Furman
S/Ernest E. Monrad* Trustee April 28, 2000
Ernest E. Monrad
*By:s/William A. Oates, Jr.
William A. Oates, Jr.
Attorney-in-Fact
