<PAGE> 1
As filed with the Securities and Exchange Commission on or about February 26,
1996
Securities Act Registration No. 2-73967
Investment Company Act Registration No. 811-3254
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
-------
Post-Effective Amendment No. 20 [X]
-------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 21 [X]
-------
(Check appropriate box or boxes)
STRONG TOTAL RETURN FUND, INC.
(Exact Name of Registrant as Specified in Charter)
100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 359-3400
THOMAS P. LEMKE
STRONG CAPITAL MANAGEMENT, INC.
100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Name and Address of Agent for Service)
Copies to
SCOTT A. MOEHRKE
GODFREY & KAHN, S.C.
780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
Registrant has registered an indefinite amount of securities pursuant to
Rule 24f-2 under the Securities Act of 1933; the Registrant's Rule 24f-2 Notice
for the ten-month fiscal year ended October 31, 1995 was filed on or about
November 16, 1995.
It is proposed that this filing will become effective (check appropriate
box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on March 1, 1996 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
================================================================================
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Per Aggregate Offering Amount of
Being Offered Registered Share(1) Price(2) Registration Fee
Common Stock 1,455,107.638 $29.00 $42,198,121.52 $100
</TABLE>
(1) Computed under Rule 457(d) on the basis of the offering price per share
at the close of business on February 20, 1996.
(2) Registrant elects to calculate the maximum aggregate offering price
pursuant to Rule 24e-2. $154,122,296.93 of shares was redeemed during the
ten-month fiscal year ended October 31, 1995. $112,214,175.41 of shares
was used for reductions pursuant to Rule 24f-2(c) during the current year.
$41,908,121.52 of shares is the amount of redeemed shares used for
reduction in this amendment.
<PAGE> 3
STRONG TOTAL RETURN FUND, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A
and B of Form N-1A.)
<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------------------ ----------------------------------------
<S> <C>
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Expenses; Highlights
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Strong Growth and Income Funds;
Investment Objectives and Policies;
Implementation of Policies and Risks;
About the Funds - Organization
5. Management of the Fund About the Funds - Management; Financial
Highlights
5A. Management's Discussion of Fund Performance *
6. Capital Stock and Other Securities About the Funds - Organization,
Distributions and Taxes; Shareholders
Manual - Shareholder Services
7. Purchase of Securities Being Offered Shareholder Manual - How to Buy Shares,
- Determining Your Share Price,
Shareholder Services
8. Redemption or Repurchase Shareholder Manual - How to Sell
Shares, - Determining Your Share Price,
- Shareholder Services
9. Pending Legal Proceedings Inapplicable
PART B - INFORMATION REQUIRED IN STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page Cover page
11. Table of Contents Table of Contents
12. General Information and History **
13. Investment Objectives and Policies Investment Restrictions; Investment
Policies and Techniques
14. Management of the Fund Directors and Officers of the Fund
Principal Shareholders; Directors and
15. Control Persons and Principal Holders of Officers of the Fund Investment Advisor
Securities and Distributor
16. Investment Advisory and Other Services Investment Advisor and Distributor;
About the Funds - Management (in
Prospectus); Custodian; Transfer Agent
and Dividend-Disbursing Agent;
Independent Accountants; Legal Counsel
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------------------ ----------------------------------------
<C> <S>
17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities Included in Prospectus under the heading About the
Funds - Organization and in the Statement of
Additional Information under the heading Shareholder
Meetings
Included in Prospectus under the headings:
Shareholder Manual - How to Buy Shares, - Determining
Your Share Price, - How to Sell Shares, - Shareholder
Services; and in the Statement of Additional
Information under the headings: Additional
19. Purchase, Redemption and Pricing of Securities Shareholder Information; Investment Advisor and
Being Offered Distributor; and Determination of Net Asset Value
20. Tax Status Included in Prospectus under the heading About the
Funds - Distributions and Taxes; and in the Statement
of Additional Information under the heading Taxes
21. Underwriters Investment Advisor and Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
* Complete answer to Item is contained in Registrant's Annual Report.
** Complete answer to Item is contained in Registrant's Prospectus.
<PAGE> 5
<PAGE> 1
STRONG CONSERVATIVE EQUITY FUNDS
<TABLE>
<S> <C>
STRONG ASSET ALLOCATION FUND STRONG FUNDS
STRONG EQUITY INCOME FUND P.O. Box 2936
STRONG AMERICAN UTILITIES FUND Milwaukee, Wisconsin 53201
STRONG TOTAL RETURN FUND Telephone: (414) 359-1400
STRONG GROWTH AND INCOME FUND Toll-Free: (800) 368-3863
Device for the
Hearing-Impaired:
(800) 999-2780
</TABLE>
The Strong Family of Funds ("Strong Funds") is a family of more than
twenty-five diversified and non-diversified mutual funds. All of the Strong
Funds are no-load funds, meaning that you may purchase, redeem, or exchange
shares without paying a sales charge. Strong Funds include growth funds,
conservative equity funds, income funds, municipal income funds, international
funds, and cash management funds. Five Strong Conservative Equity Funds are
described in this Prospectus.
This Prospectus contains information you should consider before you invest.
Please read it carefully and keep it for future reference. A Statement of
Additional Information for the Funds, dated March 1, 1996, contains further
information, is incorporated by reference into this Prospectus, and has been
filed with the Securities and Exchange Commission ("SEC"). This Statement, which
may be revised from time to time, is available without charge upon request to
the above-noted address or telephone number.
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------
Dated March 1, 1996
---------------------
PROSPECTUS PAGE I-1
<PAGE> 2
STRONG CONSERVATIVE EQUITY FUNDS
The Strong Asset Allocation Fund, Inc. and Strong Total Return Fund, Inc. are
separately incorporated, diversified, open-end management investment companies.
Strong American Utilities Fund is a non-diversified series, and Strong Equity
Income Fund and Strong Growth and Income Fund are diversified series, of Strong
Conservative Equity Funds, Inc., which is an open-end management investment
company.
STRONG ASSET ALLOCATION FUND (the "Asset Allocation Fund") seeks high total
return consistent with reasonable risk over the long term. The Fund allocates
its assets globally among a diversified portfolio of equity securities, bonds,
and cash.
STRONG EQUITY INCOME FUND (the "Equity Income Fund") seeks total return by
investing for both income and capital growth. The Fund invests primarily in
dividend-paying equity securities.
STRONG AMERICAN UTILITIES FUND (the "American Utilities Fund") seeks total
return by investing for both income and capital growth. The Fund invests
primarily in the equity securities of public utility companies headquartered in
the United States.
STRONG TOTAL RETURN FUND (the "Total Return Fund") seeks high total return by
investing for capital growth and income. Using a conservative approach to equity
management, the Fund emphasizes investments in large- to medium-sized growth
companies with steady or growing dividends.
STRONG GROWTH AND INCOME FUND (the "Growth and Income Fund") seeks high total
return by investing for capital growth and income. The Fund invests primarily in
companies that pay current dividends and offer potential growth of earnings.
---------------------
PROSPECTUS PAGE I-2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
EXPENSES................................ I-4
FINANCIAL HIGHLIGHTS.................... I-5
HIGHLIGHTS.............................. I-9
INVESTMENT OBJECTIVES AND POLICIES...... I-10
Comparing the Funds................. I-11
Strong Asset Allocation Fund........ I-12
Strong Equity Income Fund........... I-13
Strong American Utilities
Fund.............................. I-13
Strong Total Return Fund............ I-14
Strong Growth and Income
Fund.............................. I-14
IMPLEMENTATION OF POLICIES AND RISKS.... I-15
ABOUT THE FUNDS......................... I-27
SHAREHOLDER MANUAL...................... II-1
APPENDIX A.............................. A-1
APPENDIX B.............................. B-1
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information, and if given or made, such information or
representations may not be relied upon as having been authorized by the Funds.
This Prospectus does not constitute an offer to sell securities in any state or
jurisdiction in which such offering may not lawfully be made.
---------------------
PROSPECTUS PAGE I-3
<PAGE> 4
EXPENSES
The following information is provided in order to help you understand the
various costs and expenses that you, as an investor in the Funds, will bear
directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases............. NONE
Sales Load Imposed on Reinvested
Dividends................................. NONE
Deferred Sales Load......................... NONE
Redemption Fees............................. NONE
Exchange Fees............................... NONE
</TABLE>
There are certain charges associated with retirement accounts and with
certain other special shareholder services offered by the Funds. Additionally,
purchases and redemptions may also be made through broker-dealers or others who
may charge a commission or other transaction fee for their services. (See
"Shareholder Manual - How to Buy Shares" and "- How to Sell Shares.")
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Management Other 12b-1 Operating
Fund Fees Expenses Fees Expenses
<S> <C> <C> <C> <C>
Asset Allocation .80% .37% NONE 1.17%
Equity Income .80 .74 NONE 1.54
American Utilities .75 .49 NONE 1.24
Total Return .80 .34 NONE 1.14
Growth and Income .80 .56 NONE 1.36
</TABLE>
From time to time, the Funds' investment advisor, Strong Capital Management,
Inc. (the "Advisor"), may voluntarily waive its management fee and/or absorb
certain expenses for a Fund. The expenses specified in the table above for the
Asset Allocation, American Utilities, and Total Return Funds are based on actual
expenses incurred for the ten-month fiscal year ended October 31, 1995. Since
the Equity Income and Growth and Income Funds are new and did not begin
operations until December 29, 1995, the Other Expenses have been estimated. For
additional information concerning fees and expenses, see "About the Funds -
Management."
---------------------
PROSPECTUS PAGE I-4
<PAGE> 5
EXAMPLE. You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period (in years)
Fund 1 3 5 10
<S> <C> <C> <C> <C>
Asset Allocation $12 $37 $64 $142
Equity Income 16 49 -- --
American Utilities 13 39 68 150
Total Return 12 36 63 139
Growth and Income 14 43 -- --
</TABLE>
- ----------------------------------------------------------------------------
The Example is based on each Fund's "Total Operating Expenses," as described
above. PLEASE REMEMBER THAT THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND THAT ACTUAL EXPENSES MAY BE HIGHER
OR LOWER THAN THOSE SHOWN. The assumption in the Example of a 5% annual return
is required by regulations of the SEC applicable to all mutual funds. The
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of a Fund's shares.
FINANCIAL HIGHLIGHTS
The following annual Financial Highlights for each of the Funds that has
completed a fiscal year has been audited by Coopers & Lybrand L.L.P.,
independent certified public accountants. Their report for the ten-month fiscal
year ended October 31, 1995 is included in the Funds' Annual Report that is
contained in the Funds' Statement of Additional Information. The Financial
Highlights for the Equity Income and Growth and Income Funds are not provided
because they did not commence operations until December 29, 1995. The Financial
Highlights for the Funds should be read in conjunction with the Financial
Statements and related notes included in the Funds' Annual Report. Additional
information about each Fund's performance is contained in the Funds' Annual
Report, which may be obtained without charge by calling or writing Strong Funds.
The following presents information relating to a share of common stock of each
of the Funds, outstanding for the entire period.
---------------------
PROSPECTUS PAGE I-5
<PAGE> 6
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
STRONG ASSET ALLOCATION FUND
1995** 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.91 $ 19.06 $ 18.49 $ 19.68 $ 17.50 $ 18.41 $ 17.57 $ 17.60 $ 22.18 $ 20.12
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income 0.66 0.70 0.82 0.87 0.94 1.12 1.22 1.39 0.85 0.89
Net Realized and
Unrealized Gains
(Losses) on
Investments 2.32 (0.99) 1.81 (0.25) 2.41 (0.65) 0.73 0.19 (0.70) 2.54
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL FROM INVESTMENT
OPERATIONS 2.98 (0.29) 2.63 0.62 3.35 0.47 1.95 1.58 0.15 3.43
LESS DISTRIBUTIONS
From Net Investment
Income (0.58) (0.70) (0.82) (0.87) (0.97) (1.38) (0.97) (1.38) (1.78) (0.95)
From Net Realized
Gains -- -- (1.24) (0.94) (0.20) -- (0.14) -- (2.95) (0.42)
In Excess of Net
Realized Gains -- (0.16) -- -- -- -- -- -- -- --
Returns of Capital -- -- -- -- -- -- -- (0.23) -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.58) (0.86) (2.06) (1.81) (1.17) (1.38) (1.11) (1.61) (4.73) (1.37)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END
OF PERIOD $ 20.31 $ 17.91 $ 19.06 $ 18.49 $ 19.68 $ 17.50 $ 18.41 $ 17.57 $ 17.60 $ 22.18
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return +16.8% -1.5% +14.5% +3.2% +19.6% +2.8% +11.2% +9.2% -0.3% +17.6%
Net Assets, End of
Period
(In Thousands) $260,722 $248,647 $254,439 $208,368 $214,951 $203,562 $240,549 $256,089 $272,899 $339,405
Ratio of Expenses to
Average
Net Assets 1.2%* 1.2% 1.2% 1.2% 1.3% 1.3% 1.3% 1.2% 1.1% 1.1%
Ratio of Net
Investment Income
to Average Net
Assets 4.1%* 3.8% 4.2% 4.4% 5.1% 6.1% 6.6% 7.5% 4.2% 4.7%
Portfolio Turnover
Rate 326.8% 359.7% 348.3% 320.4% 418.4% 319.6% 206.5% 426.2% 336.5% 80.4%
</TABLE>
*Calculated on an annualized basis.
**For the ten-month fiscal year ended October 31, 1995. Total return and
portfolio turnover rate are not annualized.
---------------------
PROSPECTUS PAGE I-6
<PAGE> 7
-----------------------------------------------
STRONG AMERICAN UTILITIES FUND
<TABLE>
<CAPTION>
1995*** 1994 1993**
-------- ------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.46 $ 10.19 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.27 0.46 0.18
Net Realized and Unrealized
Gains (Losses) on Investments 2.25 (0.73) 0.27
-------- ------- --------
TOTAL FROM INVESTMENT OPERATIONS 2.52 (0.27) 0.45
LESS DISTRIBUTIONS
From Net Investment Income (0.25) (0.46) (0.18)
From Net Realized Gains -- -- (0.05)
In Excess of Net Realized Gains -- -- (0.03)
-------- ------- --------
TOTAL DISTRIBUTIONS (0.25) (0.46) (0.26)
-------- ------- --------
NET ASSET VALUE, END OF PERIOD $ 11.73 $ 9.46 $ 10.19
======= ======= =======
Total Return +26.9% -2.6% +4.5%
Net Assets, End of Period
(In Thousands) $ 91,696 $37,944 $ 32,457
Ratio of Expenses to Average
Net Assets 1.2%* 0.5% 0.0%*
Ratio of Expenses to Average Net
Assets Without Waivers and
Absorptions 1.2%* 1.6% 1.4%*
Ratio of Net Investment Income
to Average Net Assets 3.4%* 4.8% 5.6%*
Portfolio Turnover Rate 56.4% 105.4% 89.3%
</TABLE>
*
Calculated on an annualized basis.
**
Inception date is July 1, 1993. Total return and portfolio turnover rate are not
annualized.
***
For the ten-month fiscal year ended October 31, 1995. Total return and portfolio
turnover rate are not annualized.
---------------------
PROSPECTUS PAGE I-7
<PAGE> 8
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRONG TOTAL RETURN FUND
1995** 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 23.62 $ 24.30 $ 20.17 $ 20.24 $ 15.34 $ 17.72 $ 18.96 $ 18.37 $ 21.61 $ 19.56
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income 0.26 0.25 0.33 0.18 0.22 0.95 1.55 1.95 0.97 0.66
Net Realized
and
Unrealized
Gains
(Losses) on
Investments 4.41 (0.59) 4.18 (0.08) 4.90 (2.19) (0.97) 0.85 0.61 3.13
-------- -------- -------- -------- -------- -------- ---------- ---------- -------- --------
TOTAL FROM
INVESTMENT
OPERATIONS 4.67 (0.34) 4.51 0.10 5.12 (1.24) 0.58 2.80 1.58 3.79
LESS
DISTRIBUTIONS
From Net
Investment
Income (0.26) (0.26) (0.33) (0.17) (0.22) (1.14) (1.31) (1.96) (1.65) (0.70)
In Excess of
Net
Investment
Income (0.01) (0.08) -- -- -- -- -- -- -- --
From Net
Realized
Gains -- -- -- -- -- -- (0.51) -- (3.17) (1.04)
In Excess of
Net Realized
Gains -- -- (0.05) -- -- -- -- -- -- --
Returns of
Capital -- -- -- -- -- -- -- (0.25) -- --
-------- -------- -------- -------- -------- -------- ---------- ---------- -------- --------
TOTAL
DISTRIBUTIONS (0.27) (0.34) (0.38) (0.17) (0.22) (1.14) (1.82) (2.21) (4.82) (1.74)
-------- -------- -------- -------- -------- -------- ---------- ---------- -------- --------
NET ASSET VALUE,
END OF PERIOD $ 28.02 $ 23.62 $ 24.30 $ 20.17 $ 20.24 $ 15.34 $ 17.72 $ 18.96 $ 18.37 $ 21.61
====== ====== ====== ====== ====== ====== ======== ======== ====== ======
Total Return +19.8% -1.4% +22.5% +0.6% +33.6% -7.1% +2.6% +15.6% +6.0% +20.0%
Net Assets, End
of Period
(In Thousands) $670,958 $606,814 $630,349 $587,873 $691,327 $646,579 $1,065,278 $1,005,192 $802,442 $518,760
Ratio of Expenses
to Average
Net Assets 1.1%* 1.2% 1.2% 1.3% 1.4% 1.4% 1.2% 1.2% 1.1% 1.1%
Ratio of Net
Investment
Income
to Average Net
Assets 1.2%* 1.1% 1.4% 0.9% 1.3% 5.4% 7.7% 10.1% 5.2% 4.3%
Portfolio
Turnover Rate 298.8% 290.4% 271.3% 371.8% 426.4% 312.3% 305.3% 281.1% 224.4% 153.5%
</TABLE>
*
Calculated on an annualized basis.
**
For the ten-month fiscal year ended October 31, 1995. Total return and portfolio
turnover rate are not annualized.
---------------------
PROSPECTUS PAGE I-8
<PAGE> 9
HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has distinct investment objectives and policies. Each Fund seeks
total return consistent with its investment objective and policies. The
investment objective of each Fund is set forth under "Investment Objectives and
Policies."
IMPLEMENTATION OF POLICIES AND RISKS
Subject to certain limitations, each Fund may invest in foreign securities
and engage in foreign currency and derivative transactions, including options,
futures, and options on futures transactions. Each Fund may invest in repurchase
agreements, when-issued securities, and illiquid securities. The Asset
Allocation Fund may engage in substantial short-term trading, which may result
in high portfolio turnover rates. These investment practices and techniques
involve risks that are different in some respects from those associated with
similar funds that do not use them. The American Utilities Fund is a "non-
diversified" investment company, which means that it may invest a larger
proportion of its assets in the securities of a single issuer than diversified
funds. The Funds may invest in non-investment-grade debt obligations (commonly
called "junk bonds") within specified limits. (See "Implementation of Policies
and Risks.")
MANAGEMENT
The Advisor, Strong Capital Management, Inc., serves as investment advisor to
the Funds. The Advisor provides investment management services for mutual funds
and other investment portfolios representing assets of over $18 billion. W.H.
Reaves & Co., Inc. (the "Subadvisor") is the subadvisor for the American
Utilities Fund. (See "About the Funds - Management.")
PURCHASE AND REDEMPTION OF SHARES
You may purchase or redeem shares of a Fund at net asset value. There are no
redemption or 12b-1 charges. The net asset values change daily with the value of
each Fund's portfolio. You can locate the net asset value for a Fund in
newspaper listings of mutual fund prices under the "Strong Funds" heading. (See
"Shareholder Manual - How to Buy Shares" and "- How to Sell Shares.")
---------------------
PROSPECTUS PAGE I-9
<PAGE> 10
SHAREHOLDER SERVICES
Strong shareholder benefits include: telephone purchase, exchange, and
redemption privileges; professional representatives available 24 hours a day;
automatic investment, automatic dividend reinvestment, payroll direct deposit,
automatic exchange, and systematic withdrawal plans; and a no-minimum investment
program. (See "Shareholder Manual - Shareholder Services.")
DIVIDENDS AND OTHER DISTRIBUTIONS
The policy of each Fund is to pay dividends from net investment income
quarterly and to distribute substantially all net realized capital gains
annually. (See "About the Funds - Distributions and Taxes.")
INVESTMENT OBJECTIVES AND POLICIES
The descriptions that follow are designed to help you choose the Fund that
best fits your investment objective. You may want to pursue more than one
objective by investing in more than one of the Funds or by investing in one of
the other Strong Funds, which are described in separate prospectuses. Each
Fund's investment objective is discussed below in connection with the Fund's
investment policies. Because of the risks inherent in all investments, there can
be no assurance that the Funds will meet their objectives.
The Funds are each required or permitted to invest a substantial portion of
their assets in equity securities. Each Fund's net asset value will fluctuate
based upon changes in the value of the securities in its portfolio. Although
they are considered conservative equity funds - meaning, each Fund's net asset
value is likely to be less volatile than that of a Fund invested solely for
growth of capital - each Fund's net asset value is likely to fluctuate more than
that of a fund invested solely for income. The Funds, therefore, are not
appropriate for investors' short-term financial needs.
----------------------
PROSPECTUS PAGE I-10
<PAGE> 11
COMPARING THE FUNDS
The following summary is intended to distinguish the Funds and help you
determine their suitability for your investments.
<TABLE>
<CAPTION>
Equity Bond
Fund Range Range Diversified Focus
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Allocation 10-60% 20-60% Yes Allocated Across
Asset Classes
- ----------------------------------------------------------------------------
Equity Income 65-100% 0-35% Yes Dividend-Paying
Stocks
- ----------------------------------------------------------------------------
American Utilities 65-100% 0-35% No Utility and
Energy Stocks
- ----------------------------------------------------------------------------
Total Return 60-100% 0-40% Yes Large- and Mid-
Cap, Dividend-
Paying Growth
Stocks
- ----------------------------------------------------------------------------
Growth and Income 65-100% 0-35% Yes Dividend-Paying
and Growth Stocks
- ----------------------------------------------------------------------------
</TABLE>
Each Fund has adopted certain fundamental investment restrictions that are
set forth in the Funds' Statement of Additional Information ("SAI"). Those
restrictions, a Fund's investment objective, and any other investment policies
identified as "fundamental" cannot be changed without shareholder approval. To
further guide investment activities, each Fund has also instituted a number of
non-fundamental operating policies, which are described throughout this
Prospectus and in the SAI. Although operating policies may be changed by a
Fund's Board of Directors without shareholder approval, a Fund will promptly
notify shareholders of any material change in operating policies.
Except as limited below, each Fund may invest in a diversified portfolio of
securities without regard to objective investment criteria, such as company
size, exchange listing, earnings history, or other factors. When selecting
securities, the Advisor will, except as otherwise limited below, be limited only
by its best judgment as to what will help achieve each Fund's investment
objective.
When the Advisor determines market conditions warrant a temporary defensive
position, the Total Return Fund may invest up to 40% of its net assets, and the
Asset Allocation, American Utilities, Equity Income, and Growth and Income Funds
may invest without limitation in cash and short-term fixed income securities.
----------------------
PROSPECTUS PAGE I-11
<PAGE> 12
STRONG ASSET ALLOCATION FUND
The Asset Allocation Fund seeks high total return consistent with reasonable
risk over the long term. The Fund allocates its assets globally among a
diversified portfolio of equity securities, bonds, and cash.
Under normal market conditions, the Fund's net assets will be allocated
according to a benchmark of 40% equities, 40% bonds, and 20% cash. The Advisor
intends to actively manage the Fund's assets, maintaining a balance over time
between investment opportunities and their associated potential risks. In
response to changing market and economic conditions, the Advisor may reallocate
the Fund's net assets among these asset categories. Those allocations normally
will be within the ranges indicated below. However, in pursuit of total return,
the Advisor may under-allocate or over-allocate the Fund's net assets in a
particular category.
ASSET-ALLOCATION CATEGORIES
<TABLE>
<CAPTION>
Percentage of Fund
Net Assets
--------------------
Category of Investment Benchmark Range
<S> <C> <C>
- -----------------------------------------------------------
Equities 40% 10-60%
Bonds 40% 20-60%
Cash 20% 0-70%
- -----------------------------------------------------------
</TABLE>
Equity securities in which the Fund may invest include common stocks,
preferred stocks, and securities that are convertible into common stocks, such
as warrants and convertible bonds. Bonds purchased by the Fund will be primarily
investment-grade debt obligations, although the Fund may invest up to, but not
including, 35% of its total assets in non-investment-grade debt obligations.
(See "Implementation of Policies and Risks - Debt Obligations.") The cash
portion of the Fund may include, but is not limited to, debt securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities,
commercial paper, banker's acceptances, certificates of deposit, and time
deposits. The Fund may invest in obligations of domestic and foreign banks and
their subsidiaries and branches.
The Fund also has the flexibility to take advantage of investment
opportunities around the world by investing in foreign securities. The Fund may
invest up to 25% of its net assets in foreign securities, including both direct
investments and investments made through depositary receipts. Foreign
investments involve risks not normally found when investing in securities of
U.S. issuers. (See "Implementation of Policies and Risks - Foreign Securities
and Currencies.")
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PROSPECTUS PAGE I-12
<PAGE> 13
Within the asset-allocation categories described above, the Advisor will
allocate the Fund's investments among countries (including developing
countries), geographic regions, and currencies in response to changing market
and economic trends. In making geographical allocations of investments, the
Advisor will consider such factors as the historical and prospective
relationships among currencies and governmental policies that influence
currency-exchange rates, current and anticipated interest rates, inflation
levels, and business conditions within various countries, as well as other
macroeconomic, social, and political factors.
STRONG EQUITY INCOME FUND
The Equity Income Fund seeks total return by investing for both income and
capital growth.
The Fund invests primarily in dividend-paying equity securities. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
dividend-paying equity securities, including common stocks, preferred stocks,
and securities that are convertible into common stocks, such as warrants and
convertible bonds. The Fund may invest up to 35% of its total assets in
non-dividend paying equity securities and intermediate- to long-term corporate
or U.S. government bonds. Although the bonds in which it invests will be
primarily investment-grade, the Fund may invest up to 10% of its net assets in
non-investment-grade bonds. The Fund may invest up to 5% of its net assets in
foreign securities, including both direct investment and investments made
through depositary receipts. (See "Implementation of Policies and Risks -
Foreign Securities and Currencies" for the special risks associated with foreign
investments.)
STRONG AMERICAN UTILITIES FUND
The American Utilities Fund seeks total return by investing for both income
and capital growth.
The Fund normally will invest at least 65% of its total assets in the equity
securities of public utility companies headquartered in the United States.
Equity securities in which the Fund may invest include common stocks, preferred
stocks, and securities that are convertible into common stocks, such as warrants
and convertible bonds. Public utility companies include those engaged in the
manufacture, production, generation, transmission, sale and/or distribution of
water, gas, and electric energy, as well as those engaged in the communications
industry, including providers of telephone, telegraph, satellite, cable
television, microwave, and other communication facilities for the public,
excluding public broadcasting companies. (See "Implementation of Policies and
Risks - Public Utility Companies.")
The balance of the Fund, up to 35% of its total assets, may be invested in
any type of security, including debt obligations and equity securities of
companies in other industries. The Fund intends to use this allowance primarily
to invest in the equity securities of energy companies, which may compose up to
25% of
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PROSPECTUS PAGE I-13
<PAGE> 14
the Fund's total assets. (See "Implementation of Policies and Risks - Energy
Companies.") Although the debt obligations in which it invests will be primarily
investment grade, the Fund may invest up to 5% of its net assets in
non-investment-grade debt securities. (See "Implementation of Policies and Risks
- - Debt Obligations.")
The Fund may invest up to 25% of its net assets in foreign securities,
including both direct investments and investments made through depositary
receipts. (See "Implementation of Policies and Risks - Foreign Securities and
Currencies" for the special risks associated with foreign investments.)
Under normal market conditions, the Fund expects to be fully invested in the
equity securities of companies in the public utility and energy industries.
STRONG TOTAL RETURN FUND
The Total Return Fund seeks high total return by investing for capital growth
and income. Using a conservative approach to equity management, the Fund
emphasizes investments in medium and large companies with steady or growing
dividends. (See "Implementation of Policies and Risks - Debt Obligations.")
The Fund will invest at least 60% of its net assets in equity securities,
including common stocks, preferred stocks, and securities that are convertible
into common stocks, such as warrants and convertible bonds. Under normal market
conditions, the Fund expects to be at least 80% of its net assets invested in
equity securities. At times, however, it may invest up to 40% of its net assets
in intermediate- to long-term corporate or U.S. government bonds. Although the
bonds in which it invests will be primarily investment grade, the Fund may
invest up to 5% of its net assets in non-investment-grade bonds. The Fund may
invest up to 25% of its net assets in foreign securities, including both direct
investments and investments made through depositary receipts. (See
"Implementation of Policies and Risks - Foreign Securities and Currencies" for
the special risks associated with foreign investments.)
STRONG GROWTH AND INCOME FUND
The Growth and Income Fund seeks high total return by investing for capital
growth and income.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities, with a focus on those that pay current
dividends and offer potential growth of earnings. At times, however, the Fund
may invest in equity securities that are not currently paying dividends, but
offer prospects for either capital growth or future income. Equity securities
include common stocks, preferred stocks, and securities that are convertible
into common stocks, such as warrants and convertible bonds. The Fund may invest
up to 35% of its total assets in intermediate- to long-term corporate or U.S.
government bonds. Although the bonds in which it invests will be primarily
investment grade, the Fund may invest up to 5% of its net assets in
non-investment-grade bonds. The Fund may invest up
----------------------
PROSPECTUS PAGE I-14
<PAGE> 15
to 25% of net assets in foreign securities, including both direct investments
and investments made through depositary receipts. (See "Implementation of
Policies and Risks - Foreign Securities and Currencies" for the special risks
associated with foreign investments.)
IMPLEMENTATION OF POLICIES AND RISKS
In addition to the investment policies described above (and subject to
certain restrictions described below), the Funds may invest in some or all of
the following securities and may employ some or all of the following investment
techniques, some of which may present special risks as described below. Each
Fund may also engage in reverse repurchase agreements and mortgage dollar roll
transactions. A more complete discussion of certain of these securities and
investment techniques and the associated risks is contained in the Funds' SAI.
DEBT OBLIGATIONS
IN GENERAL. The market value of all debt obligations is affected by changes
in the prevailing interest rates. The market value of such instruments generally
reacts inversely to interest rate changes. If the prevailing interest rates
decline, the market value of debt obligations generally increases. If the
prevailing interest rates increase, the market value of debt obligations
generally decreases. In general, the longer the maturity of a debt obligation,
the greater its sensitivity to changes in interest rates.
TYPES OF OBLIGATIONS. Debt obligations include (i) corporate debt securities,
including bonds, debentures, and notes; (ii) bank obligations, such as
certificates of deposit, banker's acceptances, and time deposits of domestic and
foreign banks and their subsidiaries and branches, and domestic savings and loan
associations (in amounts in excess of the insurance coverage (currently $100,000
per account) provided by the Federal Deposit Insurance Corporation); (iii)
commercial paper (including variable-amount master demand notes); (iv)
repurchase agreements; (v) loan interests; (vi) foreign debt obligations issued
by foreign issuers traded either in foreign markets or in domestic markets
through depositary receipts; (vii) convertible securities - debt obligations of
corporations convertible into or exchangeable for equity securities or debt
obligations that carry with them the right to acquire equity securities, as
evidenced by warrants attached to such securities, or acquired as part of units
of the securities; (viii) preferred stocks - securities that represent an
ownership interest in a corporation and that give the owner a prior claim over
common stock on the company's earnings or assets; (ix) U.S. government
----------------------
PROSPECTUS PAGE I-15
<PAGE> 16
securities; (x) mortgage-backed securities, collateralized mortgage obligations,
and similar securities; and (xi) municipal obligations.
RATINGS. Investment-grade debt obligations include:
- - U.S. government securities (as defined below);
- - bonds or bank obligations rated in one of the four highest rating categories
(e.g., BBB or higher by Standard & Poor's Ratings Group or "S&P");
- - short-term notes rated in one of the two highest rating categories (e.g., SP-2
or higher by S&P);
- - short-term bank obligations rated in one of the three highest rating
categories (e.g., A-3 or higher by S&P), with respect to obligations maturing
in one year or less;
- - commercial paper rated in one of the three highest rating categories (e.g.,
A-3 or higher by S&P);
- - unrated debt obligations determined by the Advisor to be of comparable
quality; and
- - repurchase agreements involving investment-grade debt obligations.
All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by the Advisor to consider what
action, if any, a Fund should take consistent with its investment objective.
Securities rated in the fourth highest category (e.g., BBB by S&P), although
considered investment grade, have speculative characteristics and may be subject
to greater fluctuations in value than higher-rated securities.
Non-investment-grade debt obligations include:
- - securities rated as low as C by S&P or their equivalents;
- - commercial paper rated as low as C by S&P or its equivalent; and
- - unrated debt securities judged to be of comparable quality by the Advisor.
HIGH-YIELD (HIGH-RISK) SECURITIES. High-yield (high-risk) securities, also
referred to as "junk bonds," are those securities that are rated lower than
investment grade and unrated securities of comparable quality. Although these
securities generally offer higher yields than investment-grade securities with
similar maturities, lower-quality securities involve greater risks, including
the possibility of default or bankruptcy. In general, they are regarded to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Other potential risks associated with investing in high-
yield securities include:
- - substantial market-price volatility resulting from changes in interest rates,
changes in or uncertainty about economic conditions, and changes in the actual
or perceived ability of the issuer to meet its obligations;
- - greater sensitivity of highly-leveraged issuers to adverse economic changes
and individual-issuer developments;
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PROSPECTUS PAGE I-16
<PAGE> 17
- - subordination to the prior claims of other creditors;
- - additional Congressional attempts to restrict the use or limit the tax and
other advantages of these securities; and
- - adverse publicity and changing investor perceptions about these securities.
As with any other asset in a Fund's portfolio, any reduction in the value of
such securities as a result of the factors listed above would be reflected in
the net asset value of the Fund. In addition, a Fund that invests in
lower-quality securities may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal and
interest on its holdings. As a result of the associated risks, successful
investments in high-yield (high-risk) securities will be more dependent on the
Advisor's credit analysis than generally would be the case with investments in
investment-grade securities.
It is uncertain how the high-yield market will perform during a prolonged
period of rising interest rates. A prolonged economic downturn or a prolonged
period of rising interest rates could adversely affect the market for these
securities, increase their volatility, and reduce their value and liquidity. In
addition, lower-quality securities tend to be less liquid than higher-quality
debt securities because the market for them is not as broad or active. If market
quotations are not available, these securities will be valued in accordance with
procedures established by a Fund's Board of Directors. Judgment may, therefore,
play a greater role in valuing these securities. The lack of a liquid secondary
market may have an adverse effect on market price and a Fund's ability to sell
particular securities.
See Appendix B for information concerning the credit quality of the Asset
Allocation Fund's investments in debt obligations for the fiscal period ended
October 31, 1995.
GOVERNMENT SECURITIES
U.S. government securities are issued or guaranteed by the U.S. government or
its agencies or instrumentalities. Securities issued by the government include
U.S. Treasury obligations, such as Treasury bills, notes, and bonds. Securities
issued by government agencies or instrumentalities include, for example,
obligations of the following:
- - the Federal Housing Administration, Farmers Home Administration, Export-Import
Bank of the United States, Small Business Administration, and the Government
National Mortgage Association, including GNMA pass-through certificates, whose
securities are supported by the full faith and credit of the United States;
- - the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right of the
agency to borrow from the U.S. Treasury;
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PROSPECTUS PAGE I-17
<PAGE> 18
- - the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; and
- - the Student Loan Marketing Association, the Interamerican Development Bank,
and International Bank for Reconstruction and Development, whose securities
are supported only by the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
Each Fund may invest in zero-coupon, step-coupon, and pay-in-kind securities.
These securities are debt securities that do not make regular cash interest
payments. Zero-coupon and step-coupon securities are sold at a deep discount to
their face value. Pay-in-kind securities pay interest through the issuance of
additional securities. Because such securities do not pay current cash income,
the price of these securities can be volatile when interest rates fluctuate.
While these securities do not pay current cash income, federal income tax law
requires the holders of zero-coupon, step-coupon, and pay-in-kind securities to
include in income each year the portion of the original issue discount (or
deemed discount) and other non-cash income on such securities accrued during
that year. In order to qualify as a "regulated investment company" under the
Internal Revenue Code and avoid a certain excise tax, a Fund may be required to
distribute a portion of such discount and income and may be required to dispose
of other portfolio securities, which may occur in periods of adverse market
prices, in order to generate cash to meet these distribution requirements.
PUBLIC UTILITY COMPANIES (AMERICAN UTILITIES FUND)
Under normal market conditions, at least 65% of the American Utilities Fund's
total assets will be invested in the equity securities of public utility
companies headquartered in the United States. Accordingly, the Fund's
performance will depend in part on conditions in the public utility industry.
Stocks of public utility companies have traditionally been attractive to
conservative stock market investors because they have generally paid consistent
and above-average dividends. The Fund's investments in public utility securities
may or may not pay consistent and above-average dividends. Moreover, the
securities of public utility companies can still be affected by the risks of the
stock market, as well as factors specific to public utility companies.
Government regulation of public utility companies can limit their ability to
expand their businesses or to
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PROSPECTUS PAGE I-18
<PAGE> 19
pass cost increases onto customers. Additionally, companies providing power
or energy-related services may also be affected by the following factors:
increases in fuel and other operating costs; high costs of borrowing to finance
capital construction during inflationary periods; operational restrictions,
increased costs, and delays associated with compliance with environmental and
nuclear safety regulations; the difficulties involved in obtaining natural gas
for resale or fuel for generating electricity at reasonable prices; the risks
associated with constructing and operating nuclear power plants; the effects of
energy conservation; and the effects of regulatory changes. Some public utility
companies are facing increased competition, which may reduce their profits. All
of these factors are subject to rapid change, which may affect utility companies
independently from the stock market as a whole. Equity securities issued by
public utility companies tend to be more affected by changes in interest rates
than are the equity securities of other issuers and, therefore, may react to
such changes somewhat like debt instruments. (See "Debt Obligations" above.)
In accordance with its investment objective and fundamental investment
restrictions, the Fund will normally concentrate its investments in the public
utility industry. This means that more than 25% of the value of the Fund's total
assets will normally be invested in the public utility industry. The Fund does
not have set policies to concentrate within any particular segment of the public
utilities industry; however, the Subadvisor generally emphasizes investments in
established electric utility, telephone, natural gas, and energy stocks with
sound financial structures.
Due to the Fund's concentration of investments in the public utility
industry, an investment in the Fund may be subject to greater fluctuations in
value than a Fund that does not concentrate its investments in a similar manner.
For example, as discussed above, certain economic factors or specific events may
exert a disproportionate impact upon the prices of equity securities of
companies within the public utilities industry relative to their impact on the
prices of securities of companies engaged in other industries. Additionally,
changes in the market price of the equity securities of a particular company
that occupies a dominant position in an industry may tend to influence the
market prices of other companies within the same industry. As a result of the
foregoing factors, the net asset value of the Fund may be more susceptible to
change than those of investment companies that diversify their investments over
many different industries.
ENERGY COMPANIES (AMERICAN UTILITIES FUND)
Under normal market conditions, the American Utilities Fund anticipates it
may invest a substantial portion, but not more than 25% of its total assets, in
the equity securities of energy companies. Energy companies are generally
defined as companies in the conventional areas of oil, gas, electricity, and
coal, as well as those involved in alternative sources of energy, such as
nuclear,
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PROSPECTUS PAGE I-19
<PAGE> 20
geothermal, shale, and solar power. The business activities of energy companies
may include production, generation, refining, transmission, transportation,
marketing, control, or measurement of energy or energy fuels; providing
component parts or services to companies engaged in these energy activities;
energy research or experimentation; and environmental activities related to the
solution of energy problems, such as energy conservation and pollution control.
For purposes of this 25% investment limitation, energy companies shall exclude
companies that are also public utility companies.
To the extent the Fund makes significant investments in energy companies, the
Fund's performance will depend in part on conditions in the energy industry. The
securities of companies in the energy industry are subject to changes in value
and dividend yield that depend to a large extent on the price and supply of
energy fuels. Swift price and supply fluctuations of energy fuels may be caused
by events relating to international politics, energy conservation, the success
of exploration projects, currency exchange rate fluctuations, and tax and other
regulatory policies of various governments.
WHEN-ISSUED SECURITIES
Each Fund may invest without limitation in securities purchased on a when-
issued or delayed delivery basis. Although the payment and interest terms of
these securities are established at the time the purchaser enters into the
commitment, these securities may be delivered and paid for at a future date,
generally within 45 days. Purchasing when-issued securities allows a Fund to
lock in a fixed price or yield on a security it intends to purchase. However,
when a Fund purchases a when-issued security, it immediately assumes the risk of
ownership, including the risk of price fluctuation.
The greater a Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of a Fund.
Purchasing when-issued securities may involve the additional risk that the yield
available in the market when the delivery occurs may be higher or the market
price lower than that obtained at the time of commitment. Although a Fund may be
able to sell these securities prior to the delivery date, it will purchase
when-issued securities for the purpose of actually acquiring the securities,
unless, after entering into the commitment, a sale appears desirable for
investment reasons. When required by SEC guidelines, a Fund will set aside
permissible liquid assets in a segregated account to secure its outstanding
commitments for when-issued securities.
FOREIGN SECURITIES AND CURRENCIES
Each Fund may invest in foreign securities either directly or through the use
of depositary receipts. (See "Investment Objectives and Policies.") Depositary
receipts are generally issued by banks or trust companies and evidence ownership
of underlying foreign securities. Foreign investments may include
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PROSPECTUS PAGE I-20
<PAGE> 21
other investment companies which may involve frequent or layered fees and
also are subject to limitations under the Investment Company Act of 1940 (the
"1940 Act"). Foreign investments involve special risks, including:
- - expropriation, confiscatory taxation, and withholding taxes on dividends and
interest;
- - less extensive regulation of foreign brokers, securities markets, and issuers;
- - less publicly available information and different accounting standards;
- - costs incurred in conversions between currencies, possible delays in
settlement in foreign securities markets, limitations on the use or transfer
of assets (including suspension of the ability to transfer currency from a
given country), and difficulty of enforcing obligations in other countries;
and
- - diplomatic developments and political or social instability.
Foreign economies may differ favorably or unfavorably from the U.S. economy
in various respects, including growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Many foreign securities may
be less liquid and their prices more volatile than comparable U.S. securities.
Although the Funds generally invest only in securities that are regularly traded
on recognized exchanges or in over-the-counter markets, from time to time
foreign securities may be difficult to liquidate rapidly without adverse price
effects. Certain costs attributable to foreign investing, such as custody
charges and brokerage costs, may be higher than those attributable to domestic
investing.
The Asset Allocation Fund may invest in the foreign securities of issuers in
developing countries. The risks of foreign investments are generally intensified
for investments in developing countries. Risks of investing in such markets
include:
- - less social, political, and economic stability;
- - smaller securities markets and the lower trading volume, which may result in a
lack of liquidity and greater price volatility;
- - certain national policies that may restrict the Fund's investment
opportunities, including restrictions on investments in issuers or industries
deemed sensitive to national interests, or expropriation or confiscation of
assets or property, which could result in the Fund's loss of its entire
investment in that market; and
- - less developed legal structures governing private or foreign investment or
allowing for judicial redress for injury to private property.
In addition, brokerage commissions, custodial services, withholding taxes,
and other costs relating to investment in emerging markets generally are more
expensive than in the U.S. and certain more established foreign markets.
Economies in emerging markets generally are heavily dependent upon international
trade and, accordingly, have been and may continue to be affected
----------------------
PROSPECTUS PAGE I-21
<PAGE> 22
adversely by trade barriers, exchange controls, managed adjustments in
relative currency values, and other protectionist measures negotiated or imposed
by the countries with which they trade.
The Funds may also invest in debt obligations issued or guaranteed by foreign
governments or their agencies, instrumentalities or political subdivisions, or
by supranational issuers (collectively, sovereign debt). Investment in sovereign
debt involves special risks. Certain foreign countries, particularly developing
countries, have experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations, large amounts of
external debt, balance of payments and trade difficulties, and extreme poverty
and unemployment. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay principal
or interest when due in accordance with the terms of such debt, and the Fund may
have limited legal recourse in the event of default.
Because most foreign securities are denominated in non-U.S. currencies, the
investment performance of the Funds could be affected by changes in foreign
currency exchange rates to some extent. The value of a Fund's assets denominated
in foreign currencies will increase or decrease in response to fluctuations in
the value of those foreign currencies relative to the U.S. dollar. Currency
exchange rates can be volatile at times in response to supply and demand in the
currency exchange markets, international balances of payments, governmental
intervention, speculation, and other political and economic conditions.
The Funds may purchase and sell foreign currency on a spot basis and may
engage in forward currency contracts, currency options, and futures transactions
for hedging or any other lawful purpose. (See "Derivative Instruments.")
DERIVATIVE INSTRUMENTS
A Fund may use derivative instruments for any lawful purpose consistent with
the Fund's investment objective such as hedging or managing risk, but not for
speculation. Derivative instruments are commonly defined to include securities
or contracts whose values depend on (or "derive" from) the value of one or more
other assets, such as securities, currencies, or commodities. These "other
assets" are commonly referred to as "underlying assets."
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Options and forward
contracts are considered to be the basic "building blocks" of derivatives. For
example, forward-based derivatives include forward contracts, swap contracts, as
well as exchange-traded futures. Option-based derivatives include privately
negotiated, over-the-counter (OTC) options (including caps, floors, collars, and
options on forward and swap contracts) and exchange-traded options on futures.
Diverse types of derivatives may be created by combining options or
----------------------
PROSPECTUS PAGE I-22
<PAGE> 23
forward contracts in different ways, and by applying these structures to a wide
range of underlying assets.
An option is a contract in which the "holder" (the buyer) pays a certain
amount (the "premium") to the "writer" (the seller) to obtain the right, but not
the obligation, to buy from the writer (in a "call") or sell to the writer (in a
"put") a specific asset at an agreed upon price at or before a certain time. The
holder pays the premium at inception and has no further financial obligation.
The holder of an option-based derivative generally will benefit from favorable
movements in the price of the underlying asset but is not exposed to
corresponding losses due to adverse movements in the value of the underlying
asset. The writer of an option-based derivative generally will receive fees or
premiums but generally is exposed to losses due to changes in the value of the
underlying asset.
A forward is a sales contract between a buyer (holding the "long" position)
and a seller (holding the "short" position) for an asset with delivery deferred
until a future date. The buyer agrees to pay a fixed price at the agreed future
date and the seller agrees to deliver the asset. The seller hopes that the
market price on the delivery date is less than the agreed upon price, while the
buyer hopes for the contrary. The change in value of a forward-based derivative
generally is roughly proportional to the change in value of the underlying
asset.
Derivative instruments may include (i) options; (ii) futures; (iii) options
on futures; (iv) short sales against the box, in which a Fund sells a security
it owns for delivery at a future date; (v) swaps, in which two parties agree to
exchange a series of cash flows in the future, such as interest-rate payments;
(vi) interest-rate caps, under which, in return for a premium, one party agrees
to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; (vii) interest-rate floors, under which, in return for
a premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; (viii) forward currency
contracts and foreign currency exchange-related securities; and (ix) structured
instruments which combine the foregoing in different ways.
Derivatives may be exchange-traded or traded in OTC transactions between
private parties. OTC transactions are subject to additional risks, such as the
credit risk of the counterparty to the instrument and are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction. Derivative instruments may include elements of
leverage and, accordingly, the fluctuation of the value of the derivative
instrument in relation to the underlying asset may be magnified. When required
by SEC guidelines, a Fund will set aside permissible liquid assets or securities
positions that substantially correlate to the market movements of the derivative
in a segregated account to secure its obligations under the derivative. In order
to maintain its required cover for a derivative, a Fund may need to sell
portfolio securities at disadvantageous prices or times since it may not be
possible to liquidate a derivative position.
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<PAGE> 24
The successful use of derivatives by a Fund is dependent upon a variety of
factors, particularly the Advisor's ability to correctly anticipate trends in
the underlying asset. In a hedging transaction, if the Advisor incorrectly
anticipates trends in the underlying asset, a Fund may be in a worse position
than if no hedging had occurred. In addition, there may be imperfect correlation
between a Fund's derivative transactions and the instruments being hedged. To
the extent that the Fund is engaging in derivative transactions for risk
management, the Fund's successful use of such transactions is more dependent
upon the Advisor's ability to correctly anticipate such trends, since losses in
these transactions may not be offset in gains in the Fund's portfolio or in
lower purchase prices for assets it intends to acquire. The Advisor's prediction
of trends in underlying assets may prove to be inaccurate, which could result in
substantial losses to a Fund.
In addition to the derivative instruments and strategies described above, the
Advisor expects to discover additional derivative instruments and other hedging
or risk management techniques. The Advisor may utilize these new derivative
instruments and techniques to the extent that they are consistent with a Fund's
investment objective and permitted by the Fund's investment limitations,
operating policies, and applicable regulatory authorities.
MORTGAGE- AND ASSET-BACKED SECURITIES
Mortgage-backed securities represent direct or indirect participation in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and collateralized
mortgage obligations. Such securities may be issued or guaranteed by U.S.
government agencies or instrumentalities or by private issuers, generally
originators and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities (collectively, "private lenders"). Mortgage-backed securities issued by
private lenders may be supported by pools of mortgage loans or other
mortgage-backed securities that are guaranteed, directly or indirectly, by the
U.S. government or one of its agencies or instrumentalities, or they may be
issued without any governmental guarantee of the underlying mortgage assets but
with some form of non-governmental credit enhancement.
Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first-lien mortgage
loans or interests therein; rather, they include assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of property, and receivables from credit card or
other revolving credit arrangements. Payments or distributions of principal and
interest on asset-backed securities may be supported by non-governmental credit
enhancements similar to those utilized in connection with mortgage-backed
securities.
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PROSPECTUS PAGE I-24
<PAGE> 25
The yield characteristics of mortgage- and asset-backed securities differ
from those of traditional debt securities. Among the principal differences are
that interest and principal payments are made more frequently on mortgage-and
asset-backed securities, usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if a Fund purchases these securities at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing the yield to maturity. Conversely, if a Fund
purchases these securities at a discount, a prepayment rate that is faster than
expected will increase yield to maturity, while a prepayment rate that is slower
than expected will reduce yield to maturity. Accelerated prepayments on
securities purchased by a Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued mortgage- and
asset-backed securities is smaller and less liquid than the market for
government-sponsored mortgage-backed securities.
The Funds may invest in stripped mortgage- or asset-backed securities, which
receive differing proportions of the interest and principal payments from the
underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases such market
value may be extremely volatile. With respect to certain stripped securities,
such as interest-only ("IO") and principal-only ("PO") classes, a rate of
prepayment that is faster or slower than anticipated may result in a Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.
SMALL COMPANIES
The Asset Allocation, Growth and Income, and Total Return Funds may invest in
the securities of small companies. While smaller companies generally have
potential for rapid growth, investments in smaller companies often involve
greater risks than investments in larger, more established companies because
smaller companies may lack the management experience, financial resources,
product diversification, and competitive strengths of larger companies. In
addition, in many instances the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
greater and more abrupt price fluctuations. When making large sales, the Fund
may have to sell portfolio holdings at discounts from quoted prices or may have
to make a series of small sales over an extended period of time due to the
trading volume of smaller company securities. Investors should be aware that,
based on the foregoing factors, an investment in the Fund may be subject to
greater price fluctuations than an investment in a fund that invests
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PROSPECTUS PAGE I-25
<PAGE> 26
primarily in larger, more established companies. The Advisor's research efforts
may also play a greater role in selecting securities for the Fund than in a fund
that invests in larger, more established companies.
DIVERSIFICATION
The American Utilities Fund is non-diversified. Because the Fund may invest a
larger portion of its assets in the securities of a single issuer than
diversified funds, an investment in the Fund may be subject to greater
fluctuations in value than an investment in a diversified fund.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities.
Illiquid securities are those securities that are not readily marketable,
including restricted securities and repurchase obligations maturing in more than
seven days. Certain restricted securities that may be resold to institutional
investors under Rule 144A under the Securities Act of 1933 and Section 4(2)
commercial paper may be determined to be liquid under guidelines adopted by each
Fund's Board of Directors.
PORTFOLIO TURNOVER
Historical portfolio turnover rates for the Asset Allocation, American
Utilities, and Total Return Funds are listed under "Financial Highlights." The
annual portfolio turnover rate indicates changes in a Fund's portfolio. The
turnover rate may vary from year to year, as well as within a year. It may also
be affected by sales of portfolio securities necessary to meet cash requirements
for redemption of shares. High portfolio turnover in any year will result in the
payment by a Fund of above-average amounts of transaction costs and could result
in the payment by shareholders of above-average amounts of taxes on realized
investment gains. The Asset Allocation and Total Return Funds each have a wide
investment scope and an active management investment policy, which may result in
higher portfolio turnover. The Asset Allocation Fund may engage in substantial
short-term trading, which involves significant risk and may be deemed
speculative. Such trading will result in a higher portfolio turnover rate and
correspondingly higher brokerage costs.
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<PAGE> 27
ABOUT THE FUNDS
MANAGEMENT
The Board of Directors of each Fund is responsible for managing its business
and affairs. Each of the Funds has entered into an investment advisory agreement
(collectively the "Advisory Agreements") with Strong Capital Management, Inc.
(the "Advisor"). Except for the management fee arrangements, the Advisory
Agreements are substantially identical. Under the terms of these agreements, the
Advisor manages each Fund's investments and business affairs subject to the
supervision of each Fund's Board of Directors.
ADVISOR. The Advisor began conducting business in 1974. Since then, its
principal business has been providing continuous investment supervision for
individuals and institutional accounts, such as pension funds and profit-sharing
plans, as well as mutual funds, several of which are funding vehicles for
variable insurance products. As of February 28, 1996, the Advisor had over $18
billion under management. The Advisor's principal mailing address is P.O. Box
2936, Milwaukee, Wisconsin 53201. Mr. Richard S. Strong, the Chairman of the
Board of each Fund, is the controlling shareholder of the Advisor.
As compensation for its services, each Fund pays the Advisor a monthly
management fee based on a percentage of each Fund's average daily net asset
value. The annual rates are as follows: Asset Allocation and Total Return Funds,
.85% of the Fund's average daily net assets up to $35,000,000 and .80% of each
Fund's average daily net assets in excess of $35,000,000; Equity Income and
Growth and Income Funds, .80%; and American Utilities Fund, .75%. Such fees are
in excess of fees paid by many other funds. From time to time, the Advisor may
voluntarily waive all or a portion of its management fee and/or absorb certain
Fund expenses without further notification of the commencement or termination of
such waiver or absorption. Any such waiver or absorption will temporarily lower
a Fund's overall expense ratio and increase a Fund's overall return to
investors.
Except for expenses assumed by the Advisor or Strong Funds Distributors,
Inc., each Fund is responsible for all its other expenses, including, without
limitation, interest charges, taxes, brokerage commissions, and similar
expenses; expenses of issue, sale, repurchase, or redemption of shares; expenses
of registering or qualifying shares for sale with the states and the SEC;
expenses of printing and distribution of prospectuses to existing shareholders;
charges of custodians (including fees as custodian for keeping books and similar
services for a Fund), transfer agents (including the printing and mailing of
reports and notices to shareholders), registrars, auditing and legal services,
and clerical services related to recordkeeping and shareholder relations;
printing of stock certificates; fees for directors who are not "interested
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PROSPECTUS PAGE I-27
<PAGE> 28
persons" of the Advisor; expenses of indemnification; extraordinary expenses;
and costs of shareholder and director meetings.
SUBADVISORY AGREEMENT - AMERICAN UTILITIES FUND. Under a subadvisory
agreement between the Advisor and W.H. Reaves & Co., Inc. (the "Subadvisory
Agreement"), the Subadvisor, pursuant to the oversight and supervision of the
American Utilities Fund's Board of Directors and the Advisor, provides a
continuous investment program for the American Utilities Fund. Under the
Subadvisory Agreement, the Subadvisor is responsible for determining the
securities to be purchased and sold by the Fund and for executing those
transactions. However, the Advisor is responsible for managing the short-term
fixed income securities maintained by the Fund in the ordinary course of its
business, which are expected to equal approximately 5% - 7% of the Fund's total
assets. As compensation for its services, the Advisor (not the Fund) pays the
Subadvisor a monthly fee at an annual rate of .50% on the first $200 million of
the Fund's average daily net assets plus 40% of the Advisor's net management fee
(after any waivers thereof) on that portion of the Fund's average daily net
assets in excess of $200 million except that the foregoing percentage will be
50% on those average daily net assets between $1.0 billion and $1.5 billion. The
Subadvisor bears all of its own expenses in providing subadvisory services to
the Fund.
The Subadvisor began conducting business in 1961. Since then, its principal
business has been providing continuous investment supervision to institutional
investors such as corporations, corporate pension funds, employee savings plans,
foundations, and endowments. The Subadvisor is a Delaware corporation. Mr.
William H. Reaves is the controlling shareholder of the Subadvisor. As of
February 28, 1996, the Subadvisor had over $1 billion under management. Its
address is 10 Exchange Place, Jersey City, New Jersey 07302.
The Subadvisor may also act as a broker for the American Utilities Fund. In
order for the Subadvisor to effect any portfolio transactions for the Fund on an
exchange, the commissions, fees, or other remuneration received by the
Subadvisor must be reasonable and fair compared to the commissions, fees, or
other remuneration paid to other brokers in connection with transactions
involving similar securities being purchased or sold on any exchange during a
comparable period of time. This standard would allow the Subadvisor to receive
no more than the remuneration that would be expected to be received by an
unaffiliated broker in a commensurate arm's-length transaction.
PORTFOLIO MANAGERS. The following individuals serve as portfolio managers for
the five Strong Conservative Equity Funds.
STRONG ASSET ALLOCATION FUND
BRADLEY C. TANK. Mr. Tank leads the Fund's investment team and allocates the
Fund's assets among equities, bonds, and cash. In addition, Mr. Tank
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<PAGE> 29
co-manages the Fund's bond component. Before joining the Advisor in June
1990, he spent eight years at Salomon Brothers, Inc., where he was a fixed-
income specialist and, for the last six years, a vice president. Mr. Tank
received his B.A. in 1980 from the University of Wisconsin-Eau Claire and his
M.B.A. in 1982 from the University of Wisconsin-Madison, where he also completed
the Applied Securities Analysis Program. In addition to his Asset Allocation
Fund duties, Mr. Tank co-manages the Strong Short-Term Bond Fund, manages the
Strong Government Securities Fund and chairs the Advisor's Fixed Income
Investment Committee.
Equity Component
ANTHONY L.T. CRAGG. Mr. Cragg co-manages the Fund. Mr. Cragg joined the
Advisor in April 1993 to develop the Advisor's international investment
activities. During the prior seven years, he helped establish Dillon, Read
International Asset Management, where he was in charge of Japanese, Asian, and
Australian investments. A graduate of Christ Church, Oxford University, Mr.
Cragg began his investment career as an international investment manager in 1980
at Gartmore, Ltd., where his tenure included assignments in London, Hong Kong,
and Tokyo. He has co-managed the Fund since December 1994 and managed the Strong
International Stock Fund since he joined the Advisor. He has also managed the
Strong Asia Pacific Fund since its inception in December 1993.
RONALD C. OGNAR. Mr. Ognar co-manages the Fund. Mr. Ognar, a Chartered
Financial Analyst with more than 25 years of investment experience, joined the
Advisor in April 1993 after two years as a principal and portfolio manager with
RCM Capital Management. For approximately three years prior to that, he was a
portfolio manager at Kemper Financial Services in Chicago. Mr. Ognar began his
investment career in 1968 at LaSalle National Bank in Chicago after serving two
years in the U.S. Army. He received his bachelor's degree in accounting from the
University of Illinois in 1968. Mr. Ognar has co-managed the Fund since December
1994. He has managed the Strong Growth Fund since its inception in December 1993
and managed the Strong Total Return Fund from April 1993 until October 1994,
when Mr. Ian J. Rogers joined him as a co-manager.
RICHARD S. STRONG. Mr. Strong co-manages the Fund. Mr. Strong founded the
Advisor in 1974. He began his investment career at Employers Insurance of Wausau
in 1966, after receiving his master's degree in finance from the University of
Wisconsin-Madison that January. He received his undergraduate degree in 1963
from Baldwin-Wallace College. Mr. Strong has co-managed the Fund since December
1994. He has also managed the Strong Discovery Fund since its inception in
December 1987. In addition to his role as a portfolio manager, he is currently
the Chairman of the Board, Director, Chief Investment Officer, and a member of
the Advisor's Executive Committee.
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<PAGE> 30
RICHARD T. WEISS. Mr. Weiss co-manages the Fund. Mr. Weiss joined the Advisor
in 1991 from Chicago-based Stein Roe & Farnham, where he began his career as a
research analyst in 1975. He was named a portfolio manager in 1981. Mr. Weiss
attended Harvard Graduate School of Business Administration, where he was
awarded his M.B.A. in 1975, and the University of Southern California, where he
received his bachelor's degree in business administration in 1973. Mr. Weiss has
co-managed the Fund since December 1994. He has also co-managed the Strong
Opportunity and Common Stock Funds since 1991. In addition, Mr. Weiss is a
member of the Advisor's Executive Committee.
ANDREW C. STEPHENS. Mr. Stephens co-manages the Fund. Since he joined the
Advisor in January 1987, he has served in a variety of positions, including
Director of Trading Operations and equity research analyst. Before joining the
investment area, he served as Director of Information Systems. Mr. Stephens, a
1986 graduate of the University of Wisconsin-Madison, co-managed the Fund from
January 1993 until December 1994, when he joined the team that guides the Strong
Opportunity and Common Stock Funds as an equity research analyst. He resumed
co-managing the Fund in March 1996.
Bond and Cash Components
JEFFREY A. KOCH. Mr. Koch co-manages the Fund. Mr. Koch joined the Advisor as
a portfolio manager and securities analyst in June 1989. For a brief period
prior to that, he was a market-maker clerk at Fossett Corporation, a clearing
firm. Mr. Koch earned his M.B.A. in Finance at Washington University in St.
Louis, Missouri in 1989. His undergraduate degree, awarded in 1987, is from the
University of Minnesota-Morris. Mr. Koch is also a Chartered Financial Analyst.
Mr. Koch has co-managed the bond component of the Fund since December 1994. In
addition, Mr. Koch manages the Strong Advantage and High-Yield Bond Funds and
co-manages the Strong Corporate Bond Fund.
SHIRISH T. MALEKAR. Mr. Malekar co-manages the Fund. Mr. Malekar joined the
Advisor in January 1994. He was an international bond portfolio manager at
Pacific Investment Management Company in California for the previous three
years. Prior to that, he was a bond trader at Harris Bank in Chicago for one
year and a bond trader at PaineWebber Incorporated in New York and Tokyo for
more than two years. He has an M.S. in Management from the Massachusetts
Institute of Technology, an M.S. in Petroleum Engineering from the University of
Pittsburgh, and a B.S. in Chemical Engineering from the University of Bombay,
India. Mr. Malekar has co-managed the bond component of the Fund since December
1994. In addition, Mr. Malekar has managed the Strong Short-Term Global Bond and
International Bond Funds since their inception in March 1994.
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<PAGE> 31
JAY N. MUELLER. Mr. Mueller co-manages the Fund. Mr. Mueller joined the
Advisor in September 1991 as a securities analyst and portfolio manager. For
four years prior to that, he was a securities analyst and portfolio manager with
R. Meeder & Associates of Dublin, Ohio. Mr. Mueller received his bachelor's
degree in economics in 1982 from the University of Chicago. Mr. Mueller is also
a Chartered Financial Analyst. Mr. Mueller has managed the Fund's short-term
component since 1993. He has also managed the Strong Money Market and U.S.
Treasury Money Funds since October 1991, the Strong Heritage Money Fund since
June 1995, and the Strong Institutional Money Fund since September 1995.
STRONG AMERICAN UTILITIES FUND
WILLIAM H. REAVES. Mr. Reaves, the Fund's senior co-manager, has been the
President and Chief Investment Officer, Portfolio Manager, and Utilities Analyst
of the Subadvisor since 1961. He has worked as a utilities analyst since 1946.
WILLIAM A. FERER. Mr. Ferer, a co-manager of the Fund, has been a Vice
President, Portfolio Manager, and Energy Analyst of the Subadvisor since 1987.
He has worked as a securities analyst since 1971.
RONALD J. SORENSON. Mr. Sorenson, a co-manager of the Fund, has been a Vice
President and Portfolio Manager of the Subadvisor since 1991. For three years
prior to that, he was a Partner and Portfolio Manager of PVF Inc. For a two-year
period prior to that, Mr. Sorenson was the Chairman of the Board and Chairman of
the Investment Committee of The American Life Insurance Company of New York. Mr.
Sorenson has acted as President of RWS Energy Services, Chief Financial Officer
of Emerging Market Services A.G., Controller of Triad Holding Corporation S.A.,
and a C.P.A. for Arthur Young & Co.
MARK D. LUFTIG. Mr. Luftig, a co-manager of the Fund, has been a Vice
President and Utilities Analyst of the Subadvisor since January 1995. Prior to
joining the Subadvisor, he was the Executive Vice President and Director of
Equity Research at Kemper Securities, Inc., where he worked since 1992. For
approximately three years prior to that, Mr. Luftig served as the Vice President
of the National Economic Research Association, Inc. From 1975 until 1989, he
worked at Salomon Brothers, Inc. as the Director of Research.
STRONG TOTAL RETURN FUND
RONALD C. OGNAR. Information concerning Mr. Ognar is set forth above under
"Strong Asset Allocation Fund."
IAN J. ROGERS. In October 1994, Mr. Rogers joined Mr. Ognar as co-portfolio
manager of the Fund. Mr. Rogers has worked with Mr. Ognar as an equity analyst
since joining the Advisor in August 1993. Prior to joining the Advisor, Mr.
Rogers worked for seven years as an equity analyst with Kemper Financial
Services in Chicago. For approximately two years prior to that, he was an equity
analyst for Allstate Insurance. Mr. Rogers began his investment career in 1983
as an equity analyst for Comerica Bank in Detroit. He received
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<PAGE> 32
his M.B.A. from Central Michigan University in 1983 and his bachelor's degree
in Business Administration from Ferris State College in 1966.
STRONG EQUITY INCOME FUND
STRONG GROWTH AND INCOME FUND
MR. RIMAS M. MILAITIS. Mr. Milaitis serves as the portfolio manager for the
Funds. He joined the Advisor in December 1995. For the previous four years, Mr.
Milaitis managed several conservative-equity portfolios at Aon Advisors, Inc.
("AAI") in Chicago, Illinois. For two years prior to that, he served as an
equity trader for AAI. Prior to working at AAI, Mr. Milaitis served as a equity
portfolio assistant for three years to the Illinois State Board of Investment.
He attended DePaul University, where he was awarded his M.B.A. in 1991, and the
Illinois State University, where he received his bachelor's degree in economics
in 1984.
TRANSFER AND DIVIDEND-DISBURSING AGENT
The Advisor, P.O. Box 2936, Milwaukee, Wisconsin 53201, also acts as
dividend-disbursing agent and transfer agent for the Funds. The Advisor is
compensated for its services based on an annual fee per account plus certain
out-of-pocket expenses. The fees received and the services provided as transfer
agent and dividend-disbursing agent are in addition to those received and
provided under the Advisory Agreements between the Advisor and the Funds.
DISTRIBUTOR
Strong Funds Distributors, Inc., P.O. Box 2936, Milwaukee, Wisconsin 53201,
an indirect subsidiary of the Advisor, acts as distributor of the shares of the
Funds.
ORGANIZATION
SHAREHOLDER RIGHTS. The Asset Allocation and Total Return Funds are Wisconsin
corporations that are authorized to issue shares of common stock and series and
classes of series of shares of common stock. The American Utilities Fund, Equity
Income, and Growth and Income Funds are series of common stock of Strong
Conservative Equity Funds, Inc., a Wisconsin corporation that is authorized to
issue shares of common stock and series and classes of series of shares of
common stock. Each share of the Funds has one vote, and all shares participate
equally in dividends and other capital gains distributions by the respective
Fund and in the residual assets of the respective Fund in the event of
liquidation. Certificates will be issued for shares held in your account only
upon your written request. You will, however, have full shareholder rights
whether or not you request certificates. Generally, the
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<PAGE> 33
Funds will not hold an annual meeting of shareholders unless required by the
1940 Act.
SHAREHOLDER PRIVILEGES. The shareholders of each Fund may benefit from the
privileges described in the "Shareholder Manual" (see Page II-1). However, each
Fund reserves the right, at any time and without prior notice, to suspend,
limit, modify, or terminate any of these privileges or their use in any manner
by any person or class.
PRINCIPAL SHAREHOLDER. As of January 31, 1996, Charles Schwab & Co., Inc.
("Schwab") owned of record approximately 39% of the American Utilities Fund.
Schwab's record ownership of greater than 25% of the Fund's shares may result in
it being deemed a controlling entity of the Fund.
DISTRIBUTIONS AND TAXES
PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. Unless you choose otherwise,
all your dividends and capital gains distributions will be automatically
reinvested in additional Fund shares. Or, you may elect to have all your
dividends and capital gain distributions from a Fund automatically invested in
additional shares of another Strong Fund. Shares are purchased at the net asset
value determined on the payment date. If you request in writing that your
dividends and other distributions be paid in cash, a Fund will credit your bank
account by Electronic Funds Transfer ("EFT") or issue a check to you within five
business days of the payment date. You may change your election at any time by
calling or writing Strong Funds. Strong Funds must receive any such change 7
days (15 days for EFT) prior to a dividend or capital gain distribution payment
date in order for the change to be effective for that payment. The policy of
each Fund is to pay dividends from net investment income quarterly and to
distribute substantially all net realized capital gains and gains from foreign
currency transactions annually. Each Fund may make additional distributions if
necessary to avoid imposition of a 4% excise tax on undistributed income and
gains.
TAX STATUS OF DIVIDENDS AND OTHER DISTRIBUTIONS. You will be subject to
federal income tax at ordinary income tax rates on any dividends you receive
that are derived from investment company taxable income (consisting generally of
net investment income, net short-term capital gain, and net gains from certain
foreign currency transactions, if any). Distributions of net capital gain (the
excess of net long-term capital gain over net short-term capital loss), when
designated as such by a Fund, are taxable to you as long-term capital gains,
regardless of how long you have held your Fund shares. The Funds' distributions
are taxable in the year they are paid, whether they are taken in cash or
reinvested in additional shares, except that certain distributions declared in
the
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<PAGE> 34
last three months of the year and paid in January are taxable as if paid on
December 31.
If a Fund's distributions exceed its investment company taxable income and
net capital gain in any year, as a result of currency-related losses or
otherwise, all or a portion of those distributions may be treated as a return of
capital to shareholders for tax purposes.
YEAR-END TAX REPORTING. After the end of each calendar year, you will receive
a statement (Form 1099) of the federal income tax status of all dividends and
other distributions paid (or deemed paid) during the year.
SHARES SOLD OR EXCHANGED. Your redemption of Fund shares may result in
taxable gain or loss to you, depending upon whether the redemption proceeds
payable to you are more or less than your adjusted cost basis for the redeemed
shares. Similar tax consequences generally will result from an exchange of Fund
shares for shares of another Strong Fund. If you purchase shares of a Fund
within thirty days before or after redeeming shares of the same Fund at a loss,
a portion or all of that loss will not be deductible and will increase the cost
basis of the newly purchased shares. If you redeem shares out of a retirement
account, you will be subject to withholding for federal income tax purposes
unless you transfer the distribution directly to an "eligible retirement plan."
BUYING A DISTRIBUTION. A distribution paid shortly after you have purchased
shares in a Fund will reduce the net asset value of the shares by the amount of
the distribution, which nevertheless will be taxable to you even though it
represents a return of a portion of your investment.
BACKUP WITHHOLDING. If you are an individual or certain other noncorporate
shareholder and do not furnish a Fund with a correct taxpayer identification
number, the Fund is required to withhold federal income tax at a rate of 31%
(backup withholding) from all dividends, capital gain distributions, and
redemption proceeds payable to you. Withholding at that rate from dividends and
capital gain distributions payable to you also is required if you otherwise are
subject to backup withholding. To avoid backup withholding, you must provide a
taxpayer identification number and state that you are not subject to backup
withholding due to the underreporting of your income. This certification is
included as part of your application. Please complete it when you open your
account.
TAX STATUS OF THE FUNDS. Each Fund intends to continue to qualify for
treatment as a regulated investment company under Subchapter M of the Internal
Revenue Code and, if so qualified, will not be liable for federal income tax on
earnings and gains distributed to its shareholders in a timely manner.
This section is not intended to be a full discussion of present or proposed
federal income tax law and its effects on the Funds and investors therein. See
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<PAGE> 35
the SAI for a further discussion. There may be other federal, state, or local
tax considerations applicable to a particular investor. You are therefore urged
to consult your own tax adviser.
PERFORMANCE INFORMATION
Each Fund may advertise a variety of types of performance information,
including "average annual total return," "total return," "cumulative total
return," and "yield." Each of these figures is based upon historical results and
does not represent the future performance of a Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund assuming
the reinvestment of all dividends and distributions. Total return figures are
not annualized and simply represent the aggregate change of a Fund's investments
over a specified period of time.
Yield is an annualized figure, which means that it is assumed that a Fund
generates the same level of net investment income over a one-year period. A
Fund's yield is a measure of the net investment income per share earned by the
Fund over a specific one-month period and is shown as a percentage of the net
asset value of the Fund's shares at the end of the period.
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<PAGE> 36
This page has been left blank intentionally.
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<PAGE> 37
SHAREHOLDER MANUAL
<TABLE>
<S> <C>
HOW TO BUY SHARES...................... II-1
DETERMINING YOUR SHARE PRICE........... II-5
HOW TO SELL SHARES..................... II-6
SHAREHOLDER SERVICES................... II-9
REGULAR INVESTMENT PLANS............... II-10
SPECIAL SITUATIONS..................... II-12
</TABLE>
HOW TO BUY SHARES
All the Strong Funds are 100% no-load, meaning you may purchase, redeem, or
exchange shares directly at net asset value without paying a sales charge.
Because the Funds' net asset values change daily, your purchase price will be
the next net asset value determined after Strong receives and accepts your
purchase order.
Whether you are opening a new account or adding to an existing one, Strong
provides you with several methods to buy Fund shares.
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<PAGE> 38
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
TO OPEN A NEW ACCOUNT
- ------------------------------------------------------------------------------
MAIL BY CHECK
- Complete and sign the application. Make your check
or money order payable to "Strong Funds."
- Mail to Strong Funds, P.O. Box 2936, Milwaukee,
Wisconsin 53201. If you're using an express delivery
service, send to Strong Funds, 100 Heritage
Reserve, Menomonee Falls, Wisconsin 53051.
BY EXCHANGE
- Call 1-800-368-3863 for instructions on
establishing an account with an exchange by mail.
- ------------------------------------------------------------------------------
TELEPHONE BY EXCHANGE
- Call 1-800-368-3863 to establish a new account by
1-800-368-3863 exchanging funds from an existing Strong Funds
24 HOURS A DAY, account.
7 DAYS A WEEK - Sign up for telephone exchange services when you
open your account. To add the telephone exchange
option to your account, call 1-800-368-3863 for a
Telephone Exchange Form.
- Please note that your accounts must be identically
registered and that you must exchange enough into the
new account to meet the minimum initial investment.
- ------------------------------------------------------------------------------
IN PERSON - Stop by our Investor Center in Menomonee Falls,
Wisconsin.
Call 1-800-368-3863 for hours and directions.
- The Investor Center can only accept checks or money
orders.
- ------------------------------------------------------------------------------
WIRE Call 1-800-368-3863 for instructions on opening an
account by
wire.
- ------------------------------------------------------------------------------
AUTOMATICALLY USE STRONG'S "NO-MINIMUM INVESTMENT PROGRAM."
- If you sign up for Strong's Automatic Investment
Plan when you open your account, Strong Funds will
waive the Fund's minimum initial investment (see
chart on page II-4).
- Complete the Automatic Investment Plan section on
the account application.
- Mail to the address indicated on the application.
- ------------------------------------------------------------------------------
BROKER-DEALER - You may purchase shares in the Fund through a
broker-dealer or other institution that may charge a
transaction fee.
- Strong Funds may only accept requests to purchase
shares into a broker-dealer street name account
from the broker-dealer.
</TABLE>
----------------------
PROSPECTUS PAGE II-2
<PAGE> 39
- ------------------------------------------------------------------------------
TO ADD TO AN EXISTING ACCOUNT
- --------------------------------------------------------------------------------
BY CHECK
- - Complete an Additional Investment Form provided at the bottom of your account
statement, or write a note indicating your fund account number and
registration. Make your check or money order payable to "Strong Funds."
- - Mail to Strong Funds, P.O. Box 2936, Milwaukee, Wisconsin 53201. If you're
using an express delivery service, send to Strong Funds, 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.
BY EXCHANGE
- - Call 1-800-368-3863 for instructions on exchanging by mail.
- --------------------------------------------------------------------------------
BY EXCHANGE
- - Add to an account by exchanging funds from another Strong Funds account.
- - Sign up for telephone exchange services when you open your account. To add the
telephone exchange option to your account, call 1-800-368-3863 for a Telephone
Exchange Form.
- - Please note that the accounts must be identically registered and that the
minimum exchange is $50 or the balance of your account, whichever is less.
BY TELEPHONE PURCHASE
- - Sign up for telephone purchase when you open your account to make additional
investments from $50 to $25,000 into your Strong Funds account by telephone.
To add this option to your account, call 1-800-368-3863 for a Telephone
Purchase Form.
Or use Strong DirectSM, Strong Funds' automated telephone response system. Call
1-800-368-3863 for details.
- --------------------------------------------------------------------------------
- - Stop by our Investor Center in Menomonee Falls, Wisconsin. Call 1-800-368-3863
for hours and directions.
- - The Investor Center can only accept checks or money orders.
- --------------------------------------------------------------------------------
Call 1-800-368-3863 for instructions on adding to an account by wire.
- --------------------------------------------------------------------------------
USE ONE OF STRONG'S AUTOMATIC INVESTMENT PROGRAMS. Sign up for these services
when you open your account, or call 1-800-368-3863 for instructions on how to
add them to your existing account.
- - AUTOMATIC INVESTMENT PLAN. Make regular, systematic investments (minimum $50)
into your Strong Funds account from your bank checking or NOW account.
Complete the Automatic Investment Plan section on the account application.
- - AUTOMATIC EXCHANGE PLAN. Make regular, systematic exchanges (minimum $50) from
one Strong Funds account to another. Call 1-800-368-3863 for an application.
- - PAYROLL DIRECT DEPOSIT. Have a specified amount (minimum $50) regularly
deducted from your paycheck, social security check, military allotment, or
annuity payment invested directly into your Strong Funds account. Call
1-800-368-3863 for an application.
- - AUTOMATIC DIVIDEND REINVESTMENT. Unless you choose otherwise, all your
dividends and capital gain distributions will be automatically reinvested in
additional Fund shares. Or, you may elect to have your dividends and capital
gain distributions automatically invested in shares of another Strong Fund.
- --------------------------------------------------------------------------------
- - You may purchase additional shares in a Fund through a broker-dealer or other
institution that may charge a transaction fee.
- - Strong Funds may only accept requests to purchase additional shares into a
broker-dealer street name account from the broker-dealer.
----------------------
PROSPECTUS PAGE II-3
<PAGE> 40
WHAT YOU SHOULD KNOW ABOUT BUYING SHARES
- - Please make all checks or money orders payable to "Strong Funds."
- - We cannot accept third-party checks or checks drawn on banks outside the U.S.
- - You will be charged a $20 service fee for each check, wire, or Electronic
Funds Transfer ("EFT") purchase that is returned unpaid, and you will be
responsible for any resulting losses suffered by a Fund.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
- - A Fund may decline to accept your purchase order upon receipt when, in the
judgment of the Advisor, it would not be in the best interests of the existing
shareholders.
- - The exchange privilege is available in all 50 states because all Strong Funds
intend to continue to qualify their shares for sale in all 50 states.
- - Minimum Investment Requirements:
- ----------------------------------------------------------------------------
To open a regular account
Total Return and Asset Allocation Funds...........................$250
American Utilities Fund.........................................$1,000
Equity Income and Growth and Income Funds.......................$2,500
To open an IRA or Defined Contribution account........................$250
To open a UGMA/UTMA account...........................................$250
To open a 401(k) or 403(b) retirement account...................No Minimum
To add to an existing account..........................................$50
The Funds offer a No-Minimum Investment Program that waives the minimum
initial investment requirements for investors who participate in the Strong
Automatic Investment Plan (described on page II-11). Unless you participate in
the Strong No-Minimum Investment Program, please ensure your purchases meet the
minimum investment requirements.
Under certain circumstances (for example, if you discontinue a No-Minimum
Investment Program before you reach a Fund's minimum initial investment), each
Fund reserves the right to close your account. Before taking such action, a Fund
will provide you with written notice and at least 60 days in which to reinstate
an investment program or otherwise reach the minimum initial investment
required.
----------------------
PROSPECTUS PAGE II-4
<PAGE> 41
WHAT YOU SHOULD KNOW ABOUT BUYING SHARES
THROUGH A BROKER-DEALER
- - If you purchase shares through a program of services offered or administered
by a broker-dealer, financial institution, or other service provider, you
should read the program's materials, including information relating to fees,
in connection with a Fund's Prospectus. Certain features of a Fund may not be
available or may be modified in connection with the program of services
provided.
- - Certain broker-dealers, financial institutions, or other service providers
that have entered into an agreement with the Distributor may enter purchase
orders on behalf of their customers by phone, with payment to follow within
several days as specified in the agreement. The Funds may affect such purchase
orders at the net asset value next determined after receipt of the telephone
purchase order. It is the responsibility of the broker-dealer, financial
institution, or other service provider to place the order with the Funds on a
timely basis. If payment is not received within the time specified in the
agreement, the broker-dealer, financial institution, or other service provider
could be held liable for any resulting fees or losses.
DETERMINING YOUR SHARE PRICE
Generally, when you make any purchases, sales, or exchanges, the price of
your shares will be the net asset value ("NAV") next determined after Strong
Funds receives your request in proper form. If Strong Funds receives such
request prior to the close of the New York Stock Exchange (the "Exchange") on a
day on which the Exchange is open, your share price will be the NAV determined
that day. The NAV for each Fund is normally determined as of 3:00 p.m. Central
Time ("CT") each day the Exchange is open. The Funds reserve the right to change
the time at which purchases, redemptions, and exchanges are priced if the
Exchange closes at a time other than 3:00 p.m. CT or if an emergency exists.
Each Fund's NAV is calculated by taking the fair value of a Fund's total assets,
subtracting all its liabilities, and dividing by the total number of shares
outstanding. Expenses are accrued daily and applied when determining the NAV.
A Fund's portfolio securities are valued based on market quotations or at
fair value as determined by the method selected by each Fund's Board of
Directors. Equity securities traded on a national securities exchange or NASDAQ
are valued at the last sales price on the national securities exchange or NASDAQ
on which such securities are primarily traded. Securities traded on NASDAQ for
which there were no transactions on a given day or securities not listed on an
exchange or NASDAQ are valued at the average of the most recent bid and asked
prices. Other exchange traded securities (generally foreign securities) will be
valued based on market quotations. Debt securities are valued by a pricing
service that utilizes electronic data processing techniques to determine values
for normal institutional-sized trading units of debt
----------------------
PROSPECTUS PAGE II-5
<PAGE> 42
securities without regard to sale or bid prices when such techniques are
believed to more accurately reflect the fair market value for such securities.
Otherwise, sale or bid prices are used. Any securities or other assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by the Board of Directors. Debt securities having
remaining maturities of 60 days or less are valued by the amortized cost method
when the Board of Directors determines that the fair value of such securities is
their amortized cost. Under this method of valuation, a security is initially
valued at its acquisition cost, and thereafter, amortization of any discount or
premium is assumed each day, regardless of the impact of the fluctuating rates
on the market value of the instrument.
Securities quoted in foreign currency are valued daily in U.S. dollars at the
foreign currency exchange rates that are prevailing at the time the daily NAV
per share is determined. Although the Funds value their foreign assets in U.S.
dollars on a daily basis, they do not intend to convert their holdings of
foreign currencies into U.S. dollars on a daily basis. Foreign currency exchange
rates are generally determined prior to the close of trading on the Exchange.
Occasionally, events affecting the value of foreign investments and such
exchange rates occur between the time at which they are determined and the close
of trading on the Exchange. Such events would not normally be reflected in a
calculation of a Fund's NAV on that day. If events that materially affect the
value of a Fund's foreign investments or the foreign currency exchange rates
occur during such period, the investments will be valued at their fair value as
determined in good faith by or under the direction of the Board of Directors.
HOW TO SELL SHARES
You can access the money in your account at any time by selling (redeeming)
some or all of your shares back to the Fund. Once your redemption request is
received in proper form, Strong will normally mail you the proceeds the next
business day and, in any event, no later than seven days thereafter.
To redeem shares, you may use any of the methods described in the following
chart. However, if you are selling shares in a retirement account, please call
1-800-368-3863 for instructions. Please note that there is a $10.00 fee for
closing an IRA or other retirement account or for transferring assets to another
custodian. For your protection, certain requests may require a signature
guarantee.
----------------------
PROSPECTUS PAGE II-6
<PAGE> 43
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
TO SELL SHARES
- -----------------------------------------------------------------------------
MAIL FOR INDIVIDUAL, JOINT TENANT, AND UGMA/UTMA ACCOUNTS
- Write a "letter of instruction" that includes the
following information: your account number, the
dollar amount or number of shares you wish to
redeem, each owner's name, your street address, and
the signature of each owner as it appears on the
account.
- Mail to Strong Funds, P.O. Box 2936, Milwaukee,
Wisconsin 53201. If you're using an express delivery
service, send to 100 Heritage Reserve, Menomonee
Falls, Wisconsin 53051.
FOR TRUST ACCOUNTS
- Same as above. Please ensure that all trustees sign
the letter of instruction.
FOR OTHER REGISTRATIONS
- Call 1-800-368-3863 for instructions.
- -----------------------------------------------------------------------------
TELEPHONE
Sign up for telephone redemption services when you
1-800-368-3863 open your account by checking the "Yes" box in the
24 HOURS A DAY, appropriate section of the account application. To
7 DAYS A WEEK add the telephone redemption option to your account,
call 1-800-368-3863 for a Telephone Redemption Form.
Once the telephone redemption option is in place, you
may sell shares ($500 minimum) by phone and arrange
to receive the proceeds in one of three ways:
TO RECEIVE A CHECK BY MAIL
- At no charge, we will mail a check to the address
to which your account is registered.
TO DEPOSIT BY EFT
- At no charge, we will transmit the proceeds by
Electronic Funds Transfer (EFT) to a pre-authorized
bank account. Usually, the funds will arrive at
your bank two banking days after we process your
redemption.
TO DEPOSIT BY WIRE
- For a $10 fee, we will transmit the proceeds by
wire to a pre-authorized bank account. Usually, the
funds will arrive at your bank the next banking day
after we process your redemption.
You may also use Strong DirectSM, Strong Funds'
automated telephone response system. Call
1-800-368-3863 for details.
- -----------------------------------------------------------------------------
AUTOMATICALLY
You can set up automatic withdrawals from your
account at regular intervals. To establish the
Systematic Withdrawal Plan, request a form by calling
1-800-368-3863.
- -----------------------------------------------------------------------------
BROKER-DEALER
You may also redeem shares through broker-dealers or
others who may charge a commission or other
transaction fee.
</TABLE>
----------------------
PROSPECTUS PAGE II-7
<PAGE> 44
WHAT YOU SHOULD KNOW ABOUT SELLING SHARES
- - If you have recently purchased shares, please be aware that your redemption
request may not be honored until the purchase check has cleared your bank,
which generally occurs within ten calendar days.
- - You will be charged a $10 service fee for a stop-payment and replacement of a
redemption or dividend check.
- - The right of redemption may be suspended during any period in which (i)
trading on the Exchange is restricted, as determined by the SEC, or the
Exchange is closed for other than weekends and holidays; (ii) the SEC has
permitted such suspension by order; or (iii) an emergency as determined by the
SEC exists, making disposal of portfolio securities or valuation of net assets
of a Fund not reasonably practicable.
- - If you are selling shares you hold in certificate form, you must submit the
certificates with your redemption request. Each registered owner must endorse
the certificates and all signatures must be guaranteed.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
REDEMPTIONS IN KIND
The Funds have elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates each Fund to redeem shares in cash, with respect to any one
shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the
assets of the Fund. If the Advisor determines that existing conditions make cash
payments undesirable, redemption payments may be made in whole or in part in
securities or other financial assets, valued for this purpose as they are valued
in computing the NAV for the Fund's shares (a "redemption-in-kind").
Shareholders receiving securities or other financial assets in a redemption-in-
kind may realize a gain or loss for tax purposes, and will incur any costs of
sale, as well as the associated inconveniences. If you expect to make a
redemption in excess of the lesser of $250,000 or 1% of the Fund's assets during
any 90-day period and would like to avoid any possibility of being paid with
securities in-kind, you may do so by providing Strong with an unconditional
instruction to redeem at least 15 calendar days prior to the date on which the
redemption transaction is to occur, specifying the dollar amount or number of
shares to be redeemed and the date of the transaction (please call 1-800-
368-3863). This will provide the Fund with sufficient time to raise the cash in
an orderly manner to pay the redemption and thereby minimize the effect of the
redemption on the interests of the Fund's remaining shareholders.
WHAT YOU SHOULD KNOW ABOUT TELEPHONE REDEMPTIONS
- - The Funds reserve the right to refuse a telephone redemption if they believe
it advisable to do so.
----------------------
PROSPECTUS PAGE II-8
<PAGE> 45
- - Once you place your telephone redemption request, it cannot be canceled or
modified.
- - Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Funds and their transfer
agent employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. The Funds may incur liability if they do not follow
these procedures.
- - Because of increased telephone volume, you may experience difficulty in
implementing a telephone redemption during periods of dramatic economic or
market changes.
SHAREHOLDER SERVICES
INFORMATION SERVICES
24-HOUR ASSISTANCE. Strong Funds has registered representatives available to
help you 24 hours a day, 7 days a week. Call 1-414-359-1400 or toll-free
1-800-368-3863. You may also write to Strong Funds at the address on the cover
of this Prospectus.
STRONG DIRECTSM AUTOMATED TELEPHONE SYSTEM. Also available 24 hours a day,
the Strong DirectSM automated response system enables you to use a touch-tone
phone to hear fund quotes and returns on any Strong Fund. You may also confirm
account balances, hear records of recent transactions and dividend activity, and
perform purchases, exchanges or redemptions among your existing Strong accounts.
Your account information is protected by a personal code that you establish. For
more information on this service, call 1-800-368-3863.
STATEMENTS AND REPORTS. At a minimum, each Fund will confirm all transactions
for your account on a quarterly basis. We recommend that you file each quarterly
statement - and, especially, each calendar year-end statement - with your other
important financial papers, since you may need to refer to them at a later date
for tax purposes. Should you need additional copies of previous statements, you
may order confirmation statements for the current and preceding year at no
charge. Statements for earlier years are available for $10 each. Call
1-800-368-3863 to order past statements.
Each year, you will also receive a statement confirming the tax status of any
distributions paid to you, as well as a semiannual report and an annual report
containing audited financial statements.
To reduce the volume of mail you receive, only one copy of certain materials,
such as prospectuses and shareholder reports, is mailed to your household. Call
1-800-368-3863 if you wish to receive additional copies, free of charge.
----------------------
PROSPECTUS PAGE II-9
<PAGE> 46
More complete information regarding each Fund's investment policies and
services is contained in its SAI, which you may request by calling or writing
Strong Funds at the phone number and address on the cover of this Prospectus.
CHANGING YOUR ACCOUNT INFORMATION. So that you continue receiving your Strong
correspondence, including any dividend checks and statements, please notify us
in writing as soon as possible if your address changes. You may use the
Additional Investment Form at the bottom of your confirmation statement, or
simply write us a letter of instruction that contains the following information:
1. a written request to change the address,
2. the account number(s) for which the address is to be changed,
3. the new address, and
4. the signatures of all owners of the accounts.
Please send your request to the address on the cover of this Prospectus.
Changes to your accounts' registration - such as adding or removing a joint
owner, changing an owner's name, or changing the type of your account - must
also be submitted in writing. Please call 1-800-368-3863 for instructions. For
your protection, some requests may require a signature guarantee.
TRANSACTION SERVICES
FREE EXCHANGE PRIVILEGE. You may exchange shares between identically
registered Strong Funds accounts, either in writing or by telephone. By
establishing the telephone exchange services, you authorize the Fund and its
agents to act upon your instruction by telephone to exchange shares from any
account you specify. For tax purposes, an exchange is considered a sale and a
purchase of Fund shares. Please obtain and read the appropriate prospectus
before investing in any of the Strong Funds. Since an excessive number of
exchanges may be detrimental to the Funds, each Fund reserves the right to
discontinue the exchange privilege of any shareholder who makes more than five
exchanges in a year or three exchanges in a calendar quarter.
REGULAR INVESTMENT PLANS
Strong Funds' Automatic Investment Plan, Payroll Direct Deposit Plan, and
Automatic Exchange Plan, all discussed below, are methods of implementing DOLLAR
COST AVERAGING. Dollar cost averaging is an investment strategy that involves
investing a fixed amount of money at regular time intervals. By always investing
the same set amount, you will be purchasing more shares when the price is low
and fewer shares when the price is high. Ultimately, by using this principle in
conjunction with fluctuations in share price, your average cost per share may be
less than your average transaction price. A program of regular investment cannot
ensure a profit or protect against a loss during declining
-----------------------
PROSPECTUS PAGE II-10
<PAGE> 47
markets. Since such a program involves continuous investment regardless of
fluctuating share values, you should consider your ability to continue the
program through periods of both low and high share-price levels.
AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan allows you to make
regular, systematic investments in a Fund from your bank checking or NOW
account. You may choose to make investments on any day of the month in amounts
of $50 or more. You can set up the Automatic Investment Plan with any financial
institution that is a member of the Automated Clearing House. Because each Fund
has the right to close an investor's account for failure to reach the minimum
initial investment, please consider your ability to continue this Plan until you
reach the minimum initial investment. Such closing may occur in periods of
declining share prices. To establish the Plan, complete the Automatic Investment
Plan section on the account application, or call 1-800-368-3863 for an
application.
PAYROLL DIRECT DEPOSIT PLAN. Once you meet a Fund's minimum initial
investment requirement, you may purchase additional Fund shares through the
Payroll Direct Deposit Plan. Through this Plan, periodic investments (minimum
$50) are made automatically from your payroll check into your existing Fund
account. By enrolling in the Plan, you authorize your employer or its agents to
deposit a specified amount from your payroll check into the Fund's bank account.
In most cases, your Fund account will be credited the day after the amount is
received by the Fund's bank. In order to participate in the Plan, your employer
must have direct deposit capabilities through the Automated Clearing House
available to its employees. The Plan may be used for other direct deposits, such
as social security checks, military allotments, and annuity payments.
To establish Direct Deposit for your account, call 1-800-368-3863 to obtain
an Authorization for Payroll Direct Deposit to a Strong Funds Account form. Once
the Plan is established, you may alter the amount of the deposit, alter the
frequency of the deposit, or terminate your participation in the program by
notifying your employer.
AUTOMATIC EXCHANGE PLAN. The Automatic Exchange Plan allows you to make
regular, systematic exchanges (minimum $50) from one Strong Funds account into
another Strong Funds account. By setting up the Plan, you authorize the Fund and
its agents to redeem a set dollar amount or number of shares from the first
account and purchase shares of a second Strong Fund. In addition, you authorize
a Fund and its agents to accept telephone instructions to change the dollar
amount and frequency of the exchange. An exchange transaction is a sale and
purchase of shares for federal income tax purposes and may result in a capital
gain or loss. To establish the Plan, request a form by calling 1-800-368-3863.
-----------------------
PROSPECTUS PAGE II-11
<PAGE> 48
To participate in the Automatic Exchange Plan, you must have an initial
account balance of $2,500 in the first account and at least the minimum initial
investment in the second account. Exchanges may be made on any day or days of
your choice. If the amount remaining in the first account is less than the
exchange amount you requested, then the remaining amount will be exchanged. At
such time as the first account has a zero balance, your participation in the
Plan will be terminated. You may also terminate the Plan at any time by calling
or writing to the Fund. Once participation in the Plan has been terminated for
any reason, to reinstate the Plan you must do so in writing; simply investing
additional funds will not reinstate the Plan.
SYSTEMATIC WITHDRAWAL PLAN. You can set up automatic withdrawals from your
account at regular intervals. To begin distributions, you must have an initial
balance of $5,000 in your account and withdraw at least $50 per payment. To
establish the Systematic Withdrawal Plan, request a form by calling
1-800-368-3863. Depending upon the size of the account and the withdrawals
requested (and fluctuations in net asset value of the shares redeemed),
redemptions for the purpose of satisfying such withdrawals may reduce or even
exhaust the account. If the amount remaining in the account is not sufficient to
meet a Plan payment, the remaining amount will be redeemed and the Plan will be
terminated.
SPECIAL SITUATIONS
POWER OF ATTORNEY. If you are investing as attorney-in-fact for another
person, please complete the account application in the name of such person and
sign the back of the application in the following form: "[applicant's name] by
[your name], attorney-in-fact." To avoid having to file an affidavit prior to
each transaction, please complete the Power of Attorney form available from
Strong Funds at 1-800-368-3863. However, if you would like to use your own power
of attorney form, please call the same number for instructions.
CORPORATIONS AND TRUSTS. If you are investing for a corporation, please
include with your account application a certified copy of your corporate
resolution indicating which officers are authorized to act on behalf of the
corporation. As an alternative, you may complete a Certification of Authorized
Individuals form, which can be obtained from the Funds. Until a valid corporate
resolution or Certification of Authorized Individuals is received by the Fund,
services such as telephone and wire redemption will not be established.
If you are investing as a trustee, please include the date of the trust. All
trustees must sign the application. If they do not, services such as telephone
and wire redemption will not be established. All trustees must sign redemption
requests unless proper documentation to the contrary is provided to the Fund.
Failure to provide these documents or signatures as required when you invest may
result in delays in processing redemption requests.
-----------------------
PROSPECTUS PAGE II-12
<PAGE> 49
SIGNATURE GUARANTEES. A signature guarantee is designed to protect you and
the Funds against fraudulent transactions by unauthorized persons. In the
following instances, the Funds will require a signature guarantee for all
authorized owners of an account:
- - when you add the telephone redemption option to your existing account;
- - if you transfer the ownership of your account to another individual or
organization;
- - when you submit a written redemption request for more than $25,000;
- - when you request to redeem or redeposit shares that have been issued in
certificate form;
- - if you open an account and later decide that you want certificates;
- - when you request that redemption proceeds be sent to a different name or
address than is registered on your account;
- - if you add/change your name or add/remove an owner on your account; and
- - if you add/change the beneficiary on your transfer on death account.
A signature guarantee may be obtained from any eligible guarantor
institution, as defined by the SEC. These institutions include banks, savings
associations, credit unions, brokerage firms, and others. PLEASE NOTE THAT A
NOTARY PUBLIC STAMP OR SEAL IS NOT ACCEPTABLE.
-----------------------
PROSPECTUS PAGE II-13
<PAGE> 50
APPENDIX A
RATINGS OF DEBT OBLIGATIONS:
<TABLE>
<CAPTION>
Moody's Standard & Fitch
Investors Poor's Ratings Investors
Service, Inc. Group Service, Inc. Definition
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM Aaa AAA AAA Highest quality
Aa AA AA High quality
A A A Upper medium grade
Baa BBB BBB Medium grade
Ba BB BB Low grade
B B B Speculative
Caa, Ca, C CCC, CC, C CCC, CC, C Submarginal
D D DDD, DD, D Probably in default
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Moody's S&P Fitch
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MIG1/VMIG1 Best quality SP-+ Very strong quality F-1+ Exceptionally strong
quality
-----------------------------------------------------------------
MIG2/VMIG2 High quality SP-1 Strong quality F-1 Very strong quality
-----------------------------------------------------------------
MIG3/VMIG3 Favorable SP-2 Satisfactory grade F-2 Good credit quality
quality
-----------------------------------------------------------------
MIG4/VMIG4 Adequate F-3 Fair credit quality
quality
-----------------------------------------------------------------
SG Speculative SP-3 Speculative grade F-S Weak credit quality
grade
- ----------------------------------------------------------------------------
COMMERCIAL P-1 Superior quality A-1+ Extremely strong F-1+ Exceptionally strong
PAPER quality quality
-----------------------------------------------------------------
A-1 Strong quality F-1 Very strong quality
-----------------------------------------------------------------
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
-----------------------------------------------------------------
P-3 Acceptable quality A-3 Adequate quality F-3 Fair credit quality
-----------------------------------------------------------------
B Speculative quality F-S Weak credit quality
-----------------------------------------------------------------
Not Prime C Doubtful quality D Default
- ----------------------------------------------------------------------------
</TABLE>
----------------------
PROSPECTUS PAGE A-1
<PAGE> 51
APPENDIX B
WEIGHTED AVERAGE RATINGS OF DEBT OBLIGATIONS1
-----------------------------------
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Percentage of Assets Held During Percentage of Assets Held on
the Fiscal Year Ended October 31, 19952 October 31, 1995
- --------------------------------------------- ---------------------------------------------
Asset Allocation Asset Allocation
Fund Fund
---------------- ----------------
Equivalent Equivalent
S&P Moody's Rated Unrated3 S&P Moody's Rated Unrated3
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa4 25.7 % - AAA Aaa4 22.2 % -
AA Aa 2.8 - AA Aa 1.0 -
A A 3.9 - A A 4.8 -
BBB Baa 17.0 - BBB Baa 13.8 -
BB Ba 7.7 - BB Ba 11.5 -
B B 1.1 - B B .4 -
CCC Caa - - CCC Caa - -
CC Ca - - CC Ca - -
C C - - C C - -
Totals 58.2 % 0% Totals 53.7 % 0%
</TABLE>
WEIGHTED AVERAGE RATINGS OF CORPORATE COMMERCIAL PAPER1
-------------------------------------
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Percentage of Assets Held During Percentage of Assets Held on
the Fiscal Year Ended October 31, 19952 October 31, 1995
- ------------------------------------------------ ------------------------------------------------
Asset Asset
S&P Moody's Allocation S&P Moody's Allocation
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A1 P15 2.51% A1 P15 9.8%
A2 P25 1.02 A2 P25 -
A3 P3 - A3 P3 -
Totals 3.53% Totals 9.8%
</TABLE>
1 A security rated differently by two or more rating services is included in the
category representing the higher of the ratings assigned to the security.
Investment-grade debt obligations are those rated in one of the four highest
categories by an NRSRO and investment-grade commercial paper rated in one of
the top three categories by such organizations. See "Implementation of
Policies and Risks - Debt Obligations" in this Prospectus for a discussion of
the risks associated with non-investment-grade debt obligations and
Appendix A and the SAI for a description of credit ratings. This Appendix
does not contain information on the Total Return, American Utilities, and
Growth and Income Funds since these Funds do not invest more than 5% of their
assets in non-investment-grade debt obligations. This Appendix does not
contain information on the Equity Income Fund because it has not yet
completed a fiscal period.
2 Based on a weighted average of the securities held at the end of each month
from January 1, 1995 through October 31, 1995, which is the Fund's new fiscal
year end.
3 This category represents the comparable quality of unrated securities, as
determined by the Advisor.
4 Includes all U.S. government obligations.
5 Includes commercial paper rated in an equivalent category by either D&P or
Fitch.
----------------------
PROSPECTUS PAGE B-1
<PAGE> 52
NOTES
<PAGE> 53
STATEMENT OF ADDITIONAL INFORMATION
STRONG ASSET ALLOCATION FUND
STRONG EQUITY INCOME FUND
STRONG AMERICAN UTILITIES FUND
STRONG TOTAL RETURN FUND
STRONG GROWTH AND INCOME FUND
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: 1-414-359-1400
Toll-Free: 1-800-368-3863
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus of the Strong Asset Allocation Fund,
Inc. (the "Asset Allocation Fund"); Strong Total Return Fund, Inc. (the "Total
Return Fund"); and Strong American Utilities Fund (the "American Utilities
Fund"), Strong Equity Income Fund (the "Equity Income Fund"), and Strong Growth
and Income Fund (the "Growth and Income Fund"), all of which are series of
Strong Conservative Equity Funds, Inc. (hereinafter collectively referred to as
the "Funds") dated March 1, 1996. Requests for copies of the Prospectus should
be made by calling one of the numbers listed above. The financial statements
appearing in the Asset Allocation, Total Return, and American Utilities Funds'
Annual Report, which accompanies this Statement of Additional Information, are
incorporated herein by reference.
This Statement of Additional Information is dated March 1, 1996.
<PAGE> 54
STRONG CONSERVATIVE EQUITY FUNDS
<TABLE>
<S> <C>
TABLE OF CONTENTS PAGE
----
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . 4
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . 6
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . 6
Convertible Securities . . . . . . . . . . . . . . . . . . 6
Debt Obligations . . . . . . . . . . . . . . . . . . . . . 7
Depositary Receipts. . . . . . . . . . . . . . . . . . . . 7
Derivative Instruments . . . . . . . . . . . . . . . . . . 8
Energy Companies . . . . . . . . . . . . . . . . . . . . . 17
Foreign Investment Companies . . . . . . . . . . . . . . . 18
Foreign Securities . . . . . . . . . . . . . . . . . . . . 18
High-Yield (High-Risk) Securities. . . . . . . . . . . . . 19
Illiquid Securities. . . . . . . . . . . . . . . . . . . . 20
Lending of Portfolio Securities. . . . . . . . . . . . . . 21
Mortgage- and Asset-Backed Securities . . . . . . . . . . 21
Mortgage Dollar Rolls and Reverse Repurchase Agreements. . 22
Municipal Obligations . . . . . . . . . . . . . . . . . . 23
Public Utility Companies . . . . . . . . . . . . . . . . . 23
Repurchase Agreements . . . . . . . . . . . . . . . . . . 24
Short Sales Against the Box . . . . . . . . . . . . . . . 24
Short-Term Cash Management . . . . . . . . . . . . . . . . 24
Small Companies . . . . . . . . . . . . . . . . . . . . . 24
Sovereign Debt . . . . . . . . . . . . . . . . . . . . . . 25
Temporary Defensive Position . . . . . . . . . . . . . . . 26
Variable- or Floating-Rate Securities. . . . . . . . . . . 27
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . 28
When-Issued Securities . . . . . . . . . . . . . . . . . . 28
Zero-Coupon, Step-Coupon and Pay-in-Kind Securities. . . . 28
DIRECTORS AND OFFICERS OF THE FUNDS. . . . . . . . . . . . . 29
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . 32
INVESTMENT ADVISOR, SUBADVISOR, AND DISTRIBUTOR. . . . . . . 33
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . 36
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . 39
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . 40
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . 43
ADDITIONAL SHAREHOLDER INFORMATION . . . . . . . . . . . . . 43
FUND ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . 44
SHAREHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . 45
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . 45
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . 52
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . 54
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . 56
LEGAL COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . 56
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 56
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated March 1, 1996, and if given or made, such
information or representations may not be relied upon as having been authorized
by the Funds.
This Statement of Additional Information does not constitute an offer to sell
securities.
3
<PAGE> 55
INVESTMENT RESTRICTIONS
The investment objective of the Asset Allocation Fund is to seek high
total return consistent with reasonable risk over the long term. The
investment objective of the American Utilities and Equity Income Funds is to
seek total return by investing for both income and capital growth. The
investment objective of the Total Return and Growth and Income Funds is to seek
a high total return by investing for capital growth and income. The Funds'
investment objectives and policies are described in detail in the Prospectus
under the caption "Investment Objectives and Policies." The following are the
Funds' fundamental investment limitations which cannot be changed without
shareholder approval.
Each Fund:
1. May not with respect to 75% of its total assets, purchase the securities
of any issuer (except securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities) if, as a result, (i) more
than 5% of the Fund's total assets would be invested in the securities of
that issuer, or (ii) the Fund would hold more than 10% of the outstanding
voting securities of that issuer.
2. May (i) borrow money from banks and (ii) make other investments or engage
in other transactions permissible under the Investment Company Act of 1940
(the "1940 Act") which may involve a borrowing, provided that the
combination of (i) and (ii) shall not exceed 33 1/3% of the value of the
Fund's total assets (including the amount borrowed), less the Fund's
liabilities (other than borrowings), except that the Fund may borrow up to
an additional 5% of its total assets (not including the amount borrowed)
from a bank for temporary or emergency purposes (but not for leverage or
the purchase of investments). The Fund may also borrow money from the
other Strong Funds or other persons to the extent permitted by applicable
law.
3. May not issue senior securities, except as permitted under the 1940 Act.
4. May not act as an underwriter of another issuer's securities, except to
the extent that the Fund may be deemed to be an underwriter within the
meaning of the Securities Act of 1933 in connection with the purchase and
sale of portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options, futures contracts, or
other derivative instruments, or from investing in securities or other
instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's total
assets would be lent to other persons, except through (i) purchases of
debt securities or other debt instruments, or (ii) engaging in repurchase
agreements.
7. May not purchase the securities of any issuer if, as a result, more than
25% of the Fund's total assets would be invested in the securities of
issuers, the principal business activities of which are in the same
industry (however, with respect to the American Utilities Fund only, under
normal market conditions, it will invest more than 25% of its total assets
in the securities of issuers in the public utility industry).
8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prohibit
the Fund from purchasing or selling securities or other instruments backed
by real estate or of issuers engaged in real estate activities).
9. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and restrictions as the Fund.
4
<PAGE> 56
The following are the Funds' non-fundamental operating policies which may
be changed by the Board of Directors of each Fund without shareholder approval.
Each Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, or
unless it covers such short sale as required by the current rules and
positions of the Securities and Exchange Commission or its staff, and
provided that transactions in options, futures contracts, options on
futures contracts, or other derivative instruments are not deemed to
constitute selling securities short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions; and
provided that margin deposits in connection with futures contracts,
options on futures contracts, or other derivative instruments shall not
constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 15% of its net assets would be invested in illiquid securities, or
such other amounts as may be permitted under the 1940 Act.
4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.
5. Invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, restrictions and policies as the Fund.
6. Purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political subdivisions
thereof) if, as a result, more than 5% of its total assets would be
invested in the securities of issuers that, including predecessor or
unconditional guarantors, have a record of less than three years of
continuous operation. This policy does not apply to securities of pooled
investment vehicles or mortgage or asset-backed securities.
7. Invest in direct interests in oil, gas, or other mineral exploration
programs or leases; however, the Fund may invest in the securities of
issuers that engage in these activities.
8. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act and,
in accordance with Rule 4.5, will use futures or options on futures
transactions solely for bona fide hedging transactions (within the meaning
of the Commodity Exchange Act), provided, however, that the Fund may, in
addition to bona fide hedging transactions, use futures and options on
futures transactions if the aggregate initial margin and premiums required
to establish such positions, less the amount by which any such options
positions are in the money (within the meaning of the Commodity Exchange
Act), do not exceed 5% of the Fund's net assets.
In addition, (i) the aggregate value of securities underlying call
options on securities written by the Fund or obligations underlying put
options on securities written by the Fund determined as of the date the
options are written will not exceed 50% of the Fund's net assets; (ii)
the aggregate premiums paid on all options purchased by the Fund and
which are being held will not exceed 20% of the Fund's net assets; (iii)
the Fund will not purchase put or call options, other than hedging
positions, if, as a result thereof, more than 5% of its total assets
would be so invested; and (iv) the aggregate margin deposits required on
all futures and options on futures transactions being held will not
exceed 5% of the Fund's total assets.
9. Pledge, mortgage or hypothecate any assets owned by the Fund except as
may be necessary in connection with permissible borrowings or investments
and then such pledging, mortgaging, or hypothecating may not exceed
33 1/3% of the Fund's total assets at the time of the borrowing or
investment.
10. Purchase or retain the securities of any issuer if any officer or
director of the Fund or its investment advisor (or subadvisor, in the case
of the American Utilities Fund) beneficially owns more than 1/2 of 1% of
the securities of such issuer and such officers and directors together own
beneficially more than 5% of the securities of such issuer.
5
<PAGE> 57
11. Purchase warrants, valued at the lower of cost or market value, in
excess of 5% of the Fund's net assets. Included in that amount, but not
to exceed 2% of the Fund's net assets, may be warrants that are not
listed on any stock exchange. Warrants acquired by the Fund in units or
attached to securities are not subject to these restrictions.
12. Borrow money except (i) from banks or (ii) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities when
bank borrowings exceed 5% of its total assets.
13. Make any loans other than loans of portfolio securities, except through
(i) purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
Except for the fundamental investment limitations listed above and each
Fund's investment objective, the other investment policies described in the
Prospectus and this Statement of Additional Information are not fundamental and
may be changed with approval of a Fund's Board of Directors.
Unless noted otherwise, if a percentage restriction is adhered to at the
time of investment, a later increase or decrease in percentage resulting from a
change in a Fund's assets (i.e., due to cash inflows or redemptions) or in
market value of the investment or a Fund's assets will not constitute a
violation of that restriction.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Funds'
investment objective, policies, and techniques that are described in detail in
the Prospectus under the captions "Investment Objectives and Policies" and
"Implementation of Policies and Risks."
BORROWING
(ALL FUNDS)
A Fund may borrow money from banks and make other investments or engage in
other transactions permissible under the 1940 Act which may be considered a
borrowing (such as mortgage dollar rolls and reverse repurchase agreements) as
discussed under "Investment Restrictions." However, a Fund may not purchase
securities when bank borrowings exceed 5% of a Fund's total assets. Presently,
the Funds only intend to borrow from banks for temporary or emergency purposes.
The Funds have established a line-of-credit (LOC) with certain banks by
which they may borrow funds for temporary or emergency purposes. A borrowing
is presumed to be for temporary or emergency purposes if it is repaid by a Fund
within sixty days and is not extended or renewed. The Funds intend to use the
LOC to meet large or unexpected redemptions that would otherwise force a Fund
to liquidate securities under circumstances which are unfavorable to a Fund's
remaining shareholders. The Funds pay a commitment fee to the banks for the
LOC.
CONVERTIBLE SECURITIES
(ALL FUNDS)
A Fund may invest in convertible securities, which are bonds, debentures,
notes, preferred stocks, or other securities that may be converted into or
exchanged for a specified amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest normally paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted, or exchanged. Convertible
securities have unique investment characteristics in that they generally (i)
have higher yields than common stocks, but lower yields than comparable
non-convertible securities, (ii) are less subject to fluctuation in value than
the underlying stock since they have fixed income characteristics, and (iii)
provide the potential for capital appreciation if the market price of the
underlying common stock increases. Most convertible securities currently are
issued by U.S. companies, although a substantial Eurodollar convertible
securities market has developed, and the markets for convertible securities
denominated in local currencies are increasing.
6
<PAGE> 58
The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value,
if converted into the underlying common stock). The investment value of a
convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value. The
conversion value of a convertible security is determined by the market price of
the underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. Generally, the conversion value decreases as the
convertible security approaches maturity. To the extent the market price of
the underlying common stock approaches or exceeds the conversion price, the
price of the convertible security will be increasingly influenced by its
conversion value. A convertible security generally will sell at a premium over
its conversion value by the extent to which investors place value on the right
to acquire the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by a Fund is called for redemption,
a Fund will be required to permit the issuer to redeem the security, convert it
into the underlying common stock, or sell it to a third party.
DEBT OBLIGATIONS
(ALL FUNDS)
Each Fund may invest a portion of its assets in debt obligations. Issuers
of debt obligations have a contractual obligation to pay interest at a
specified rate on specified dates and to repay principal on a specified
maturity date. Certain debt obligations (usually intermediate- and long-term
bonds) have provisions that allow the issuer to redeem or "call" a bond before
its maturity. Issuers are most likely to call such securities during periods
of falling interest rates and a Fund may have to replace such securities with
lower yielding securities, which could result in a lower return for the Fund.
PRICE VOLATILITY. The market value of debt obligations is affected
primarily by changes in prevailing interest rates. The market value of a debt
obligation generally reacts inversely to interest-rate changes, meaning, when
prevailing interest rates decline, an obligation's price usually rises, and
when prevailing interest rates rise, an obligation's price usually declines.
MATURITY. In general, the longer the maturity of a debt obligation, the
higher its yield and the greater its sensitivity to changes in interest rates.
Conversely, the shorter the maturity, the lower the yield but the greater the
price stability. Commercial paper is generally considered the shortest form of
debt obligation.
CREDIT QUALITY. The values of debt obligations may also be affected by
changes in the credit rating or financial condition of their issuers.
Generally, the lower the quality rating of a security, the higher the degree of
risk as to the payment of interest and return of principal. To compensate
investors for taking on such increased risk, those issuers deemed to be less
creditworthy generally must offer their investors higher interest rates than do
issuers with better credit ratings.
In conducting its credit research and analysis, the Advisor considers both
qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. The Advisor also relies, in part, on credit ratings
compiled by a number of Nationally Recognized Statistical Rating Organizations
("NRSROs"). Refer to the Appendix for a discussion of securities ratings.
DEPOSITARY RECEIPTS
(ALL FUNDS)
The Funds may invest in foreign securities by purchasing depositary
receipts, including American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"), or other securities convertible into securities
of foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. Generally,
ADRs, in registered form, are denominated in U.S. dollars and are designed for
use in the U.S. securities markets, while EDRs, in bearer form, may be
denominated in other currencies and are designed for use in the European
securities markets. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. For purposes of a Fund's
investment policies, ADRs and EDRs are deemed to have the same classification
as the underlying securities they represent, except that
7
<PAGE> 59
ADRs and EDRs shall be treated as indirect foreign investments. Thus, an ADR
or EDR representing ownership of common stock will be treated as common stock.
ADR and EDR depositary receipts do not eliminate all of the risks associated
with directly investing in the securities of foreign issuers.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants.
A depositary may establish an unsponsored facility without participation
by (or even necessarily the acquiescence of) the issuer of the deposited
securities, although typically the depositary requests a letter of
non-objection from such issuer prior to the establishment of the facility.
Holders of unsponsored ADRs generally bear all the costs of such facilities.
The depositary usually charges fees upon the deposit and withdrawal of the
deposited securities, the conversion of dividends into U.S. dollars, the
disposition of non-cash distributions, and the performance of other services.
The depositary of an unsponsored facility frequently is under no obligation to
pass through voting rights to ADR holders in respect of the deposited
securities. In addition, an unsponsored facility is generally not obligated to
distribute communications received from the issuer of the deposited securities
or to disclose material information about such issuer in the U.S. and thus
there may not be a correlation between such information and the market value of
the depositary receipts.
Sponsored ADR facilities are created in generally the same manner as
unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depositary. The deposit agreement
sets out the rights and responsibilities of the issuer, the depositary, and the
ADR holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as
dividend payment fees of the depositary), although ADR holders continue to bear
certain other costs (such as deposit and withdrawal fees). Under the terms of
most sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities.
DERIVATIVE INSTRUMENTS
(ALL FUNDS)
IN GENERAL. A Fund may use derivative instruments for any lawful purpose
consistent with the Fund's investment objective such as hedging or managing
risk, but not for speculation. Derivative instruments are commonly defined to
include securities or contracts whose values depend on (or "derive" from) the
value of one or more other assets, such as securities, currencies, or
commodities. These "other assets" are commonly referred to as "underlying
assets."
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Options and forward
contracts are considered to be the basic "building blocks" of derivatives. For
example, forward-based derivatives include forward contracts, swap contracts,
as well as exchange-traded futures. Option-based derivatives include privately
negotiated, over-the-counter (OTC) options (including caps, floors, collars,
and options on forward and swap contracts) and exchange-traded options on
futures. Diverse types of derivatives may be created by combining options or
forward contracts in different ways, and by applying these structures to a wide
range of underlying assets.
An option is a contract in which the "holder" (the buyer) pays a certain
amount (the "premium") to the "writer" (the seller) to obtain the right, but
not the obligation, to buy from the writer (in a "call") or sell to the writer
(in a "put") a specific asset at an agreed upon price at or before a certain
time. The holder pays the premium at inception and has no further financial
obligation. The holder of an option-based derivative generally will benefit
from favorable movements in the price of the underlying asset but is not
exposed to corresponding losses due to adverse movements in the value of the
underlying asset. The writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset.
A forward is a sales contract between a buyer (holding the "long"
position) and a seller (holding the "short" position) for an asset with
delivery deferred until a future date. The buyer agrees to pay a fixed price
at the agreed future date and the seller agrees to deliver the asset. The
seller hopes that the market price on the delivery date is less than the agreed
upon price, while the buyer hopes for the contrary. The change in value of a
forward-based derivative generally is roughly proportional to the change in
value of the underlying asset.
8
<PAGE> 60
HEDGING. A Fund may use derivative instruments to protect against
possible adverse changes in the market value of securities held in, or are
anticipated to be held in, the Fund's portfolio. Derivatives may also be used
by a Fund to "lock-in" the Fund's realized but unrecognized gains in the value
of its portfolio securities. Hedging strategies, if successful, can reduce the
risk of loss by wholly or partially offsetting the negative effect of
unfavorable price movements in the investments being hedged. However, hedging
strategies can also reduce the opportunity for gain by offsetting the positive
effect of favorable price movements in the hedged investments.
MANAGING RISK. A Fund may also use derivative instruments to manage the
risks of the Fund's portfolio. Risk management strategies include, but are not
limited to, facilitating the sale of portfolio securities, managing the
effective maturity or duration of debt obligations in a Fund's portfolio,
establishing a position in the derivatives markets as a substitute for buying
or selling certain securities, or creating or altering exposure to certain
asset classes, such as equity, debt, and foreign securities. The use of
derivative instruments may provide a less expensive, more expedient or more
specifically focused way for a Fund to invest than "traditional" securities
(i.e., stocks or bonds) would.
EXCHANGE OR OTC DERIVATIVES. Derivative instruments may be
exchange-traded or traded in OTC transactions between private parties.
Exchange-traded derivatives are standardized options and futures contracts
traded in an auction on the floor of a regulated exchange. Exchange contracts
are generally very liquid. The exchange clearinghouse is the counterparty of
every contract. Thus, each holder of an exchange contract bears the credit
risk of the clearinghouse (and has the benefit of its financial strength)
rather than that of a particular counterparty. Over-the-counter transactions
are subject to additional risks, such as the credit risk of the counterparty to
the instrument and are less liquid than exchange-traded derivatives since they
often can only be closed out with the other party to the transaction.
RISKS AND SPECIAL CONSIDERATIONS. The use of derivative instruments
involves risks and special considerations as described below. Risks pertaining
to particular derivative instruments are described in the sections that follow.
(1) MARKET RISK. The primary risk of derivatives is the same as the risk
of the underlying assets, namely that the value of the underlying asset may go
up or down. Adverse movements in the value of an underlying asset can expose a
Fund to losses. Derivative instruments may include elements of leverage and,
accordingly, the fluctuation of the value of the derivative instrument in
relation to the underlying asset may be magnified. The successful use of
derivative instruments depends upon a variety of factors, particularly the
Advisor's ability to predict movements of the securities, currencies, and
commodity markets, which requires different skills than predicting changes in
the prices of individual securities. There can be no assurance that any
particular strategy adopted will succeed. The Advisor's decision to engage in
a derivative instrument will reflect the Advisor's judgment that the derivative
transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives, investment limitations, and operating
policies. In making such a judgment, the Advisor will analyze the benefits and
risks of the derivative transaction and weigh them in the context of the Fund's
entire portfolio and investment objective.
(2) CREDIT RISK. A Fund will be subject to the risk that a loss may be
sustained by the Fund as a result of the failure of a counterparty to comply
with the terms of a derivative instrument. The counterparty risk for
exchange-traded derivative instruments is generally less than for
privately-negotiated or OTC derivative instruments, since generally a clearing
agency, which is the issuer or counterparty to each exchange-traded instrument,
provides a guarantee of performance. For privately-negotiated instruments,
there is no similar clearing agency guarantee. In all transactions, a Fund
will bear the risk that the counterparty will default, and this could result in
a loss of the expected benefit of the derivative transaction and possibly other
losses to the Fund. A Fund will enter into transactions in derivative
instruments only with counterparties that the Advisor reasonably believes are
capable of performing under the contract.
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(3) CORRELATION RISK. When a derivative transaction is used to completely
hedge another position, changes in the market value of the combined position
(the derivative instrument plus the position being hedged) result from an
imperfect correlation between the price movements of the two instruments. With
a perfect hedge, the value of the combined position remains unchanged for any
change in the price of the underlying asset. With an imperfect hedge, the
values of the derivative instrument and its hedge are not perfectly correlated.
Correlation risk is the risk that there might be imperfect correlation, or
even no correlation, between price movements of an instrument and price
movements of investments being hedged. For example, if the value of a
derivative instruments used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investments, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded. The
effectiveness of hedges using instruments on indices will depend, in part, on
the degree of correlation between price movements in the index and price
movements in the investments being hedged.
(4) LIQUIDITY RISK. Derivatives are also subject to liquidity risk.
Liquidity risk is the risk that a derivative instrument cannot be sold, closed
out, or replaced quickly at or very close to its fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction. A Fund might be required by applicable
regulatory requirement to maintain assets as "cover," maintain segregated
accounts, and/or make margin payments when it takes positions in derivative
instruments involving obligations to third parties (i.e., instruments other
than purchased options). If a Fund was unable to close out its positions in
such instruments, it might be required to continue to maintain such assets or
accounts or make such payments until the position expired, matured, or was
closed out. The requirements might impair a Fund's ability to sell a portfolio
security or make an investment at a time when it would otherwise be favorable
to do so, or require that the Fund sell a portfolio security at a
disadvantageous time. A Fund's ability to sell or close out a position in an
instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the counterparty to enter into a transaction closing out the
position. Therefore, there is no assurance that any derivatives position can
be sold or closed out at a time and price that is favorable to a Fund.
(5) LEGAL RISK. Legal risk is the risk of loss caused by the legal
unenforcibility of a party's obligations under the derivative. While a party
seeking price certainty agrees to surrender the potential upside in exchange
for downside protection, the party taking the risk is looking for a positive
payoff. Despite this voluntary assumption of risk, a counterparty that has
lost money in a derivative transaction may try to avoid payment by exploiting
various legal uncertainties about certain derivative products.
(6) SYSTEMIC OR "INTERCONNECTION" RISK. Interconnection risk is the risk
that a disruption in the financial markets will cause difficulties for all
market participants. In other words, a disruption in one market will spill
over into other markets, perhaps creating a chain reaction. Much of the OTC
derivatives market takes place among the OTC dealers themselves, thus creating
a large interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create losses
at other dealers and destabilize the entire market for OTC derivative
instruments.
GENERAL LIMITATIONS. The use of derivative instruments is subject to
applicable regulations of the Securities and Exchange Commission (the "SEC"),
the several options and futures exchanges upon which they may be traded, the
Commodity Futures Trading Commission ("CFTC"), and various state regulatory
authorities. In addition, a Fund's ability to use derivative instruments may
be limited by certain tax considerations. For a discussion of the federal
income tax treatment of a Fund's derivative instruments, see "Taxes -
Derivative Instruments."
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Each Fund has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the CFTC and the National
Futures Association, which regulate trading in the futures markets. In
accordance with Rule 4.5 of the regulations under the Commodity Exchange Act
(the "CEA"), the notice of eligibility for a Fund includes representations that
the Fund will use futures contracts and related options solely for bona fide
hedging purposes within the meaning of CFTC regulations, provided that the Fund
may hold other positions in futures contracts and related options that do not
qualify as a bona fide hedging position if the aggregate initial margin
deposits and premiums required to establish these positions, less the amount by
which any such futures contracts and related options positions are "in the
money," do not exceed 5% of the Fund's net assets. Adherence to these
guidelines does not limit a Fund's risk to 5% of the Fund's assets.
In addition, certain state regulations presently require that (i) the
aggregate value of securities underlying call options on securities written by
a Fund or obligations underlying put options on securities written by a Fund
determined as of the date the options are written will not exceed 50% of the
Fund's net assets; (ii) the aggregate premiums paid on all options purchased by
a Fund and which are being held will not exceed 20% of the Fund's net assets;
(iii) a Fund will not purchase put or call options, other than hedging
positions, if, as a result thereof, more than 5% of its total assets would be
so invested; and (iv) the aggregate margin deposits required on all futures and
options on futures transactions being held will not exceed 5% of a Fund's total
assets.
The SEC has identified certain trading practices involving derivative
instruments that involve the potential for leveraging a Fund's assets in a
manner that raises issues under the 1940 Act. In order to limit the potential
for the leveraging of a Fund's assets, as defined under the 1940 Act, the SEC
has stated that a Fund may use coverage or the segregation of a Fund's assets.
To the extent required by SEC guidelines, a Fund will not enter into any such
transactions unless it owns either: (i) an offsetting ("covered") position in
securities, options, futures, or derivative instruments; or (ii) cash, liquid
high grade debt obligations, or securities positions that substantially
correlate to the market movements of the instrument, with a value sufficient at
all times to cover its potential obligations to the extent that the position is
not "covered". For this purpose, a high grade debt obligation shall include
any debt obligation rated A or better by an NRSRO. The Funds will also set
aside cash and/or appropriate liquid assets in a segregated custodial account
if required to do so by the SEC and CFTC regulations. Assets used as cover or
held in a segregated account cannot be sold while the derivative position is
open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of a Fund's assets to segregated accounts could
impede portfolio management or the Fund's ability to meet redemption requests
or other current obligations.
In some cases a Fund may be required to maintain or limit exposure to a
specified percentage of its assets to a particular asset class. In such cases,
when a Fund uses a derivative instrument to increase or decrease exposure to an
asset class and is required by applicable SEC guidelines to set aside liquid
assets in a segregated account to secure its obligations under the derivative
instruments, the Advisor may, where reasonable in light of the circumstances,
measure compliance with the applicable percentage by reference to the nature of
the economic exposure created through the use of the derivative instrument and
not by reference to the nature of the exposure arising from the liquid assets
set aside in the segregated account (unless another interpretation is specified
by applicable regulatory requirements).
OPTIONS. A Fund may use options for any lawful purpose consistent with
the Fund's investment objective such as hedging or managing risk but not for
speculation. An option is a contract in which the "holder" (the buyer) pays a
certain amount (the "premium") to the "writer" (the seller) to obtain the
right, but not the obligation, to buy from the writer (in a "call") or sell to
the writer (in a "put") a specific asset at an agreed upon price (the "strike
price" or "exercise price") at or before a certain time (the "expiration
date"). The holder pays the premium at inception and has no further financial
obligation. The holder of an option will benefit from favorable movements in
the price of the underlying asset but is not exposed to corresponding losses
due to adverse movements in the value of the underlying asset. The writer of
an option will receive fees or premiums but is exposed to losses due to changes
in the value of the underlying asset. A Fund may buy or write (sell) put and
call options on assets, such as securities, currencies, commodities, and
indices of debt and equity securities ("underlying assets") and enter into
closing transactions with respect to such options to terminate an existing
position. Options used by the Funds may include European, American, and
Bermuda style options. If an option is exercisable only at maturity, it is a
"European" option; if it is also exercisable prior to maturity, it is an
"American" option. If it is exercisable only at certain times, it is a
"Bermuda" option.
Each Fund may purchase (buy) and write (sell) put and call options
underlying assets and enter into closing transactions with respect to such
options to terminate an existing position. The purchase of call options serves
as a long hedge, and the purchase of put options serves as a short hedge.
Writing put or call options can enable a Fund to enhance income by
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reason of the premiums paid by the purchaser of such options. Writing call
options serves as a limited short hedge because declines in the value of the
hedged investment would be offset to the extent of the premium received for
writing the option. However, if the security appreciates to a price higher
than the exercise price of the call option, it can be expected that the option
will be exercised and the Fund will be obligated to sell the security at less
than its market value or will be obligated to purchase the security at a price
greater than that at which the security must be sold under the option. All or
a portion of any assets used as cover for OTC options written by a Fund would
be considered illiquid to the extent described under "Investment Policies and
Techniques -- Illiquid Securities." Writing put options serves as a limited
long hedge because increases in the value of the hedged investment would be
offset to the extent of the premium received for writing the option. However,
if the security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security at more than its market value.
The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration, the
relationship of the exercise price to the market price of the underlying
investment, and general market conditions.
A Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, a Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction. Closing transactions permit a Fund to realize the
profit or limit the loss on an option position prior to its exercise or
expiration.
The Funds may purchase or write both exchange-traded and OTC options.
Exchange-traded options are issued by a clearing organization affiliated with
the exchange on which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction. In contrast, OTC
options are contracts between a Fund and the other party to the transaction
("counter party") (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when a Fund purchases or writes an OTC option,
it relies on the counter party to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counter party to do so
would result in the loss of any premium paid by the Fund as well as the loss of
any expected benefit of the transaction.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. Each Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counter party, or by a
transaction in the secondary market if any such market exists. Although each
Fund will enter into OTC options only with counter parties that are expected to
be capable of entering into closing transactions with the Funds, there is no
assurance that the Funds will in fact be able to close out an OTC option at a
favorable price prior to expiration. In the event of insolvency of the counter
party, a Fund might be unable to close out an OTC option position at any time
prior to its expiration. If a Fund were unable to effect a closing transaction
for an option it had purchased, it would have to exercise the option to realize
any profit.
The Funds may engage in options transactions on indices in much the same
manner as the options on securities discussed above, except the index options
may serve as a hedge against overall fluctuations in the securities market in
general.
The writing and purchasing of options is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Imperfect correlation between
the options and securities markets may detract from the effectiveness of
attempted hedging.
SPREAD TRANSACTIONS. A Fund may use spread transactions for any lawful
purpose consistent with the Fund's investment objective such as hedging or
managing risk, but not for speculation. A Fund may purchase covered spread
options from securities dealers. Such covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives a
Fund the right to put, or sell, a security that it owns at a fixed dollar
spread or fixed yield spread in relationship to another security that the Fund
does not own, but which is used as a benchmark. The risk to a Fund in
purchasing covered spread options is the cost of the premium paid for the
spread option and any transaction costs. In addition, there is no assurance
that closing transactions will be available. The purchase of spread options
will be used to protect a Fund against adverse changes in prevailing credit
quality spreads, i.e., the yield spread between high quality and lower quality
securities. Such protection is only provided during the life of the spread
option.
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FUTURES CONTRACTS. A Fund may use futures contracts for any lawful
purpose consistent with the Fund's investment objective such as hedging or
managing risk but not for speculation. A Fund may enter into futures
contracts, including interest rate, index, and currency futures. Each Fund may
also purchase put and call options, and write covered put and call options, on
futures in which it is allowed to invest. The purchase of futures or call
options thereon can serve as a long hedge, and the sale of futures or the
purchase of put options thereon can serve as a short hedge. Writing covered
call options on futures contracts can serve as a limited short hedge, and
writing covered put options on futures contracts can serve as a limited long
hedge, using a strategy similar to that used for writing covered options in
securities. The Funds' hedging may include purchases of futures as an offset
against the effect of expected increases in currency exchange rates and
securities prices and sales of futures as an offset against the effect of
expected declines in currency exchange rates and securities prices. The Funds
may also write put options on futures contracts while at the same time
purchasing call options on the same futures contracts in order to create
synthetically a long futures contract position. Such options would have the
same strike prices and expiration dates. The Funds will engage in this
strategy only when the Advisor believes it is more advantageous to the Funds
than is purchasing the futures contract.
To the extent required by regulatory authorities, the Funds only enter
into futures contracts that are traded on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures contracts could be used to
reduce a Fund's exposure to market, currency, or interest rate fluctuations, a
Fund may be able to hedge its exposure more effectively and perhaps at a lower
cost through using futures contracts.
An interest rate futures contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (e.g., debt security) or currency for a specified price at
a designated date, time, and place. An index futures contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index futures
contract was originally written. Transaction costs are incurred when a futures
contract is bought or sold and margin deposits must be maintained. A futures
contract may be satisfied by delivery or purchase, as the case may be, of the
instrument, the currency or by payment of the change in the cash value of the
index. More commonly, futures contracts are closed out prior to delivery by
entering into an offsetting transaction in a matching futures contract.
Although the value of an index might be a function of the value of certain
specified securities, no physical delivery of those securities is made. If the
offsetting purchase price is less than the original sale price, a Fund realizes
a gain; if it is more, a Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, a Fund realizes a gain; if
it is less, a Fund realizes a loss. The transaction costs must also be
included in these calculations. There can be no assurance, however, that a
Fund will be able to enter into an offsetting transaction with respect to a
particular futures contract at a particular time. If a Fund is not able to
enter into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the futures contract.
No price is paid by a Fund upon entering into a futures contract.
Instead, at the inception of a futures contract, a Fund is required to deposit
in a segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash,
U.S. government securities or other liquid, high grade debt obligations, in an
amount generally equal to 10% or less of the contract value. High grade
securities include securities rated "A" or better by an NRSRO. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to a Fund at the termination of the transaction if all
contractual obligations have been satisfied. Under certain circumstances, such
as periods of high volatility, a Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of a Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases
or sells a futures contract or writes a call or put option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If a Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous. Purchasers and sellers of futures positions
and options on futures can enter into
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offsetting closing transactions by selling or purchasing, respectively, an
instrument identical to the instrument held or written. Positions in futures
and options on futures may be closed only on an exchange or board of trade that
provides a secondary market. The Funds intend to enter into futures
transactions only on exchanges or boards of trade where there appears to be a
liquid secondary market. However, there can be no assurance that such a market
will exist for a particular contract at a particular time.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a future or option on a futures contract can
vary from the previous day's settlement price; once that limit is reached, no
trades may be made that day at a price beyond the limit. Daily price limits do
not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to
be required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or options on futures contracts
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and options on
futures contracts markets are subject to daily variation margin calls and might
be compelled to liquidate futures or options on futures contracts positions
whose prices are moving unfavorably to avoid being subject to further calls.
These liquidations could increase price volatility of the instruments and
distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures markets are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the future
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities
markets involving arbitrage, "program trading" and other investment strategies
might result in temporary price distortions.
FOREIGN CURRENCIES. The Funds may purchase and sell foreign currency on a
spot basis, and may use currency-related derivatives instruments such as
options on foreign currencies, futures on foreign currencies, options on
futures on foreign currencies and forward currency contracts (i.e., an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into). The Funds
may use these instruments for hedging or any other lawful purpose consistent
with their respective investment objectives, including transaction hedging,
anticipatory hedging, cross hedging, proxy hedging, and position hedging. The
Funds' use of currency-related derivative instruments will be directly related
to a Fund's current or anticipated portfolio securities, and the Funds may
engage in transactions in currency-related derivative instruments as a means to
protect against some or all of the effects of adverse changes in foreign
currency exchange rates on their portfolio investments. In general, if the
currency in which a portfolio investment is denominated appreciates against the
U.S. dollar, the dollar value of the security will increase. Conversely, a
decline in the exchange rate of the currency would adversely affect the value
of the portfolio investment expressed in U.S. dollars.
For example, a Fund might use currency-related derivative instruments to
"lock in" a U.S. dollar price for a portfolio investment, thereby enabling the
Fund to protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the subject foreign currency
during the period between the date the security is purchased or sold and the
date on which payment is made or received. A Fund also might use
currency-related derivative instruments when the Advisor believes that one
currency may experience a substantial movement against another currency,
including the U.S. dollar, and it may use currency-related derivative
instruments to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. Alternatively, where appropriate, a Fund
may use currency-related derivative instruments to hedge all or part of its
foreign currency exposure through the use of a basket of currencies or a proxy
currency where such currency or currencies act as an effective proxy for other
currencies. The use of this basket hedging technique may be more efficient and
economical than using separate currency-related derivative instruments for each
currency exposure held by the Fund. Furthermore, currency-related derivative
instruments may be used for short hedges - for example, a Fund may sell a
forward currency contract to lock in the U.S. dollar equivalent of the proceeds
from the anticipated sale of a security denominated in a foreign currency.
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In addition, a Fund may use a currency-related derivative instrument to
shift exposure to foreign currency fluctuations from one foreign country to
another foreign country where the Advisor believes that the foreign currency
exposure purchased will appreciate relative to the U.S. dollar and thus better
protect the Fund against the expected decline in the foreign currency exposure
sold. For example, if a Fund owns securities denominated in a foreign currency
and the Advisor believes that currency will decline, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in a second foreign currency that the Advisor believes
would better protect the Fund against the decline in the first security than
would a U.S. dollar exposure. Hedging transactions that use two foreign
currencies are sometimes referred to as "cross hedges." The effective use of
currency-related derivative instruments by a Fund in a cross hedge is dependent
upon a correlation between price movements of the two currency instruments and
the underlying security involved, and the use of two currencies magnifies the
risk that movements in the price of one instrument may not correlate or may
correlate unfavorably with the foreign currency being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the currency
instruments used or investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
A Fund also might seek to hedge against changes in the value of a
particular currency when no hedging instruments on that currency are available
or such hedging instruments are more expensive than certain other hedging
instruments. In such cases, the Fund may hedge against price movements in that
currency by entering into transactions using currency-related derivative
instruments on another foreign currency or a basket of currencies, the values
of which the Advisor believes will have a high degree of positive correlation
to the value of the currency being hedged. The risk that movements in the
price of the hedging instrument will not correlate perfectly with movements in
the price of the currency being hedged is magnified when this strategy is used.
The use of currency-related derivative instruments by a Fund involves a
number of risks. The value of currency-related derivative instruments depends
on the value of the underlying currency relative to the U.S. dollar. Because
foreign currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such derivative
instruments, a Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots (generally consisting of transactions of greater than $1 million).
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions in
the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the derivative instruments until
they re-open.
Settlement of transactions in currency-related derivative instruments
might be required to take place within the country issuing the underlying
currency. Thus, a Fund might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents and
might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.
When a Fund engages in a transaction in a currency-related derivative
instrument, it relies on the counterparty to make or take delivery of the
underlying currency at the maturity of the contract or otherwise complete the
contract. In other words, the Fund will be subject to the risk that a loss may
be sustained by the Fund as a result of the failure of the counterparty to
comply with the terms of the transaction. The counterparty risk for
exchange-traded instruments is generally less than for privately-negotiated or
OTC currency instruments, since generally a clearing agency, which is the
issuer or counterparty to each instrument, provides a guarantee of performance.
For privately-negotiated instruments, there is no similar clearing agency
guarantee. In all transactions, the Fund will bear the risk that the
counterparty will default, and this could result in a loss of the expected
benefit of the transaction and possibly other losses to the Fund. The Funds
will enter into transactions in currency-related derivative instruments only
with counterparties that the Advisor reasonably believes are capable of
performing under the contract.
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Purchasers and sellers of currency-related derivative instruments may
enter into offsetting closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that a Fund will in fact be able to close out a forward
currency contract (or any other currency-related derivative instrument) at a
time and price favorable to a Fund. In addition, in the event of insolvency of
the counterparty, a Fund might be unable to close out a forward currency
contract at any time prior to maturity. In the case of an exchange-traded
instrument, a Fund will be able to close the position out only on an exchange
which provides a market for the instruments. The ability to establish and
close out positions on an exchange is subject to the maintenance of a liquid
market, and there can be no assurance that a liquid market will exist for any
instrument at any specific time. In the case of a privately-negotiated
instrument, a Fund will be able to realize the value of the instrument only by
entering into a closing transaction with the issuer or finding a third party
buyer for the instrument. While a Fund will enter into privately-negotiated
transactions only with entities who are expected to be capable of entering into
a closing transaction, there can be no assurance that a Fund will in fact be
able to enter into such closing transactions.
The precise matching of currency-related derivative instrument amounts and
the value of the portfolio securities involved generally will not be possible
because the value of such securities, measured in the foreign currency, will
change after the currency-related derivative instrument position has been
established. Thus, a Fund might need to purchase or sell foreign currencies in
the spot (cash) market. The projection of short-term currency market movements
is extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain.
Permissible foreign currency options will include options traded primarily
in the OTC market. Although options on foreign currencies are traded primarily
in the OTC market, the Funds will normally purchase or sell OTC options on
foreign currency only when the Advisor reasonably believes a liquid secondary
market will exist for a particular option at any specific time.
There will be a cost to a Fund of engaging in transactions in
currency-related derivative instruments that will vary with factors such as the
contract or currency involved, the length of the contract period and the market
conditions then prevailing. A Fund using these instruments may have to pay a
fee or commission or, in cases where the instruments are entered into on a
principal basis, foreign exchange dealers or other counterparties will realize
a profit based on the difference ("spread") between the prices at which they
are buying and selling various currencies. Thus, for example, a dealer may
offer to sell a foreign currency to a Fund at one rate, while offering a lesser
rate of exchange should the Fund desire to resell that currency to the dealer.
When required by the SEC guidelines, the Funds will set aside permissible
liquid assets in segregated accounts or otherwise cover their respective
potential obligations under currency-related derivatives instruments. To the
extent a Fund's assets are so set aside, they cannot be sold while the
corresponding currency position is open, unless they are replaced with similar
assets. As a result, if a large portion of a Fund's assets are so set aside,
this could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
The Advisor's decision to engage in a transaction in a particular
currency-related derivative instrument will reflect the Advisor's judgment that
the transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives and policies. In making such a judgment,
the Advisor will analyze the benefits and risks of the transaction and weigh
them in the context of the Fund's entire portfolio and objectives. The
effectiveness of any transaction in a currency-related derivative instrument is
dependent on a variety of factors, including the Advisor's skill in analyzing
and predicting currency values and upon a correlation between price movements
of the currency instrument and the underlying security. There might be
imperfect correlation, or even no correlation, between price movements of an
instrument and price movements of investments being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the markets
in which these instruments are traded. In addition, a Fund's use of
currency-related derivative instruments is always subject to the risk that the
currency in question could be devalued by the foreign government. In such a
case, any long currency positions would decline in value and could adversely
affect any hedging position maintained by the Fund.
The Funds' dealing in currency-related derivative instruments will
generally be limited to the transactions described above. However, the Funds
reserve the right to use currency-related derivatives instruments for different
purposes and under different circumstances. Of course, the Funds are not
required to use currency-related derivatives instruments and will not do
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so unless deemed appropriate by the Advisor. It also should be realized that
use of these instruments does not eliminate, or protect against, price
movements in the Funds' securities that are attributable to other (i.e.,
non-currency related) causes. Moreover, while the use of currency-related
derivatives instruments may reduce the risk of loss due to a decline in the
value of a hedged currency, at the same time the use of these instruments tends
to limit any potential gain which may result from an increase in the value of
that currency.
SWAP AGREEMENTS. The Funds may enter into interest rate, securities
index, commodity, or security and currency exchange rate swap agreements for
any lawful purpose consistent with each Fund's investment objective, such as
for the purpose of attempting to obtain or preserve a particular desired return
or spread at a lower cost to the Fund than if the Fund had invested directly in
an instrument that yielded that desired return or spread. A Fund also may
enter into swaps in order to protect against an increase in the price of, or
the currency exchange rate applicable to, securities that the Fund anticipates
purchasing at a later date. Swap agreements are two-party contracts entered
into primarily by institutional investors for periods ranging from a few weeks
to several years. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments. The gross returns to
be exchanged or "swapped" between the parties are calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index. Swap
agreements may include interest rate caps, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap;" interest rate floors, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates fall below a specified level, or "floor;" and
interest rate collars, under which a party sells a cap and purchases a floor,
or vice versa, in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels.
The "notional amount" of the swap agreement is the agreed upon basis for
calculating the obligations that the parties to a swap agreement have agreed to
exchange. Under most swap agreements entered into by a Fund, the obligations
of the parties would be exchanged on a "net basis." Consequently, a Fund's
obligation (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
A Fund's obligation under a swap agreement will be accrued daily (offset
against amounts owed to the Fund) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash, or liquid high grade debt obligations.
Whether a Fund's use of swap agreements will be successful in furthering
its investment objective will depend, in part, on the Advisor's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Swap agreements may be considered to
be illiquid. Moreover, a Fund bears the risk of loss of the amount expected to
be received under a swap agreement in the event of the default or bankruptcy of
a swap agreement counterparty. Certain restrictions imposed on the Funds by
the Internal Revenue Code may limit the Funds' ability to use swap agreements.
The swaps market is largely unregulated.
The Funds will enter swap agreements only with counterparties that the
Advisor reasonably believes are capable of performing under the swap
agreements. If there is a default by the other party to such a transaction, a
Fund will have to rely on its contractual remedies (which may be limited by
bankruptcy, insolvency or similar laws) pursuant to the agreements related to
the transaction.
ADDITIONAL DERIVATIVE INSTRUMENTS AND STRATEGIES. In addition to the
derivative instruments and strategies described above and in the Funds'
Prospectus, the Advisor expects to discover additional derivative instruments
and other hedging or risk management techniques. The Advisor may utilize these
new derivative instruments and techniques to the extent that they are
consistent with a Fund's investment objective and permitted by the Fund's
investment limitations, operating policies, and applicable regulatory
authorities.
ENERGY COMPANIES
(AMERICAN UTILITIES FUND)
Under normal market conditions, the Fund anticipates it may invest a
substantial portion, but not more than 25%, of its total assets, in the equity
securities of energy companies. Accordingly, the performance of this portion
of the Fund's investments will depend in part on conditions in the energy
industry. The securities of companies in the energy industry are
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subject to changes in value and dividend yield which depend to a large extent
on the price and supply of energy fuels. Swift price and supply fluctuations
of energy fuels may be caused by events relating to international politics,
energy conservation, the success of exploration projects, currency exchange
rate fluctuations, and tax and other regulatory policies of various
governments.
FOREIGN INVESTMENT COMPANIES
(ALL FUNDS)
The Funds may invest, to a limited extent, in foreign investment
companies. Some of the countries in which the Funds invest may not permit
direct investment by outside investors. Investments in such countries may
only be permitted through foreign government-approved or -authorized
investment vehicles, which may include other investment companies. In
addition, it may be less expensive and more expedient for a Fund to invest in
a foreign investment company in a country which permits direct foreign
investment. Investing through such vehicles may involve frequent or layered
fees or expenses and may also be subject to limitation under the 1940 Act.
Under the 1940 Act, a Fund may invest up to 10% of its assets in shares of
other investment companies and up to 5% of its assets in any one investment
company as long as the investment does not represent more than 3% of the
voting stock of the acquired investment company. Each Fund does not intend to
invest in such investment companies unless, in the judgment of the Advisor,
the potential benefits of such investments justify the payment of any
associated fees and expenses.
FOREIGN SECURITIES
(ALL FUNDS)
Investing in foreign securities involves a series of risks not present in
investing in U.S. securities. Many of the foreign securities held by the Fund
will not be registered with the Securities and Exchange Commission (the "SEC"),
nor will the foreign issuers be subject to SEC reporting requirements.
Accordingly, there may be less publicly available information concerning
foreign issuers of securities held by the Funds than is available concerning
U.S. companies. Disclosure and regulatory standards in many respects are less
stringent in emerging market countries than in the U.S. and other major
markets. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in such markets, and
enforcement of existing regulations may be extremely limited. Foreign
companies, and in particular, companies in smaller and emerging capital markets
are not generally subject to uniform accounting, auditing and financial
reporting standards, or to other regulatory requirements comparable to those
applicable to U.S. companies. The Fund's net investment income and capital
gains from its foreign investment activities may be subject to non-U.S.
withholding taxes.
The costs attributable to foreign investing that the Funds must bear
frequently are higher than those attributable to domestic investing; this is
particularly true with respect to emerging capital markets. For example, the
cost of maintaining custody of foreign securities exceeds custodian costs for
domestic securities, and transaction and settlement costs of foreign investing
also frequently are higher than those attributable to domestic investing.
Costs associated with the exchange of currencies also make foreign investing
more expensive than domestic investing. Investment income on certain foreign
securities in which the Funds may invest may be subject to foreign withholding
or other government taxes that could reduce the return of these securities.
Tax treaties between the United States and foreign countries, however, may
reduce or eliminate the amount of foreign tax to which the Funds would be
subject.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have failed to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of a Fund to make intended security purchases due to settlement
problems could cause the Fund to miss investment opportunities. Inability to
dispose of a portfolio security due to settlement problems could result either
in losses to a Fund due to subsequent declines in the value of such portfolio
security or, if the Fund has entered into a contract to sell the security,
could result in possible liability to the purchaser.
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HIGH-YIELD (HIGH-RISK) SECURITIES
(ALL FUNDS)
IN GENERAL. The American Utilities, Total Return, and Growth and Income
Funds have the authority to invest up to 5% of their respective net assets in
non-investment grade debt obligations; the Equity Income Fund has the authority
to invest up to 10% of its net assets in non-investment grade debt obligations;
and the Asset Allocation Fund has the authority to invest up to, but not
including, 35% of its net assets in such securities. Non-investment grade debt
obligations (hereinafter referred to as "lower-quality securities") include (i)
bonds rated as low as C by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P"), or Fitch Investors Service, Inc.
("Fitch"), or CCC by Duff & Phelps, Inc. ("D&P"); (ii) commercial paper rated
as low as C by S&P, Not Prime by Moody's, or Fitch 4 by Fitch; and (iii)
unrated debt obligations of comparable quality. Lower-quality securities,
while generally offering higher yields than investment grade securities with
similar maturities, involve greater risks, including the possibility of default
or bankruptcy. They are regarded as predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal. The special risk
considerations in connection with investments in these securities are discussed
below. Refer to the Appendix for a discussion of securities ratings.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. The lower-quality and
comparable unrated security market is relatively new and its growth has
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such
conditions could severely disrupt the market for and adversely affect the value
of such securities.
All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of lower-quality and comparable unrated securities tend to reflect
individual corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Lower-quality and comparable unrated securities also tend to
be more sensitive to economic conditions than are higher-rated securities. As
a result, they generally involve more credit risks than securities in the
higher-rated categories. During an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower-quality and comparable
unrated securities may experience financial stress and may not have sufficient
revenues to meet their payment obligations. The issuer's ability to service
its debt obligations may also be adversely affected by specific corporate
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due
to default by an issuer of these securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the
issuer of a lower-quality or comparable unrated security defaulted, a Fund
might incur additional expenses to seek recovery. Periods of economic
uncertainty and changes would also generally result in increased volatility in
the market prices of these securities and thus in a Fund's net asset value.
As previously stated, the value of a lower-quality or comparable unrated
security will decrease in a rising interest rate market and accordingly, so
will a Fund's net asset value. If a Fund experiences unexpected net
redemptions in such a market, it may be forced to liquidate a portion of its
portfolio securities without regard to their investment merits. Due to the
limited liquidity of lower-quality and comparable unrated securities (discussed
below), a Fund may be forced to liquidate these securities at a substantial
discount. Any such liquidation would force the Fund to sell the more liquid
portion of its portfolio.
PAYMENT EXPECTATIONS. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an issuer
is able to refinance the securities, or otherwise redeem them, a Fund may have
to replace the securities with a lower yielding security, which would result in
a lower return for the Fund.
CREDIT RATINGS. Credit ratings issued by credit rating agencies are
designed to evaluate the safety of principal and interest payments of rated
securities. They do not, however, evaluate the market value risk of
lower-quality securities and, therefore, may not fully reflect the true risks
of an investment. In addition, credit rating agencies may or may not make
timely changes in a rating to reflect changes in the economy or in the
condition of the issuer that affect the market value of the security.
Consequently, credit ratings are used only as a preliminary indicator of
investment quality. Investments in lower-quality and
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comparable unrated obligations will be more dependent on the Advisor's credit
analysis than would be the case with investments in investment-grade debt
obligations. The Advisor employs its own credit research and analysis, which
includes a study of existing debt, capital structure, ability to service debt
and to pay dividends, the issuer's sensitivity to economic conditions, its
operating history and the current trend of earnings. The Advisor continually
monitors the investments in each Fund's portfolio and carefully evaluates
whether to dispose of or to retain lower-quality and comparable unrated
securities whose credit ratings or credit quality may have changed.
LIQUIDITY AND VALUATION. A Fund may have difficulty disposing of certain
lower-quality and comparable unrated securities because there may be a thin
trading market for such securities. Because not all dealers maintain markets
in all lower-quality and comparable unrated securities, there is no established
retail secondary market for many of these securities. The Funds anticipate
that such securities could be sold only to a limited number of dealers or
institutional investors. To the extent a secondary trading market does exist,
it is generally not as liquid as the secondary market for higher-rated
securities. The lack of a liquid secondary market may have an adverse impact
on the market price of the security. As a result, a Fund's asset value and
ability to dispose of particular securities, when necessary to meet the Fund's
liquidity needs or in response to a specific economic event, may be impacted.
The lack of a liquid secondary market for certain securities may also make it
more difficult for a Fund to obtain accurate market quotations for purposes of
valuing the Fund's portfolio. Market quotations are generally available on
many lower-quality and comparable unrated issues only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or prices
for actual sales. During periods of thin trading, the spread between bid and
asked prices is likely to increase significantly. In addition, adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower-quality and comparable
unrated securities, especially in a thinly traded market.
LEGISLATION. Legislation may be adopted, from time to time designed to
limit the use of certain lower-quality and comparable unrated securities by
certain issuers. It is anticipated that if legislation is enacted or proposed,
it could have a material affect on the value of these securities and the
existence of a secondary trading market for the securities.
ILLIQUID SECURITIES
(ALL FUNDS)
The Funds may invest in illiquid securities (i.e., securities that are not
readily marketable). However, a Fund will not acquire illiquid securities if,
as a result, they would comprise more than 15% of the value of the Fund's net
assets (or such other amounts as may be permitted under the 1940 Act).
However, as a matter of internal policy, the Advisor intends to limit each
Fund's investments in illiquid securities to 10% of its net assets.
The Board of Directors of each Fund, or its delegate, has the ultimate
authority to determine, to the extent permissible under the federal securities
laws, which securities are illiquid for purposes of this limitation. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), such as securities that may be resold to institutional investors under
Rule 144A under the Securities Act and Section 4(2) commercial paper, may be
considered liquid under guidelines adopted by the Funds' Board of Directors.
The Board of Directors of each Fund has delegated to Strong Capital
Management, Inc. (the "Advisor") the day-to-day determination of the liquidity
of a security, although it has retained oversight and ultimate responsibility
for such determinations. The Board of Directors has directed the Advisor to
look to such factors as (i) the frequency of trades or quotes for a security,
(ii) the number of dealers willing to purchase or sell the security and number
of potential buyers, (iii) the willingness of dealers to undertake to make a
market in the security, (iv) the nature of the security and nature of the
marketplace trades, such as the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer, (v) the likelihood
that the security's marketability will be maintained throughout the anticipated
holding period, and (vi) any other relevant factors. The Advisor may determine
4(2) commercial paper to be liquid if (i) the 4(2) commercial paper is not
traded flat or in default as to principal and interest, (ii) the 4(2)
commercial paper is rated in one of the two highest rating categories by at
least two nationally rated statistical rating organizations ("NRSRO"), or if
only one NRSRO rates the security, by that NRSRO, or is determined by the
Advisor to be of equivalent quality, and (iii) the Advisor considers the
trading market for the specific security taking into account all relevant
factors. With respect to a Fund's foreign holdings, a foreign security may be
considered liquid by the Advisor (despite its restricted nature under the
Securities Act) if the security can be freely traded in a foreign securities
market and all the facts and circumstances support a finding of liquidity.
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Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a Fund might obtain a less favorable price than
prevailed when it decided to sell. If through the appreciation of restricted
securities or the depreciation of unrestricted securities, a Fund should be in
a position where more than 15% of the value of its net assets are invested in
illiquid securities, including restricted securities which are not readily
marketable (except for 144A Securities and 4(2) commercial paper deemed to be
liquid by the Advisor), the Fund will take such steps as is deemed advisable,
if any, to protect liquidity.
Each Fund may sell over-the-counter ("OTC") options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC
options written by the Fund. The assets used as cover for OTC options written
by the Fund will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.
LENDING OF PORTFOLIO SECURITIES
(ALL FUNDS)
Each Fund is authorized to lend up to 33 1/3% of the total value of its
portfolio securities to broker-dealers or institutional investors that the
Advisor deems qualified, but only when the borrower maintains with the Fund's
custodian bank collateral either in cash or money market instruments in an
amount at least equal to the market value of the securities loaned, plus
accrued interest and dividends, determined on a daily basis and adjusted
accordingly. Although the Funds are authorized to lend, the Funds do not
presently intend to engage in lending. In determining whether to lend
securities to a particular broker-dealer or institutional investor, the Advisor
will consider, and during the period of the loan will monitor, all relevant
facts and circumstances, including the creditworthiness of the borrower. The
Funds will retain authority to terminate any loans at any time. The Funds may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Funds
will receive reasonable interest on the loan or a flat fee from the borrower
and amounts equivalent to any dividends, interest or other distributions on the
securities loaned. The Funds will retain record ownership of loaned securities
to exercise beneficial rights, such as voting and subscription rights and
rights to dividends, interest or other distributions, when retaining such
rights is considered to be in a Fund's interest.
MORTGAGE- AND ASSET-BACKED SECURITIES
(ALL FUNDS)
Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real property,
and include single- and multi-class pass-through securities and collateralized
mortgage obligations. Such securities may be issued or guaranteed by U.S.
government agencies or instrumentalities, such as the Government National
Mortgage Association and the Federal National Mortgage Association, or by
private issuers, generally originators and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers, and special purpose entities (collectively, "private lenders").
Mortgage-backed securities issued by private lenders may be supported by pools
of mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any governmental guarantee of
the underlying mortgage assets but with some form of non-governmental credit
enhancement.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments
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or distributions of principal and interest on asset-backed debt obligations may
be supported by non-governmental credit enhancements including letters of
credit, reserve funds, overcollateralization, and guarantees by third parties.
The market for privately issued asset-backed debt obligations is smaller and
less liquid than the market for government sponsored mortgage-backed securities.
The rate of principal payment on mortgage- and asset-backed securities
generally depends on the rate of principal payments received on the underlying
assets which in turn may be affected by a variety of economic and other
factors. As a result, the yield on any mortgage-and asset-backed security is
difficult to predict with precision and actual yield to maturity may be more or
less than the anticipated yield to maturity. The yield characteristics of
mortgage- and asset-backed securities differ from those of traditional debt
securities. Among the principal differences are that interest and principal
payments are made more frequently on mortgage- and asset-backed securities,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if a Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing the yield to maturity. Conversely, if a Fund purchases these
securities at a discount, a prepayment rate that is faster than expected will
increase yield to maturity, while a prepayment rate that is slower than
expected will reduce yield to maturity. Accelerated prepayments on securities
purchased by a Fund at a premium also impose a risk of loss of principal
because the premium may not have been fully amortized at the time the principal
is prepaid in full.
While many mortgage- and asset-backed securities are issued with only one
class of security, many are issued in more than one class, each with different
payment terms. Multiple class mortgage- and asset-backed securities are issued
for two main reasons. First, multiple classes may be used as a method of
providing credit support. This is accomplished typically through creation of
one or more classes whose right to payments on the security is made subordinate
to the right to such payments of the remaining class or classes. Second,
multiple classes may permit the issuance of securities with payment terms,
interest rates, or other characteristics differing both from those of each
other and from those of the underlying assets. Examples include so-called
"strips" (mortgage- and asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics of non-mortgage-
or asset-backed securities, such as floating interest rates (i.e., interest
rates which adjust as a specified benchmark changes) or scheduled amortization
of principal.
The Funds may invest in stripped mortgage- or asset-backed securities,
which receive differing proportions of the interest and principal payments from
the underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases such
market value may be extremely volatile. With respect to certain stripped
securities, such as interest only and principal only classes, a rate of
prepayment that is faster or slower than anticipated may result in a Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.
Mortgage-and asset-backed securities backed by assets, other than as
described above, or in which the payment streams on the underlying assets are
allocated in a manner different than those described above may be issued in the
future. A Fund may invest in such securities if such investment is otherwise
consistent with its investment objectives and policies and with the investment
restrictions of a Fund.
MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
(ALL FUNDS)
The Funds may engage in reverse repurchase agreements to facilitate
portfolio liquidity, a practice common in the mutual fund industry, or for
arbitrage transactions discussed below. In a reverse repurchase agreement, a
Fund would sell a security and enter into an agreement to repurchase the
security at a specified future date and price. The Fund generally retains the
right to interest and principal payments on the security. Since the Fund
receives cash upon entering into a reverse repurchase agreement, it may be
considered a borrowing. (See "Borrowing".) When required by guidelines of the
SEC, a Fund will set aside permissible liquid assets in a segregated account to
secure its obligations to repurchase the security.
Each Fund may also enter into mortgage dollar rolls, in which the Fund
would sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While a Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, the Fund
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would be compensated by the difference between the current sales price and the
lower price for the future purchase as well as by any interest earned on the
proceeds of the initial sale. The Fund also could be compensated through the
receipt of fee income equivalent to a lower forward price. At the time the
Fund would enter into a mortgage dollar roll, it would set aside permissible
liquid assets in a segregated account to secure its obligation for the forward
commitment to buy mortgage-backed securities. Mortgage dollar roll
transactions may be considered a borrowing by the Funds. (See "Borrowing"
above.)
The mortgage dollar rolls and reverse repurchase agreements entered into
by the Funds may be used as arbitrage transactions in which a Fund will
maintain an offsetting position in investment grade debt obligations or
repurchase agreements that mature on or before the settlement date on the
related mortgage dollar roll or reverse repurchase agreements. Since a Fund
will receive interest on the securities or repurchase agreements in which it
invests the transaction proceeds, such transactions may involve leverage.
However, since such securities or repurchase agreements will be high quality
and will mature on or before the settlement date of the mortgage dollar roll or
reverse repurchase agreement, the Advisor believes that such arbitrage
transactions do not present the risks to the Funds that are associated with
other types of leverage.
MUNICIPAL OBLIGATIONS
(ASSET ALLOCATION FUND)
General obligation bonds are secured by the issuer's pledge of its full
faith, credit, and taxing power for the payment of interest and principal.
Revenue bonds are payable only from the revenues derived from a project or
facility or from the proceeds of a specified revenue source. Industrial
development bonds are generally revenue bonds secured by payments from and the
credit of private users. Municipal notes are issued to meet the short-term
funding requirements of state, regional, and local governments. Municipal
notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax and revenue anticipation notes, construction loan
notes, short-term discount notes, tax-exempt commercial paper, demand notes,
and similar instruments. Municipal obligations include obligations, the
interest on which is exempt from federal income tax, that may become available
in the future as long as the Board of Directors of the Fund determines that an
investment in any such type of obligation is consistent with the Fund's
investment objective.
Municipal lease obligations may take the form of a lease, an installment
purchase, or a conditional sales contract. They are issued by state and local
governments and authorities to acquire land, equipment, and facilities, such as
state and municipal vehicles, telecommunications and computer equipment, and
other capital assets. The Fund may purchase these obligations directly, or it
may purchase participation interests in such obligations. Municipal leases are
generally subject to greater risks than general obligation or revenue bonds.
State constitutions and statutes set forth requirements that states or
municipalities must meet in order to issue municipal obligations. Municipal
leases may contain a covenant by the state or municipality to budget for,
appropriate, and make payments due under the obligation. Certain municipal
leases may, however, contain "non-appropriation" clauses which provide that the
issuer is not obligated to make payments on the obligation in future years
unless funds have been appropriated for this purpose each year. Accordingly,
such obligations are subject to "non-appropriation" risk. While municipal
leases are secured by the underlying capital asset, it may be difficult to
dispose of any such asset in the event of non-appropriation or other default.
PUBLIC UTILITY COMPANIES
(AMERICAN UTILITIES FUND)
Under normal conditions at least 65% of the Fund's total assets will be
invested in the equity securities of public utility companies headquartered in
the United States. Accordingly, the Fund's performance will depend in part on
conditions in the public utility industry. Stocks of public utility companies
have traditionally been attractive to more conservative stock market investors
because they generally have paid consistent and above-average dividends. The
Fund's investments in pubic utility securities may or may not pay consistent
and above-average dividends. Moreover, the securities of public utility
companies can still be affected by the risks of the stock market as well as
factors specific to public utility companies. Government regulation of public
utility companies can limit their ability to expand their businesses or to pass
cost increases on to customers. Companies providing power or energy-related
services may also be affected by increases in fuel and other operating costs;
high costs of borrowing to finance capital construction during inflationary
periods; restrictions on operations and increased costs and delays associated
with compliance with environmental and nuclear safety regulations; the
difficulties involved in obtaining natural gas for resale or fuel for
generating electricity at reasonable prices; the risks in connection with the
construction and operation of nuclear power plants; the effects of energy
conservation and the effects of regulatory changes. Some public utility
companies are facing increased competition, which may reduce their profits.
All of these factors are subject
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to rapid change, which may affect utility companies independently from the
stock market as a whole. Securities issued by public utility companies are
particularly sensitive to movements in interest rates; therefore, the equity
securities of such companies are more affected by changes in interest rates
than are the equity securities of other issuers.
REPURCHASE AGREEMENTS
(ALL FUNDS)
Each Fund may enter into repurchase agreements with certain banks or
non-bank dealers. In a repurchase agreement, a Fund buys a security at one
price, and at the time of sale, the seller agrees to repurchase the obligation
at a mutually agreed upon time and price (usually within seven days). The
repurchase agreement, thereby, determines the yield during the purchaser's
holding period, while the seller's obligation to repurchase is secured by the
value of the underlying security. The Advisor will monitor, on an ongoing
basis, the value of the underlying securities to ensure that the value always
equals or exceeds the repurchase price plus accrued interest. Repurchase
agreements could involve certain risks in the event of a default or insolvency
of the other party to the agreement, including possible delays or restrictions
upon a Fund's ability to dispose of the underlying securities. Although no
definitive creditworthiness criteria are used, the Advisor reviews the
creditworthiness of the banks and non-bank dealers with which the Funds enter
into repurchase agreements to evaluate those risks. A Fund may, under certain
circumstances, deem repurchase agreements collateralized by U.S. government
securities to be investments in U.S. government securities.
SHORT SALES AGAINST THE BOX
(ALL FUNDS)
Each Fund may sell securities short against the box to hedge unrealized
gains on portfolio securities. Selling securities short against the box
involves selling a security that a Fund owns or has the right to acquire, for
delivery at a specified date in the future. If a Fund sells securities short
against the box, it may protect unrealized gains, but will lose the opportunity
to profit on such securities if the price rises.
SHORT-TERM CASH MANAGEMENT
(ALL FUNDS)
From time to time the Advisor may determine to use a non-affiliated money
market fund to manage some or all of the Fund's short-term cash positions. The
Advisor will do this only when the Advisor reasonably believes that this action
will result in a return to the Fund that is equal to, or better than, the
return that could be achieved by direct investments in money market
instruments. In such cases, to ensure no double charging of fees, the Advisor
will credit any management or other fees of the non-affiliated money market
fund against the Advisor's management fee.
SMALL COMPANIES
(ALL FUNDS)
The Fund may, from time to time, invest a portion of its assets in small
companies. While smaller companies generally have the potential for rapid
growth, investments in smaller companies often involve greater risks than
investments in larger, more established companies because smaller companies
may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition,
in many instances the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
greater and more abrupt price fluctuations. When making large sales, the Fund
may have to sell portfolio holdings at discounts from quoted prices or may
have to make a series of small sales over an extended period of time due to
the trading volume of smaller company securities. Investors should be aware
that, based on the foregoing factors, an investment in the Fund may be subject
to greater price fluctuations than an investment in a fund that invests
primarily in larger, more established companies. The Advisor's research
efforts may also play a greater role in selecting securities for the Fund than
in a fund that invests in larger, more established companies.
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SOVEREIGN DEBT
(ASSET ALLOCATION FUND)
Sovereign debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore limited. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance. Also, there can be no assurance
that the holders of commercial bank loans to the same sovereign entity may not
contest payments to the holders of sovereign debt in the event of default under
commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by a variety of factors, including
among others, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward principal international lenders and the
political constraints to which a sovereign debtor may be subject. A country
whose exports are concentrated in a few commodities could be vulnerable to a
decline in the international price of such commodities. Increased
protectionism on the part of a country's trading partners, or political changes
in those countries, could also adversely affect its exports. Such events could
diminish a country's trade account surplus, if any, or the credit standing of a
particular local government or agency. Another factor bearing on the ability
of a country to repay sovereign debt is the level of the country's
international reserves. Fluctuations in the level of these reserves can affect
the amount of foreign exchange readily available for external debt payments
and, thus, could have a bearing on the capacity of the country to make payments
on its sovereign debt.
To the extent that a country has a current account deficit (generally when
it exports of merchandise and services are less than its country's imports of
merchandise and services plus net transfers (e.g., gifts of currency and goods)
to foreigners), it may need to depend on loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and inflows of foreign investment. The access of a country
to these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be adversely affected, by a change in international interest
rates since the majority of these obligations carry interest rates that are
adjusted periodically based upon international rates.
With respect to sovereign debt of emerging market issuers, investors
should be aware that certain emerging market countries are among the largest
debtors to commercial banks and foreign governments. At times certain emerging
market countries have declared moratoria on the payment of principal and
interest on external debt.
Certain emerging market countries have experienced difficulty in servicing
their sovereign debt on a timely basis which led to defaults on certain
obligations and the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and rescheduling
interest and principal payments by negotiating new or amended credit agreements
or converting outstanding principal and unpaid interest to Brady Bonds
(discussed below), and obtaining new credit to finance interest payments.
Holders of sovereign debt, including the Fund, may be requested to participate
in the rescheduling of such debt and to extend further loans to sovereign
debtors, and the interests of holders of sovereign debt could be adversely
affected in the course of restructuring arrangements or by certain other
factors referred to below. Furthermore, some of the participants in the
secondary market for sovereign debt may also be directly involved in
negotiating the terms of these arrangements and may therefore have access to
information not available to other market participants, such as the Funds.
Obligations arising from past restructuring agreements may affect the economic
performance and political and social stability of certain issuers of sovereign
debt. There is no bankruptcy proceeding by which sovereign debt on which a
sovereign has defaulted may be collected in whole or in part.
Foreign investment in certain sovereign debt is restricted or controlled
to varying degrees. These restrictions or controls may at times limit or
preclude foreign investment in such sovereign debt and increase the costs and
expenses of the Fund. Certain countries in which the Fund may invest require
governmental approval prior to investments by foreign persons, limit the amount
of investment by foreign persons in a particular issuer, limit the investment
by foreign persons only to a specific class of securities of an issuer that may
have less advantageous rights than the classes available for purchase by
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<PAGE> 77
domiciliaries of the countries, or impose additional taxes on foreign
investors. Certain issuers may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances. The Fund could be adversely affected by delays
in, or a refusal to grant, any required governmental approval for repatriation
of capital, as well as by the application to the Fund of any restrictions on
investments. Investing in local markets may require the Fund to adopt special
procedures, seek local government approvals or take other actions, each of
which may involve additional costs to the Fund.
The sovereign debt in which the Fund may invest includes Brady Bonds,
which are securities issued under the framework of the Brady Plan, an
initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in
1989 as a mechanism for debtor nations to restructure their outstanding
external commercial bank indebtedness. In restructuring its external debt
under the Brady Plan framework, a debtor nation negotiates with its existing
bank lenders as well as multilateral institutions such as the International
Monetary Fund ("IMF"). The Brady Plan framework, as it has developed,
contemplates the exchange of commercial bank debt for newly issued Brady Bonds.
Brady Bonds may also be issued in respect of new money being advanced by
existing lenders in connection with the debt restructuring. The World Bank and
the IMF support the restructuring by providing funds pursuant to loan
agreements or other arrangements which enable the debtor nation to
collateralize the new Brady Bonds or to repurchase outstanding bank debt at a
discount.
There can be no assurance that the circumstances regarding the issuance of
Brady Bonds by these countries will not change. Investors should recognize
that Brady Bonds have been issued only recently, and accordingly do not have a
long payment history. Agreements implemented under the Brady Plan to date are
designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. The types of options have included
the exchange of outstanding commercial bank debt for bonds issued at 100% of
face value of such debt, which carry a below-market stated rate of interest
(generally known as par bonds), bonds issued at a discount from the face value
of such debt (generally known as discount bonds), bonds bearing an interest
rate which increases over time, and bonds issued in exchange for the
advancement of new money by existing lenders. Regardless of the stated face
amount and stated interest rate of the various types of Brady Bonds, the Fund
will purchase Brady Bonds in secondary markets, as described below, in which
the price and yield to the investor reflect market conditions at the time of
purchase.
Certain Brady Bonds have been collateralized as to principal due at
maturity by U.S. Treasury zero coupon bonds with maturities equal to the final
maturity of such Brady Bonds. Collateral purchases are financed by the IMF,
the World Bank, and the debtor nations' reserves. In the event of a default
with respect to collateralized Brady Bonds as a result of which the payment
obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, interest payments on certain types of Brady Bonds
may be collateralized by cash or high grade securities in amounts that
typically represent between 12 and 18 months of interest accruals on these
instruments with the balance of the interest accruals being uncollateralized.
Brady Bonds are often viewed as having several valuation components: (1) the
collateralized repayment of principal, if any, at final maturity, (2) the
collateralized interest payments, if any, (3) the uncollateralized interest
payments, and (4) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In light of
the residual risk of Brady Bonds and, among other factors, the history of
defaults with respect to commercial bank loans by public and private entities
of countries issuing Brady Bonds, investments in Brady Bonds have speculative
characteristics. The Fund may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest and (except in
the case of principal collateralized Brady Bonds) principal primarily on the
willingness and ability of the foreign government to make payment in accordance
with the terms of the Brady Bonds. Brady Bonds issued to date are purchased
and sold in secondary markets through U.S. securities dealers and other
financial institutions and are generally maintained through European
transnational securities depositories.
TEMPORARY DEFENSIVE POSITION
(ALL FUNDS)
When the Advisor determines that market conditions warrant a temporary
defensive position, the Total Return Fund may invest up to 40% of its net
assets, and the Asset Allocation, American Utilities, Equity Income and Growth
and Income
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Funds may invest without limitation in cash and short-term fixed
income securities, including U.S. government securities, commercial paper,
banker's acceptances, certificates of deposit, and time deposits.
VARIABLE- OR FLOATING-RATE SECURITIES
(ALL FUNDS)
The Funds may invest in securities which offer a variable- or
floating-rate of interest. Variable-rate securities provide for automatic
establishment of a new interest rate at fixed intervals (e.g., daily, monthly,
semi-annually, etc.). Floating-rate securities generally provide for automatic
adjustment of the interest rate whenever some specified interest rate index
changes. The interest rate on variable- or floating-rate securities is
ordinarily determined by reference to or is a percentage of a bank's prime
rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial
paper or bank certificates of deposit, an index of short-term interest rates,
or some other objective measure.
Variable- or floating-rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par. In many
cases, the demand feature can be exercised at any time on 7 days notice; in
other cases, the demand feature is exercisable at any time on 30 days notice or
on similar notice at intervals of not more than one year. Some securities
which do not have variable or floating interest rates may be accompanied by
puts producing similar results and price characteristics. When considering the
maturity of any instrument which may be sold or put to the issuer or a third
party, each Fund may consider that instrument's maturity to be shorter than its
stated maturity.
Variable-rate demand notes include master demand notes which are
obligations that permit a Fund to invest fluctuating amounts, which may change
daily without penalty, pursuant to direct arrangements between a Fund, as
lender, and the borrower. The interest rates on these notes fluctuate from
time to time. The issuer of such obligations normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate
on a floating-rate demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments will generally be
traded. There generally is not an established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, a Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and, if not so rated, the Funds may
invest in them only if the Advisor determines that at the time of investment
the obligations are of comparable quality to the other obligations in which the
Funds may invest. The Advisor, on behalf of the Funds, will consider on an
ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in the Funds' portfolio.
Each Fund will not invest more than 15% of its net assets in variable- and
floating-rate demand obligations that are not readily marketable (a variable-
or floating-rate demand obligation that may be disposed of on not more than
seven days notice will be deemed readily marketable and will not be subject to
this limitation). (See "Illiquid Securities" and "Investment Restrictions.")
In addition, each variable- or floating-rate obligation must meet the credit
quality requirements applicable to all the Fund's investments at the time of
purchase. When determining whether such an obligation meets a Fund's credit
quality requirements, the Fund may look to the credit quality of the financial
guarantor providing a letter of credit or other credit support arrangement.
In determining a Fund's weighted average portfolio maturity, a Fund will
consider a floating or variable rate security to have a maturity equal to its
stated maturity (or redemption date if it has been called for redemption),
except that it may consider (i) variable rate securities to have a maturity
equal to the period remaining until the next readjustment in the interest rate,
unless subject to a demand feature, (ii) variable rate securities subject to a
demand feature to have a remaining maturity equal to the longer of (a) the next
readjustment in the interest rate or (b) the period remaining until the
principal can be recovered through demand, and (iii) floating rate securities
subject to a demand feature to have a maturity equal to the period remaining
until the principal can be recovered through demand. Variable and floating
rate securities generally are subject to less principal fluctuation than
securities without these attributes since the securities usually trade at par
following the readjustment in the interest rate.
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<PAGE> 79
WARRANTS
(ALL FUNDS)
Each Fund may acquire warrants. Warrants are securities giving the holder
the right, but not the obligation, to buy the stock of an issuer at a given
price (generally higher than the value of the stock at the time of issuance)
during a specified period or perpetually. Warrants may be acquired separately
or in connection with the acquisition of securities. A Fund will not purchase
warrants, valued at the lower of cost or market value, in excess of 5% of the
Fund's net assets. Included in that amount, but not to exceed 2% of the Fund's
net assets, may be warrants that are not listed on any stock exchange.
Warrants acquired by a Fund in units or attached to securities are not subject
to these restrictions. Warrants do not carry with them the right to dividends
or voting rights with respect to the securities that they entitle their holder
to purchase, and they do not represent any rights in the assets of the issuer.
As a result, warrants may be considered to have more speculative
characteristics than certain other types of investments. In addition, the
value of a warrant does not necessarily change with the value of the underlying
securities, and a warrant ceases to have value if it is not exercised prior to
its expiration date.
WHEN-ISSUED SECURITIES
(ALL FUNDS)
Each Fund may from time to time purchase securities on a "when-issued"
basis. The price of debt obligations purchased on a when-issued basis, which
may be expressed in yield terms, generally is fixed at the time the commitment
to purchase is made, but delivery and payment for the securities take place at
a later date. Normally, the settlement date occurs within one month of the
purchase although is some cases settlement may take longer. During the period
between the purchase and settlement, no payment is made by a Fund to the issuer
and no interest on the debt obligations accrues to the Fund. Forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the risk of
decline in value of the Fund's other assets. While when-issued securities may
be sold prior to the settlement date, the Funds intend to purchase such
securities with the purpose of actually acquiring them unless a sale appears
desirable for investment reasons. At the time a Fund makes the commitment to
purchase a security on a when-issued basis, it will record the transaction and
reflect the value of the security in determining its net asset value.
To the extent required by the SEC, the Funds will maintain cash and
marketable securities equal in value to commitments for when-issued securities.
Such segregated securities either will mature or, if necessary, be sold on or
before the settlement date. When the time comes to pay for when-issued
securities, a Fund will meet its obligations from then-available cash flow,
sale of the securities held in the separate account, described above, sale of
other securities or, although it would not normally expect to do so, from the
sale of the when-issued securities themselves (which may have a market value
greater or less than the Fund's payment obligation).
ZERO-COUPON, STEP-COUPON AND PAY-IN-KIND SECURITIES
(ALL FUNDS)
The Funds may invest in zero-coupon, step-coupon, and pay-in-kind
securities. These securities are debt securities that do not make regular cash
interest payments. Zero-coupon and step-coupon securities are sold at a deep
discount to their face value. Pay-in-kind securities pay interest through the
issuance of additional securities. Because such securities do not pay current
cash income, the price of these securities can be volatile when interest rates
fluctuate. While these securities do not pay current cash income, federal
income tax law requires the holders of zero-coupon, step-coupon, and
pay-in-kind securities to include in income each year the portion of the
original issue discount (or deemed discount) and other non-cash income on such
securities accruing that year. In order to continue to qualify as a "regulated
investment company" under the Internal Revenue Code and avoid a certain excise
tax, each Fund may be required to distribute a portion of such discount and
income and may be required to dispose of other portfolio securities, which may
occur in periods of adverse market prices, in order to generate cash to meet
these distribution requirements.
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DIRECTORS AND OFFICERS OF THE FUNDS
Directors and officers of the Funds, together with information as to their
principal business occupations during the last five years, and other
information are shown below. Each director who is deemed an "interested
person," as defined in the 1940 Act, is indicated by an asterisk (*). Each
officer and director holds the same position with the 26 registered open-end
management investment companies consisting of 37 mutual funds, which are
managed by the Advisor (the "Strong Funds"). The Strong Funds, in the
aggregate, pays each Director who is not a director, officer, or employee of
the Advisor, or any affiliated company (a "disinterested director") an annual
fee of $50,000, plus $100 per Board meeting for each Strong Fund. In addition,
each disinterested director is reimbursed by the Strong Funds for travel and
other expenses incurred in connection with attendance at such meetings. Other
officers and directors of the Strong Funds receive no compensation or expense
reimbursement from the Strong Funds.
*RICHARD S. STRONG (DOB 5/12/42), Director and Chairman of the Board of the
Funds.
Prior to August 1985, Mr. Strong was Chief Executive Officer of the
Advisor, which he founded in 1974. Since August 1985, Mr. Strong has been a
Security Analyst and Portfolio Manager of the Advisor. In October 1991, Mr.
Strong also became the Chairman of the Advisor. Mr. Strong is a director of
the Advisor. Mr. Strong has been in the investment management business since
1967. Mr. Strong has served the Funds as follows:
DIRECTOR - Asset Allocation Fund (since December 1981); Total Return Fund
(since December 1981); American Utilities Fund (since April 1993); Equity
Income Fund (since October 1995); and Growth and Income Fund (since
October 1995).
CHAIRMAN - Asset Allocation Fund (since July 1986); Total Return Fund
(since July 1986); American Utilities Fund (since April 1993); Equity
Income Fund (since October 1995); and Growth and Income Fund (since
October 1995).
MARVIN E. NEVINS (DOB 7/19/18), Director of the Funds.
Private Investor. From 1945 to 1980, Mr. Nevins was Chairman of
Wisconsin Centrifugal Inc., a foundry. From July 1983 to December 1986, he was
Chairman of General Casting Corp., Waukesha, Wisconsin, a foundry. Mr. Nevins
is a former Chairman of the Wisconsin Association of Manufacturers & Commerce.
He was also a regent of the Milwaukee School of Engineering and a member of the
Board of Trustees of the Medical College of Wisconsin. Mr. Nevins has served
the Funds as follows:
DIRECTOR - Asset Allocation Fund (since December 1981); Total Return Fund
(since December 1981); American Utilities Fund (since April 1993); Equity
Income Fund (since October 1995); and Growth and Income Fund (since
October 1995).
WILLIE D. DAVIS (DOB 7/24/34), Director of the Funds.
Mr. Davis has been director of Alliance Bank since 1980, Sara Lee
Corporation (a food/consumer products company) since 1983, KMart Corporation (a
discount consumer products company) since 1985, YMCA Metropolitan - Los Angeles
since 1985, Dow Chemical Company since 1988, MGM Grand, Inc. (an
entertainment/hotel company) since 1990, WICOR, Inc. (a utility company) since
1990, Johnson Controls, Inc. (an industrial company) since 1992, L.A. Gear (a
footwear/sportswear company) since 1992, and Rally's Hamburger, Inc. since
1994. Mr. Davis has been a trustee of the University of Chicago since 1980,
Marquette University since 1988, and Occidental College since 1990. Since
1977, Mr. Davis has been President and Chief Executive Officer of All Pro
Broadcasting, Inc. Mr. Davis was a director of the Fireman's Fund (an
insurance company) from 1975 until 1990. Mr. Davis has served the Funds as
follows:
DIRECTOR - American Utilities Fund (since July 1994); Asset Allocation
Fund (since July 1994); Total Return Fund (since July 1994); Equity
Income Fund (since October 1995); and Growth and Income Fund (since
October 1995).
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<PAGE> 81
*JOHN DRAGISIC (DOB 11/26/40), President and Director of the Funds.
Mr. Dragisic has been President of the Advisor since October 1995, and a
director of the Advisor and Distributor since July 1994. Mr. Dragisic served
as Vice Chairman of the Advisor from July 1994 until October 1995. Mr.
Dragisic was the President and Chief Executive Officer of Grunau Company, Inc.
(a mechanical contracting and engineering firm), Milwaukee, Wisconsin from 1987
until July 1994. From 1981 to 1987, he was an Executive Vice President with
Grunau Company, Inc. From 1969 until 1973, Mr. Dragisic worked for the Inter
American Development Bank. Mr. Dragisic received his Ph.D. in Economics in
1971 from the University of Wisconsin-Madison, and his B.A. degree in Economics
in 1962 from Lake Forest College. Mr. Dragisic has served the Funds as
follows:
DIRECTOR - Asset Allocation Fund (July 1991 until July 1994, and since
April 1995); Total Return Fund (July 1991 until July 1994, and since
April 1995); American Utilities Fund (April 1993 until July 1994, and
since April 1995); Equity Income Fund (since October 1995); and Growth
and Income Fund (since October 1995).
VICE CHAIRMAN - American Utilities Fund (July 1994 until October 1995);
Asset Allocation Fund (July 1994 until October 1995); and Total Return
Fund (July 1994 until October 1995).
PRESIDENT - American Utilities Fund (since November 1995); Asset
Allocation Fund (since November 1995); Equity Income Fund (since November
1995); Growth and Income Fund (since November 1995); and Total Return
Fund (since November 1995).
STANLEY KRITZIK (DOB 1/9/30), Director of the Funds.
Mr. Kritzik has been a Partner of Metropolitan Associates since 1962, a
Director of Aurora Health Care since 1987, and Health Network Ventures, Inc.
since 1992. Mr. Kritzik has served the Funds as follows:
DIRECTOR - American Utilities Fund (since April 1995); Asset Allocation
Fund (since April 1995); Total Return Fund (since April 1995); Equity
Income Fund (since October 1995); and Growth and Income Fund (since
October 1995).
WILLIAM F. VOGT (DOB 7/19/47), Director of the Funds.
Mr. Vogt has been the President of Vogt Management Consulting, Inc. since
1990. From 1982 until 1990, he served as Executive Director of University
Physicians of the University of Colorado. Mr. Vogt is the Past President of
the Medical Group Management Association and a Fellow of the American College
of Medical Practice Executives. Mr. Vogt has served the Funds as follows:
DIRECTOR - American Utilities Fund (since April 1995); Asset Allocation
Fund (since April 1995); Total Return Fund (since April 1995); Equity
Income Fund (since October 1995); and Growth and Income Fund (since
October 1995).
LAWRENCE A. TOTSKY (DOB 5/6/59), C.P.A., Vice President of the Funds.
Mr. Totsky has been Senior Vice President of the Advisor since September
1994. Mr. Totsky served as Vice President of the Advisor from December 1992 to
September 1994. Mr. Totsky acted as the Advisor's Manager of Shareholder
Accounting and Compliance from June 1987 to June 1991 when he was named
Director of Mutual Fund Administration. Mr. Totsky has served the Funds as
follows:
VICE PRESIDENT - Asset Allocation Fund (since May 1993); Total Return
Fund (since May 1993); American Utilities Fund (since April 1993); Equity
Income Fund (since October 1995); and Growth and Income Fund (since
October 1995).
30
<PAGE> 82
THOMAS P. LEMKE (DOB 7/30/54), Vice President of the Funds.
Mr. Lemke has been Senior Vice President, Secretary, and General Counsel
of the Advisor since September 1994. For two years prior to joining the
Advisor, Mr. Lemke acted as Resident Counsel for Funds Management at J.P.
Morgan & Co., Inc. From February 1989 until April 1992, Mr. Lemke acted as
Associate General Counsel to Sanford C. Bernstein Co., Inc. For two years
prior to that, Mr. Lemke was Of Counsel at the Washington D.C. law firm of Tew
Jorden & Schulte, a successor of Finley, Kumble Wagner. From August 1979 until
December 1986, Mr. Lemke worked at the Securities and Exchange Commission, most
notably as the Chief Counsel to the Division of Investment Management (November
1984 - December 1986), and as Special Counsel to the Office of Insurance
Products, Division of Investment Management (April 1982 - October 1984). Mr.
Lemke has served the Funds as follows:
VICE PRESIDENT - American Utilities Fund (since October 1994); Asset
Allocation Fund (since October 1994); Total Return Fund (since October
1994); Equity Income Fund (since October 1995); and Growth and Income
Fund (since October 1995).
ANN E. OGLANIAN (DOB 12/7/61), Secretary and Vice President of the Funds.
Ms. Oglanian has been an Associate Counsel of the Advisor since January
1992. Ms. Oglanian acted as Associate Counsel for the Chicago-based investment
management firm, Kemper Financial Services, Inc. from June 1988 until December
1991. Ms. Oglanian has served the Funds as follows:
SECRETARY - American Utilities Fund (since May 1994); Asset Allocation
Fund (since May 1994); Total Return Fund (since May 1994); Equity Income
Fund (since October 1995); and Growth and Income Fund (since October
1995).
VICE PRESIDENT - American Utilities Fund (since January 1996); Asset
Allocation Fund (since January 1996); Equity Income Fund (since January
1996); Growth and Income Fund (since January 1996); and Total Return Fund
(since January 1996).
JOHN S. WEITZER (DOB 10/31/67), Vice President of the Funds.
Mr. Weitzer has been an Associate Counsel of the Advisor since July 1993.
Mr. Weitzer has served the Funds as follows:
VICE PRESIDENT - American Utilities Fund (since January 1996); Asset
Allocation Fund (since January 1996); Equity Income Fund (since January
1996); Growth and Income Fund (since January 1996); and Total Return Fund
(since January 1996).
RONALD A. NEVILLE (DOB 5/21/47), C.P.A., Treasurer of the Funds.
Mr. Neville has been the Senior Vice President and Chief Financial Officer
of the Advisor since January 1995. For fourteen years prior to that, Mr.
Neville worked at Twentieth Century Companies, Inc., most notably as Senior
Vice President and Chief Financial Officer (1988 until December 1994). Mr.
Neville received his M.B.A. in 1972 from the University of Missouri - Kansas
City and his B.A. degree in Business Administration and Economics in 1969 from
Drury College. Mr. Neville has served the Funds as follows:
TREASURER - American Utilities Fund (since April 1995); Asset Allocation
Fund (since April 1995); Total Return Fund (since April 1995); Equity
Income Fund (since October 1995); and Growth and Income Fund (since
October 1995).
Except for Messrs. Nevins, Davis, Kritzik and Vogt, the address of all of
the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 33963. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's
address is 1123 North Astor
31
<PAGE> 83
Street, P.O. Box 92547, Milwaukee, Wisconsin 53202-0547. Mr. Vogt's address is
2830 East Third Avenue, Denver, Colorado 80206.
In addition to the positions listed above, Mr. Strong has been Chairman
and a director of Strong Holdings, Inc., a Wisconsin corporation and subsidiary
of the Advisor ("Holdings") since October 1993; Chairman and a director of the
Funds' underwriter, Strong Funds Distributors, Inc., a Wisconsin Corporation
and subsidiary of Holdings ("Distributor") since October 1993; Chairman and a
director of Heritage Reserve Development Corporation, a Wisconsin corporation
and subsidiary of Holdings ("Heritage") since January 1994; Chairman and a
director of Strong Service Corporation, a Wisconsin corporation and subsidiary
of Holdings ("SSC") since November 1995; Chairman and a member of the Managing
Board of Fussville Real Estate Holdings L.L.C., a Wisconsin Limited Liability
Company and subsidiary of the Advisor ("Real Estate Holdings") since February
1994; Chairman and a member of the Managing Board of Fussville Development
L.L.C., a Wisconsin Limited Liability Company and subsidiary of the Advisor and
Real Estate Holdings ("Fussville Development") since February 1994; and
Chairman and a member of the Managing Board of Sherwood Development L.L.C., a
Wisconsin Limited Liability Company and subsidiary of the Advisor ("Sherwood")
since December 1995 and April 1995, respectively. In addition to the positions
listed above, Mr. Dragisic has been a director of Distributors since July 1994;
President and a director of Holdings since December 1995 and July 1994,
respectively; President and a director of SSC since November 1995; Vice
Chairman and a director of Heritage since August 1994; Vice Chairman and a
member of the Managing Board of Fussville Development since December 1995 and
August 1994, respectively; Vice Chairman and a member of the Managing Board of
Real Estate Holdings since December 1995 and August 1994, respectively; and
Vice Chairman and a member of the Managing Board of Sherwood since December
1995 and April 1995, respectively. In addition to the positions listed above,
Mr. Lemke has been President of Distributors since December 1995; Vice
President of Holdings since December 1995; Vice President of SSC since November
1995; Vice President of Heritage since December 1995; Vice President of
Fussville Development since December 1995; Vice President of Real Estate
Holdings since December 1995; and Vice President of Sherwood since December
1995. In addition to the positions listed above, Mr. Neville has been Vice
President of Distributors since December 1995; Vice President of Holdings since
December 1995; Vice President of SSC since November 1995; Vice President of
Heritage since December 1995; Vice President of Fussville Development since
December 1995; Vice President of Real Estate Holdings since December 1995; and
Vice President of Sherwood since December 1995.
As of February 5, 1996, the officers and directors of the Asset
Allocation, American Utilities, and Total Return Funds in the aggregate
beneficially owned less than 1% of each Fund's then outstanding shares. As of
February 5, 1996, the officers and directors of the Equity Income Fund
beneficially owned 50,000 shares of common stock of the Fund which was 48.16%
of the Fund's then outstanding shares. As of February 5, 1996, the officers
and directors of the Growth and Income Fund beneficially owned 50,000 shares of
common stock of the Fund which was 33.76% of the Fund's then outstanding
shares.
PRINCIPAL SHAREHOLDERS
As of January 31, 1996, the following persons owned of record or are known
by the Funds to own of record more than 5% of a Fund's outstanding shares:
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND/SHARES PERCENT OF CLASS
- --------------------------------------- ---------------------------- ----------------
<S> <C> <C>
Charles Schwab & Co., Inc. Asset Allocation/726,444 5.42%
For Exclusive Benefit of Customers American Utilities/4,567,701 39.00%
101 Montgomery Street
San Francisco, CA 94104
Strong Capital Management, Inc.
100 Heritage Reserve Equity Income/50,000 78.57%
Menomonee Falls, WI 53051 Growth and Income/50,000 52.54%
</TABLE>
32
<PAGE> 84
<TABLE>
<S> <C> <C>
National Financial Services Corporation American Utilities/873,510 7.46 %
For Exclusive Benefit of Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Patricia T. Vanden Beemt Growth and Income/6,924 7.28 %
P.O. Box 37
Monkton, MD 21111-0037
Robert B. East Growth and Income/4,907 5.16 %
2224 B Tufton Ridge Road
Reiseterstown, MD 21136
</TABLE>
A shareholder owning more than 25% of a Fund's shares may be considered a
"controlling person" of the Fund. Accordingly, its vote could have a more
significant effect on matters presented to shareholders for approval than the
vote of other Fund shareholders.
INVESTMENT ADVISOR, SUBADVISOR, AND DISTRIBUTOR
The Advisor to the Funds is Strong Capital Management, Inc. Mr. Richard
S. Strong controls the Advisor. Mr. Strong is the Chairman and a Director of
the Advisor, Mr. Dragisic is the President and a Director of the Advisor, Mr.
Totsky is a Senior Vice President of the Advisor, Mr. Lemke is a Senior Vice
President, Secretary, and General Counsel of the Advisor, Mr. Neville is a
Senior Vice President and Chief Financial Officer of the Advisor, and Ms.
Oglanian and Mr. Weitzer are Associate Counsel of the Advisor. A brief
description of each Fund's investment advisory agreement ("Advisory Agreement")
is set forth in the Prospectus under "About the Funds - Management."
The Advisory Agreements for the American Utilities, Asset Allocation, and
Total Return Funds, dated May 1, 1995, were last approved by shareholders at
the annual meeting of shareholders held on April 13, 1995. The Advisory
Agreements for the Equity Income and Growth and Income Funds, dated December
28, 1995, were last approved by its shareholders on December 28, 1995, and will
remain in effect for a period of two years. Each Advisory Agreement is
required to be approved annually by either the Board of Directors of the Fund
or by vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act). In either case, each annual renewal must also be
approved by the vote of a majority of the Fund's directors who are not parties
to the Advisory Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. Each
Advisory Agreement is terminable without penalty, on 60 days' written notice by
the Board of Directors of the Fund, by vote of a majority of the Fund's
outstanding voting securities, or by the Advisor, and will terminate auto40
matically in the event of its assignment.
Under the terms of each Advisory Agreement, the Advisor manages the Fund's
investments subject to the supervision of the Fund's Board of Directors. The
Advisor is responsible for investment decisions and supplies investment
research and portfolio management. In addition, the Advisory Agreement between
the Advisor and the American Utilities Fund authorizes the Advisor to delegate
its duties under that agreement to another advisor. As discussed below, the
Advisor has retained W.H. Reaves & Co., Inc. as Subadvisor with respect to the
American Utilities Fund's investments. At its expense, the Advisor provides
office space and all necessary office facilities, equipment and personnel for
servicing the investments of each Fund. In addition, the Advisor places all
orders for the purchase and sale of each Fund's portfolio securities at the
Fund's expense.
As compensation for its services, the American Utilities Fund pays to the
Advisor a monthly management fee at the annual rate of .75% of the average
daily net asset value of the Fund, and the Asset Allocation and Total Return
Funds pay to the Advisor a monthly management fee at the annual rate of .85% of
the first $35,000,000 of the Fund's average daily net asset value and at the
annual rate of .80% of the Fund's average daily net asset value in excess of
$35,000,000. (See "Shareholder Manual - Determining Your Share Price" in the
Prospectus.) From time to time, the Advisor may voluntarily waive all or a
portion of its management fee for a Fund. The organizational expenses of the
American Utilities Fund, which were $27,839,
33
<PAGE> 85
were advanced by the Advisor and will be reimbursed by the Fund over a period
of not more than 60 months from the Fund's date of inception.
The following table sets forth certain information concerning management
fees for each Fund for the ten-month fiscal year ended October 31, 1995, and
for the fiscal years ended December 31, 1994; December 31, 1993; and December
31, 1992:
<TABLE>
<CAPTION>
Management Fee
Incurred Management Fee Management Fee
by Fund Waiver Paid by Fund
-------------- -------------- ---------------
<S> <C> <C> <C>
Asset Allocation Fund
1992 $1,698,048 $0 $1,698,048
1993 $1,843,753 $0 $1,843,753
1994 $2,077,850 $0 $2,077,850
1995* $1,679,120 $0 $1,679,120
American Utilities Fund
1993(1) $71,977 $71,977 $0
1994 $262,428 $208,638 $53,790
1995* $382,467 $0 $382,467
Total Return Fund
1992 $4,995,179 $0 $4,995,179
1993 $4,614,268 $0 $4,614,268
1994 $4,973,614 $0 $4,973,614
1995* $4,220,838 $0 $4,220,838
</TABLE>
(1) Commenced operations on July 1, 1993.
* For the ten-month fiscal year ended October 31, 1995.
Each Advisory Agreement requires the Advisor to reimburse a Fund in the
event that the expenses and charges payable by the Fund in any fiscal year,
including the management fee but excluding taxes, interest, brokerage
commissions, and similar fees and to the extent permitted extraordinary
expenses, exceed that percentage of the average net asset value of the Fund for
such year, as determined by valuations made as of the close of each business
day of the year, which is the most restrictive percentage expense limitation
provided by the laws of the various states in which the Fund's common stock is
qualified for sale; or if the states in which the Fund's common stock is
qualified for sale impose no restrictions, then 2%. The most restrictive
percentage limitation currently applicable to a Fund is 2 1/2% of its average
daily net assets up to $30,000,000, 2% on the next $70,000,000 of its average
daily net assets and 1 1/2% of its average daily net assets in excess of
$100,000,000. Reimbursement of expenses in excess of the applicable limitation
will be made on a monthly basis and will be paid to the Fund by reduction of
the management's fee, subject to later adjustment, month by month, for the
remainder of the Fund's fiscal year. The Advisor may from time to time
voluntarily absorb expenses for a Fund in addition to the reimbursement of
expenses in excess of applicable limitations.
On July 12, 1994, the Securities and Exchange Commission (the "SEC") filed
an administrative action (Order) against the Advisor, Mr. Strong, and another
employee of the Advisor in connection with conduct that occurred between 1987
and early 1990. In re Strong/Corneliuson Capital Management, Inc., et al.
Admin. Proc. File No. 3-8411. The proceeding was settled by consent without
admitting or denying the allegations in the Order. The Order alleged that the
Advisor and Mr. Strong aided and abetted violations of Section 17(a) of the
1940 Act by effecting trades between mutual funds, and between mutual funds and
Harbour Investments Ltd. ("Harbour"), without complying with the exemptive
provisions of SEC Rule 17a-7 or otherwise obtaining an exemption. It further
alleged that the Advisor violated, and Mr. Strong aided and abetted violations
of, the disclosure provisions of the 1940 Act and the Investment Advisers Act
of 1940 by misrepresenting the Advisor's policy on personal trading and by
failing to disclose trading by Harbour, an entity in which principals of the
Advisor owned between 18 and 25 percent of the voting stock. As part of the
settlement, the respondents agreed to a censure and a cease and desist order
34
<PAGE> 86
and the Advisor agreed to various undertakings, including adoption of certain
procedures and a limitation for six months on accepting certain types of new
advisory clients.
The staff of the U.S. Department of Labor (the "Staff") has contacted the
Advisor regarding alleged cross-trading of securities between 1987 and early
1990 involving various customer accounts subject to the Employee Retirement
Security Act of 1974 ("ERISA") and managed by the Advisor. The Advisor has
informed the Staff of the basis for its position that the trades complied with
ERISA and that, in any event, any alleged noncompliance was not the cause of
any losses to the accounts. The Staff has stated that it disagrees with the
Advisor's positions, although to date it has not filed any action against the
Advisor. At this time, the Advisor is negotiating with the Staff regarding a
possible resolution of the matter, but it cannot presently determine whether the
matter will be settled or litigated or, if it is settled or litigated, how it
ultimately will be resolved. However, management presently believes, based on
current knowledge and the Advisor's insurance coverage, that the ultimate
resolution of this matter should not have a material adverse effect on the
Advisor's financial position.
As indicated above, the Subadvisor to the American Utilities Fund is W.H.
Reaves & Co., Inc. (the "Subadvisor"). The American Utilities Fund's
subadvisory agreement, dated June 25, 1993 (the "Subadvisory Agreement"), was
last approved by shareholders at the annual meeting of shareholders held on
April 13, 1995. Under the terms of the Subadvisory Agreement, the Subadvisor
furnishes investment advisory and portfolio management services to the Fund
with respect to its investments. The Subadvisor is responsible for decisions
to buy and sell the Fund's investments and all other transactions related to
investment therein and the negotiation of brokerage commissions, if any, except
that the Advisor is responsible for managing the cash equivalent investments
maintained by the Fund in the ordinary course of its business and which, on
average, are expected to equal approximately five to seven percent of the
Fund's total assets. Purchases and sales of securities on a securities
exchange are effected through brokers who charge a negotiated commission for
their services. However, because the Subadvisor is a member of the New York
Stock Exchange, it is anticipated that the Subadvisor will directly effect
purchases and sales of securities on the Exchange and be paid a commission for
such services commensurate with the commissions charged by unaffiliated brokers
in arm's-length transactions. (See "Portfolio Transactions and Brokerage.")
During the term of the Subadvisory Agreement, the Subadvisor will bear all
expenses incurred by it in connection with its services under such agreement.
The Subadvisory Agreement requires the Advisor, not the American Utilities
Fund, to pay the Subadvisor a fee, computed and paid monthly, at an annual rate
of 0.50% on the first $200 million of the Fund's average daily net assets plus
40% of the Advisor's net management fee (after any waivers thereof) on that
portion of the Fund's average daily net assets in excess of $200 million,
except that the foregoing percentage will be 50% on average daily net assets
between $1.0 billion and $1.5 billion. For the fiscal year ended December 31,
1994, and the ten-month fiscal year ended October 31, 1995, the Subadvisor
received $172,423 and $237,408, respectively, in subadvisory fees from the
Advisor pursuant to the Subadvisory Agreement.
The Subadvisory Agreement may be terminated at any time, without payment
of any penalty, by vote of the Board of Directors of the American Utilities
Fund or by a vote of a majority of the outstanding voting securities of the
Fund on 60 days' written notice to the Subadvisor. The Subadvisory Agreement
may also be terminated by the Advisor for breach upon 20 days' notice,
immediately in the event that the Subadvisor becomes unable to discharge its
duties and obligations, and upon 60 days' notice for any reason. The
Subadvisory Agreement may be terminated by the Subadvisor upon 180 days' notice
for any reason. The Subadvisory Agreement will terminate automatically in the
event of its unauthorized assignment.
Except for expenses assumed by the Advisor, and the Subadvisor if
applicable, as set forth above, or by the Distributor, as described below with
respect to the distribution of a Fund's shares, each Fund is responsible for
all its other expenses, including, without limitation, interest charges, taxes,
brokerage commissions and similar expenses; organizational expenses; expenses
of issue, sale, repurchase or redemption of shares; expenses of registering or
qualifying shares for sale with the states and the SEC; expenses for printing
and distributing Prospectuses and quarterly financial statements to existing
shareholders; charges of custodians, transfer agents (including the printing
and mailing of reports and notices to shareholders), registrars, auditing and
legal services, clerical services related to recordkeeping and shareholder
relations, and printing of stock certificates; and fees for directors who are
not "interested persons" of the Advisor.
The Advisor has adopted a Code of Ethics (the "Code") which governs the
personal trading activities of all "Access Persons" of the Advisor. Access
Persons include every director and officer of the Advisor and the investment
companies managed by the Advisor, including the Funds, as well as certain
employees of the Advisor who have access to information
35
<PAGE> 87
relating to the purchase or sale of securities by the Advisor on behalf of
accounts managed by it. The Code is based upon the principal that such
Access Persons have a fiduciary duty to place the interests of the Advisor's
clients ahead of their own.
The Code requires Access Persons (other than Access Persons who are
independent directors of the investment companies managed by the Advisor,
including the Funds) to, among other things, preclear their securities
transactions (with limited exceptions, such as transactions in shares of mutual
funds, direct obligations of the U.S. government and certain options on
broad-based securities market indexes) and to execute such transactions through
the Advisor's trading department. The Code, which applies to all Access Persons
(other than Access Persons who are independent directors of the investment
companies managed by the Advisor, including the Funds), includes a ban on
acquiring any securities in an initial public offering, other than a new
offering of a registered open-end investment company, and a prohibition from
profiting on short-term trading in securities. In addition, no Access Person may
purchase or sell any security which, at the time, is being purchased or sold, or
to the knowledge of the Access Person, is being considered for purchase or sale,
by the Advisor on behalf of any mutual fund or other account managed by it.
Finally, the Code provides for trading "black out" periods which prohibit
trading by Access Persons who are portfolio managers within seven calendar days
of trading in the same securities by any mutual fund or other account managed by
the portfolio manager.
In addition, the Subadvisor to the American Utilities Fund has also
adopted a Code of Ethics (the "Reaves Code") which is identical to the Code
discussed above in all but two respects. First, instead of a flat prohibition
against profiting on short-term trading in securities, the Reaves Code gives a
Reaves' compliance official the authority to require forfeiture of such profits
if such person believes that the profits were gained at the expense of an
advisory client. Second, the Reaves Code modifies the seven day trading "black
out" period as contained in the Code to prohibit only like transactions by a
portfolio manager (e.g., a purchase by both the American Utilities Fund and a
portfolio manager of the Fund) within seven calendar days of the establishment
of an initial position or liquidation of a position of the same securities by
the Fund or other account of the Subadvisor managed by that portfolio manager.
Under a Distribution Agreement dated December 1, 1993 with the American
Utilities, Asset Allocation, and Total Return Funds and a Distribution
Agreement dated December 28, 1995 for the Equity Income and the Growth and
Income Funds (the "Distribution Agreement"), Strong Funds Distributors, Inc.
acts as underwriter of each Fund's shares ("Distributor"). Each Distribution
Agreement provides that the Distributor will use its best efforts to distribute
the Fund's shares. Since the Funds are "no-load" funds, no sales commissions
are charged on the purchase of Fund shares. Each Distribution Agreement
further provides that the Distributor will bear the costs of printing
Prospectuses and shareholder reports which are used for selling purposes, as
well as advertising and other costs attributable to the distribution of a
Fund's shares. The Distributor is an indirect subsidiary of the Advisor and
controlled by the Advisor and Richard S. Strong. Prior to December 1, 1993,
the Advisor acted as underwriter for the American Utilities, Asset Allocation,
and Total Return Funds. On December 1, 1993, the Distributor succeeded to the
broker-dealer registration of the Advisor and, in connection therewith, the
Distribution Agreements for the American Utilities, Asset Allocation, and Total
Return Funds were executed on substantially identical terms as the former
distribution agreement with the Advisor as distributor. Each Distribution
Agreement is subject to the same termination and renewal provisions as are
described above with respect to the Advisory Agreements.
From time to time, the Distributor may hold in-house sales incentive
programs for its associated persons under which these persons may receive
non-cash compensation awards in connection with the sale and distribution of a
Fund's shares. These awards may include items such as, but not limited to,
gifts, merchandise, gift certificates, and payment of travel expenses, meals
and lodging. As required by the National Association of Securities Dealers,
Inc. or NASD's proposed rule amendments in this area, any in-house sales
incentive program will be multi-product oriented, i.e., any incentive will be
based on an associated person's gross production of all securities within a
product type and will not be based on the sales of shares of any specifically
designated mutual fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisor, and the Subadvisor with respect to the American Utilities
Fund only, are responsible for decisions to buy and sell securities for the
Funds and for the placement of the Funds' portfolio business and the
negotiation of the commissions to be paid on such transactions. It is the
policy of the Advisor, and the Subadvisor, to seek the best execution at the
best security price available with respect to each transaction, in light of the
overall quality of brokerage and research services provided to the Advisor, and
the Subadvisor, or the Funds. In over-the-counter transactions, orders are
placed directly
36
<PAGE> 88
with a principal market maker unless it is believed that a better price and
execution can be obtained using a broker. The best price to the Funds means
the best net price without regard to the mix between purchase or sale price and
commissions. In selecting broker-dealers and in negotiating commissions, the
Advisor, and the Subadvisor, consider a variety of factors, including best
price and execution, the full range of brokerage services provided by the
broker, as well as its capital strength and stability, and the quality of the
research and research services provided by the broker. Brokerage will not be
allocated based on the sale of a Fund's shares.
With respect to the American Utilities Fund only, because the Subadvisor
is a member of the New York Stock Exchange, it expects to act as a broker for
transactions in the Fund's securities. In order for the Subadvisor to effect
any portfolio transactions for the American Utilities Fund on an exchange, the
commissions, fees or other remuneration received by the Subadvisor must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. This standard would allow the Subadvisor to receive no more
than the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction. During the fiscal year
ended December 31, 1993 and 1994, and the ten-month fiscal year ended October
31, 1995, the American Utilities Fund paid approximately $68,000, $136,000, and
$176,000, respectively, to the Subadvisor in brokerage commissions. The
payments made to the Subadvisor during the ten-month fiscal year ended October
31, 1995, represent 100% of the Fund's aggregate brokerage commissions paid
during the year.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment advisor, under certain circumstances, to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
In carrying out the provisions of the Advisory Agreements, and Subadvisory
Agreement if applicable, the Advisor, and Subadvisor, may cause the Funds to
pay a broker, which provides brokerage and research services to the Advisor, or
Subadvisor, a commission for effecting a securities transaction in excess of
the amount another broker would have charged for effecting the transaction.
The Advisor, and Subadvisor, believe it is important to the decision-making
process to have access to independent research. Each Advisory Agreement
provides that such higher commissions will not be paid by a Fund unless (a) the
Advisor determines in good faith that the amount is reasonable in relation to
the services in terms of the particular transaction or in terms of the
Advisor's overall responsibilities with respect to the accounts as to which it
exercises investment discretion; (b) such payment is made in compliance with
the provisions of Section 28(e), other applicable state and federal laws, and
the Advisory Agreement; and (c) in the opinion of the Advisor, the total
commissions paid by a Fund will be reasonable in relation to the benefits to
the Fund over the long term. The investment management fees paid by a Fund
under its Advisory Agreement are not reduced as a result of the Advisor's
receipt of research services. The following table sets forth certain
information concerning brokerage commissions paid by each Fund for the
ten-month fiscal year ended October 31, 1995, and for the fiscal years ended
December 31, 1994; December 31, 1993; and December 31, 1992.
<TABLE>
<CAPTION>
American Utilities Fund(1) Brokerage Commissions
- -------------------------- -------------------------
<S> <C>
1993 $ 71,000
1994 $ 136,000
1995* $ 176,000
Asset Allocation Fund
- ---------------------
1992 $ 520,000
1993 $ 630,000
1994 $ 626,000
1995* $ 942,000
Total Return Fund
- -----------------
1992 $ 4,467,000
</TABLE>
37
<PAGE> 89
<TABLE>
<S> <C>
1993 $4,309,000
1994 $4,403,000
1995* $3,863,000
</TABLE>
(1) Commenced operations on July 1, 1993.
* For the ten-month fiscal year ended October 31, 1995.
Generally, research services provided by brokers include information on
the economy, industries, groups of securities, individual companies,
statistical information, accounting and tax law interpretations, political
developments, legal developments affecting portfolio securities, technical
market action, pricing and appraisal services, credit analysis, risk
measurement analysis, performance analysis, and analysis of corporate
responsibility issues. Such research services are received primarily in the
form of written reports, telephone contacts, and personal meetings with
security analysts. In addition, such research services may be provided in the
form of access to various computer-generated data, computer hardware and
software, and meetings arranged with corporate and industry spokespersons,
economists, academicians, and government representatives. In such cases,
research services are generated by third parties but are provided to the
Advisor by or through brokers. Such brokers may pay for all or a portion of
computer hardware and software costs relating to the pricing of securities.
Where the Advisor itself receives both administrative benefits and
research and brokerage services from the services provided by brokers, it makes
a good faith allocation between the administrative benefits and the research
and brokerage services, and will pay for any administrative benefits with cash.
In making good faith allocations between administrative benefits and research
and brokerage services, a conflict of interest may exist by reason of the
Advisor's allocation of the costs of such benefits and services between those
that primarily benefit the Advisor and those that primarily benefit the Funds
and other advisory clients.
From time to time, the Advisor may purchase securities for a Fund in a
fixed price offering. In these situations, the seller may be a member of the
selling group that will, in addition to selling the securities to the Funds and
other advisory clients, provide the Advisor with research. The National
Association of Securities Dealers has adopted rules expressly permitting these
types of arrangements under certain circumstances. Generally, the seller will
provide research "credits" in these situations at a rate that is higher than
that which is available for typical secondary market transactions. These
arrangements may not fall within the safe harbor of Section 28(e).
Each year, the Advisor considers the amount and nature of research and
research services provided by brokers, as well as the extent to which such
services are relied upon, and attempts to allocate a portion of the brokerage
business of the Funds and other advisory clients on the basis of that
consideration. In addition, brokers may suggest a level of business they would
like to receive in order to continue to provide such services. The actual
brokerage business received by a broker may be more or less than the suggested
allocations, depending upon the Advisor's evaluation of all applicable
considerations.
During its last fiscal year, the Advisor had an arrangement with various
brokers whereby, in consideration of the providing of research services, the
Advisor allocated brokerage to those firms, provided that their brokerage and
research services were satisfactory to the Advisor and their execution
capabilities were compatible with the Advisor's policy of seeking best
execution at the best security price available, as discussed above.
The Advisor may direct the purchase of securities on behalf of the Funds
and other advisory clients in secondary market transactions, in public
offerings directly from an underwriter, or in privately negotiated transactions
with an issuer. When the Advisor believes the circumstances so warrant,
securities purchased in public offerings may be resold shortly after
acquisition in the immediate aftermarket for the security in order to take
advantage of price appreciation from the public offering price or for other
reasons. Short-term trading of securities acquired in public offerings, or
otherwise, may result in higher portfolio turnover and associated brokerage
expenses.
The Advisor and Subadvisor place portfolio transactions for other advisory
accounts, including other mutual funds managed by the Advisor. Research
services furnished by firms through which the Funds effect their securities
transactions may be used by the Advisor, and Subadvisor, in servicing all of
their accounts; not all of such services may be used by the Advisor, and
Subadvisor, in connection with the Funds. In the opinion of the Advisor, it is
not possible to separately measure the benefits from research services to each
of the accounts (including the Funds) managed by the Advisor. Because the
volume and nature of the trading activities of the accounts are not uniform,
the amount of commissions in excess of those charged by
38
<PAGE> 90
another broker paid by each account for brokerage and research services will
vary. However, in the opinion of the Advisor, such costs to the Funds will not
be disproportionate to the benefits received by the Funds on a continuing basis.
The Advisor seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by a Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Funds. In
making such allocations between a Fund and other advisory accounts, the main
factors considered by the Advisor are the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and the opinions of the persons responsible for recommending the
investment.
Where consistent with a client's investment objectives, investment
restrictions, and risk tolerance, the Advisor may purchase securities sold in
underwritten public offerings for client accounts, commonly referred to as
"deal" securities. The Advisor has adopted deal allocation procedures (the
"procedures"), summarized below, that reflect the Advisor's overriding policy
that deal securities must be allocated among participating client accounts in a
fair and equitable manner and that deal securities may not be allocated in a
manner that unfairly discriminates in favor of certain clients or types of
clients.
The procedures provide that, in determining which client accounts a
portfolio manager team will seek to have purchase deal securities, the team
will consider all relevant factors including, but not limited to, the nature,
size, and expected allocation to the Advisor of deal securities; the size of
the account(s); the accounts' investment objectives and restrictions; the risk
tolerance of the client; the client's tolerance for possibly higher portfolio
turnover; the amount of commissions generated by the account during the past
year; and the number of other deals the client has participated in during the
past year.
Where more than one of the Advisor portfolio manager team seeks to have
client accounts participate in a deal and the amount of deal securities
allocated to the Advisor by the underwriting syndicate is less than the
aggregate amount ordered by the Advisor (a "reduced allocation"), the deal
securities will be allocated among the portfolio manager teams based on all
relevant factors. The primary factor shall be assets under management,
although other factors that may be considered in the allocation decision
include, but are not limited to, the nature, size, and expected Advisor
allocation of the deal; the amount of brokerage commissions or other amounts
generated by the respective participating portfolio manager teams; and which
portfolio manager team is primarily responsible for the Advisor receiving
securities in the deal. Based on the relevant factors, the Advisor has
established general allocation percentages for its portfolio manager teams, and
these percentages are reviewed on a regular basis to determine whether asset
growth or other factors make it appropriate to use different general allocation
percentages for reduced allocations.
When a portfolio manager team receives a reduced allocation of deal
securities, the portfolio manager team will allocate the reduced allocation
among client accounts in accordance with the allocation percentages set forth
in the team's initial allocation instructions for the deal securities, except
where this would result in a de minimis allocation to any client account. On a
regular basis, the Advisor reviews the allocation of deal securities to ensure
that they have been allocated in a fair and equitable manner that does not
unfairly discriminate in favor of certain clients or types of clients.
As of October 31, 1995, the Asset Allocation Fund had acquired securities
of its regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act)
or their parents in the following amounts:
<TABLE>
<CAPTION>
Regular Broker or Dealer or Parent Issuer Value of Securities Owned as of October 31, 1995
- ----------------------------------------- ------------------------------------------------
<S> <C>
Lehman Brothers, Inc. $4,183,000
</TABLE>
CUSTODIAN
As custodian of the Funds' assets, Firstar Trust Company, P.O. Box 701,
Milwaukee, Wisconsin 53201, has custody of all securities and cash of the
Funds, delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments and performs other
duties, all as directed by the officers of the Funds. The custodian is in no
way responsible for any of the investment policies or decisions of the Funds.
39
<PAGE> 91
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
The Advisor acts as transfer agent and dividend-disbursing agent for the
Funds. The Advisor is compensated based on an annual fee per open account of
$21.75 plus certain out-of-pocket expenses and a $4.20 charge per account per
annum on all closed accounts, payable monthly. The Advisor also acts as
investment advisor for the Funds. The fees received and the services provided
as transfer agent and dividend-disbursing agent are in addition to those
received and provided by the Advisor under the Advisory Agreements. In
addition, the Advisor provides certain printing and mailing services for the
Funds, such as printing and mailing of shareholder account statements, checks,
and tax forms.
The following table sets forth certain information concerning amounts paid
by each Fund for transfer agency and dividend disbursing and printing and
mailing services for the ten-month fiscal year ended October 31, 1995, and for
the fiscal years ended December 31, 1994; December 31, 1993; and December 31,
1992:
Transfer Agency and Dividend Disbursement Services Charges Incurred
<TABLE>
<CAPTION>
Per Printing and Amounts Net Amount
Account Out-of-Pocket Mailing Waived By Paid By
Fund Charges Expenses Services Advisor Fund
- --------------------- ------------ ------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Asset Allocation Fund
1992 $515,216 $101,948 $11,600 $0 $628,764
1993 524,693 64,072 12,746 0 601,511
1994 594,683 158,509 14,340 0 767,532
1995* 461,676 69,276 9,691 0 540,643
American Utilities Fund
1993(1) $0 $0 $0 $0 $0
1994 56,756 451 798 0 58,005
1995* 161,976 19,487 2,247 0 183,710
Total Return Fund
1992 $1,944,126 $385,737 $44,675 $0 $2,374,538
1993 1,596,596 360,677 37,559 0 1,994,832
1994 1,617,511 341,401 36,448 0 1,995,360
1995* 1,235,853 167,928 24,187 0 1,427,968
</TABLE>
______________________________________________________________________
(1) The American Utilities Fund commenced operations on July 1, 1993.
* For the ten-month fiscal year ended October 31, 1995.
From time to time, the Funds, directly or indirectly through arrangements
with the Advisor, and/or the Advisor may pay amounts to third parties that
provide transfer agent and other administrative services relating to the Funds
to persons who beneficially own interests in the Funds, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to a Fund, transmitting, on behalf of a
Fund, proxy statements, annual reports, updated Prospectuses, other
communications regarding the Fund, and related services as the Fund or
beneficial owners may reasonably request. In such cases, the Funds will not
pay fees at a rate that is greater than the rate the Funds are currently paying
the Advisor for providing these services to Fund shareholders.
TAXES
GENERAL
As indicated under "About the Funds - Distributions and Taxes" in the
Prospectus, each Fund intends to continue to qualify annually for treatment as
a regulated investment company ("RIC") under the Internal Revenue Code of 1986,
as amended, (the "Code"). This qualification does not involve government
supervision of the Funds' management practices or policies.
40
<PAGE> 92
In order to qualify for treatment as a RIC under the Code, each Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and net gains from certain foreign
currency transactions) ("Distribution Requirements") and must meet several
additional requirements. Among these requirements are the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of securities, foreign currencies, or other
income (including gains from options, futures, or forward contracts) derived
with respect to its business of investing in securities or those currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities, or
any of the following that was held for less than three months -- options or
futures (other than those on foreign currencies), or foreign currencies (or
options, futures, or forward contracts thereon) that are not directly related
to the Fund's principal business of investing in securities (or options and
futures with respect to securities), or forward contracts ("30% Limitation");
(3) at the close of each quarter of the Fund's taxable year, at least 50% of
the value of its total assets must be represented by cash and cash items, U.S.
government securities, securities of other RICs, and other securities, with
these other securities limited, in respect of any one issuer, to an amount that
does not exceed 5% of the value of the Fund's total assets and that does not
represent more than 10% of the issuer's outstanding voting securities; and (4)
at the close of each quarter of the Fund's taxable year, not more than 25% of
the value of its total assets may be invested in securities (other than U.S.
government securities or the securities of other RICs) of any one issuer. From
time to time the Advisor may find it necessary to make certain types of
investments for the purpose of ensuring that the Fund continues to qualify for
treatment as a RIC under the Code.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
FOREIGN TRANSACTIONS
Interest and dividends received by a Fund may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Each Fund maintains its accounts and calculates its income in U.S.
dollars. In general, gain or loss (1) from the disposition of foreign
currencies and forward currency contracts, (2) from the disposition of
foreign-currency-denominated debt securities that are attributable to
fluctuations in exchange rates between the date the securities are acquired and
their disposition date, and (3) attributable to fluctuations in exchange rates
between the time a Fund accrues interest or other receivables or expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects those receivables or pays those liabilities, will be treated
as ordinary income or loss. A foreign-currency-denominated debt security
acquired by a Fund may bear interest at a high normal rate that takes into
account expected decreases in the value of the principal amount of the security
due to anticipated currency devaluations; in that case, the Fund would be
required to include the interest in income as it accrues but generally would
realize a currency loss with respect to the principal only when the principal
was received (through disposition or upon maturity).
Each Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a Fund will be
subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain on disposition of the stock (collectively,
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC
income will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If a Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) -- which
41
<PAGE> 93
probably would have to be distributed to its shareholders to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax -- even if
those earnings and gain were not received by the Fund. In most instances it
will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
DERIVATIVE INSTRUMENTS
The use of derivatives strategies, such as purchasing and selling
(writing) options and futures and entering into foreign currency contracts,
involves complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses the Funds realize
in connection therewith. Gains from the disposition of foreign currencies
(except certain gains therefrom that may be excluded by future regulations),
and income from transactions in options, futures, and forward currency
contracts derived by a Fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
Income Requirement. However, income from the disposition of options and
futures (other than those on foreign currencies) will be subject to the 30%
Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures, and forward contracts
on foreign currencies, that are not directly related to a Fund's principal
business of investing in securities (or options and futures with respect to
securities) also will be subject to the 30% Limitation if they are held for
less than three months.
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
30% Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. The Funds
intend that, when they engage in hedging strategies, the hedging transactions
will qualify for this treatment, but at the present time it is not clear
whether this treatment will be available for all of the Funds' hedging
transactions. To the extent this treatment is not available or is not elected
by a Fund, it may be forced to defer the closing out of certain options,
futures, or forward currency contracts beyond the time when it otherwise would
be advantageous to do so, in order for the Fund to continue to qualify as a
RIC.
For federal income tax purposes, each Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on options,
futures, and forward currency contracts that are subject to section 1256 of the
Code ("Section 1256 Contracts") and are held by the Fund as of the end of the
year, as well as gains and losses on Section 1256 Contracts actually realized
during the year. Except for Section 1256 Contracts that are part of a "mixed
straddle" and with respect to which a Fund makes a certain election, any gain
or loss recognized with respect to Section 1256 Contracts is considered to be
60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the Section 1256 Contract. Unrealized
gains on Section 1256 Contracts that have been held by a Fund for less than
three months as of the end of its taxable year, and that are recognized for
federal income tax purposes as described above, will not be considered gains on
investments held for less than three months for purposes of the 30% Limitation.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
Each Fund may acquire zero-coupon, step-coupon, or other securities issued
with original issue discount. As a holder of those securities, a Fund must
include in its income the original issue discount that accrues on the
securities during the taxable year, even if the Fund receives no corresponding
payment on the securities during the year. Similarly, a Fund must include in
its income securities it receives as "interest" on pay-in-kind securities.
Because a Fund annually must distribute substantially all of its investment
company taxable income, including any original issue discount and other
non-cash income, to satisfy the Distribution Requirement and avoid imposition
of the Excise Tax, it may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions may be made from the proceeds on sales of
portfolio securities, if necessary. A Fund may realize capital gains or losses
from those sales, which would increase or decrease its investment company
taxable income or net capital gain, or both. In addition, any such gains may
be realized on the disposition of securities held for less than three months.
Because of the 30% Limitation, any such gains would reduce a Fund's ability to
sell other securities, or certain options, futures, or forward currency
contracts, held for less that three months that it might wish to sell in the
ordinary course of its portfolio management.
The foregoing federal tax discussion as well as the tax discussion
contained within the Prospectus under "About the Funds - Distributions and
Taxes" is intended to provide you with an overview of the impact of federal
income tax provisions on
42
<PAGE> 94
each Fund or its shareholders. These tax provisions are subject to change by
legislative or administrative action at the federal, state, or local level,
and any changes may be applied retroactively. Any such action that limits or
restricts each Fund's current ability to pass-through earnings without taxation
at the Fund level, or otherwise materially changes a Fund's tax treatment,
could adversely affect the value of a shareholder's investment in a Fund.
Because each Fund's taxes are a complex matter, you should consult your tax
adviser for more detailed information concerning the taxation of a Fund and the
federal, state, and local tax consequences to shareholders of an investment in
a Fund.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "Shareholder Manual -
Determining Your Share Price," the net asset value of each Fund will be
determined as of the close of trading on each day the New York Stock Exchange
(the "NYSE") is open for trading. The NYSE is open for trading Monday through
Friday except New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Additionally, if any of the aforementioned holidays falls on a Saturday, the
NYSE will not be open for trading on the preceding Friday, and when such
holiday falls on a Sunday, the NYSE will not be open for trading on the
succeeding Monday, unless unusual business conditions exist, such as the ending
of a monthly or the yearly accounting period.
Debt obligations are valued by a pricing service that utilizes electronic
data processing techniques to determine values for normal institutional-sized
trading units of debt obligations without regard to sale or bid prices when
such values are believed to more accurately reflect the fair market value for
such securities. Otherwise, sale or bid prices are used. Any securities or
other assets for which market quotations are not readily available are valued
at fair value as determined in good faith by the Board of Directors of each
Fund. Debt obligations having remaining maturities of 60 days or less when
purchased are valued by the amortized cost method when a Fund's Board of
Directors determines that the fair value of such securities is their amortized
cost. Under this method of valuation, a security is initially valued at its
acquisition cost, and thereafter, amortization of any discount or premium is
assumed each day, regardless of the impact of the fluctuating rates on the
market value of the instrument.
ADDITIONAL SHAREHOLDER INFORMATION
TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGES AND AUTOMATIC EXCHANGE PLAN
Shares of a Fund and any other funds sponsored by the Advisor may be
exchanged for each other at relative net asset values. Exchanges will be
effected by redemption of shares of the Fund held and purchase of shares of the
fund for which Fund shares are being exchanged (the "New Fund"). For federal
income tax purposes, any such exchange constitutes a sale upon which a capital
gain or loss will be realized, depending upon whether the value of the shares
being exchanged is more or less than the shareholder's adjusted cost basis. If
you are interested in exercising any of these exchange privileges, you should
obtain Prospectuses of other funds sponsored by the Advisor from the Advisor.
Upon a telephone exchange, the transfer agent establishes a new account in the
New Fund with the same registration and dividend and capital gains options as
the redeemed account, unless otherwise specified, and confirms the purchase to
you.
The Funds employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The Funds may not be liable for losses
due to unauthorized or fraudulent instructions. Such procedures include but are
not limited to requiring a form of personal identification prior to acting on
instructions received by telephone, providing written confirmations of such
transactions to the address of record, and tape recording telephone
instructions.
The Telephone Exchange and Redemption Privileges and Automatic Exchange
Plan are available only in states where shares of the New Fund may be sold, and
may be modified or discontinued at any time. Additional information regarding
the Telephone Exchange and Redemption Privileges and Automatic Exchange Plan is
contained in the Funds' Prospectus.
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<PAGE> 95
RETIREMENT PLANS
Individual Retirement Account (IRA): Everyone under age 70 1/2 with earned
income may contribute to a tax-deferred IRA. The Strong Funds offer a prototype
plan for you to establish your own IRA. You are allowed to contribute up to the
lesser of $2,000 or 100% of your earned income each year to your IRA. Under
certain circumstances, your contribution will be deductible.
Direct Rollover IRA: To avoid the mandatory 20% federal withholding tax on
distributions, you must transfer the qualified retirement or Code section
403(b) plan distribution directly into an IRA. This tax cannot be avoided if
you receive a distribution and then roll it over into an IRA. The amount of
your Direct Rollover IRA contribution will not be included in your taxable
income for the year.
Simplified Employee Pension Plan (SEP-IRA): A SEP-IRA allows an employer to
make deductible contributions to separate IRA accounts established for each
eligible employee.
Salary Reduction Simplified Employee Pension Plan (SAR SEP-IRA): A SAR SEP-IRA
is a type of SEP-IRA in which an employer may allow employees to defer part of
their salaries and contribute into an IRA account. These deferrals help lower
the employees' taxable income.
Defined Contribution Plan: A defined contribution plan allows self-employed
individuals, partners, or a corporation to provide retirement benefits for
themselves and their employees. There are three plan types: a profit-sharing
plan, a money purchase pension plan, and a paired plan (a combination of a
profit-sharing plan and a money purchase plan).
401(k) Plan: A 401(k) plan is a type of profit-sharing plan that allows
employees to have part of their salary contributed to a retirement plan which
will earn tax-deferred income. A 401(k) plan is funded by employee
contributions, employer contributions, or a combination of both.
403(b)(7) Plan: A tax-sheltered custodial account designed to qualify under
section 403(b)(7) of the Code is available for use by employees of certain
educational, non-profit, hospital, and charitable organizations.
FUND ORGANIZATION
The Asset Allocation and Total Return Funds are Wisconsin corporations
(each a "Corporation") that are authorized to offer separate series of shares
representing interests in separate portfolios of securities, each with
differing investment objectives. The American Utilities, Equity Income, and
Growth and Income Funds are series of common stock of Strong Conservative
Equity Funds, Inc., a Wisconsin corporation (a "Corporation") that is
authorized to offer separate series of shares representing interests in
separate portfolios of securities, each with differing objectives. The shares
in any one portfolio may, in turn, be offered in separate classes, each with
differing preferences, limitations or relative rights. However, the Articles
of Incorporation for each of the Corporations provides that if additional
classes of shares are issued by a Corporation, such new classes of shares may
not affect the preferences, limitations or relative rights of the Corporation's
outstanding shares. In addition, the Board of Directors of each Corporation is
authorized to allocate assets, liabilities, income and expenses to each series
and class. Classes within a series may have different expense arrangements
than other classes of the same series and, accordingly, the net asset value of
shares within a series may differ. Finally, all holders of shares of a
Corporation may vote on each matter presented to shareholders for action except
with respect to any matter which affects only one or more series or class, in
which case only the shares of the affected series or class are entitled to
vote. Fractional shares have the same rights proportionately as do full shares.
Shares of the Corporations have no preemptive, conversion, or subscription
rights. If a Corporation issues additional series, the assets belonging to each
series of shares will be held separately by the custodian, and in effect each
series will be a separate fund.
44
<PAGE> 96
Each Corporation was organized on the following dates and currently has
the following authorized shares of capital stock:
<TABLE>
<CAPTION>
Incorporation Date Series Authorized Par
Corporation Date Created Shares Value ($)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strong Asset Allocation Fund, Inc.(1) 09/03/81 300,000,000 .01
Strong Conservative Equity Funds,
Inc.(2) 12/28/90 10,000,000,000 .00001
- - Strong American Utilities Fund 12/28/90 300,000,000 .00001
- - Strong Equity Income Fund 10/27/95 300,000,000 .00001
- - Strong Growth and Income Fund 10/27/95 300,000,000 .00001
Strong Total Return Fund, Inc. 9/03/81 300,000,000 .01
</TABLE>
(1) Prior to December 21, 1994, the Fund's name was Strong Investment Fund,
Inc.
(2) Prior to April 17, 1995, the Fund's name was Strong American Utilities
Fund, Inc.
SHAREHOLDER MEETINGS
The Wisconsin Business Corporation Law permits registered investment
companies, such as the Corporations, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not required
by the 1940 Act. Each Corporation has adopted the appropriate provisions in
their Bylaws and may, at their discretion, not hold an annual meeting in any
year in which the election of directors is not required to be acted on by
shareholders under the 1940 Act.
Each Corporation's Bylaws allow for a director to be removed by its
shareholders with or without cause, only at a meeting called for the purpose
of removing the director. Upon the written request of the holders of shares
entitled to not less than ten percent (10%) of all the votes entitled to be
cast at such meeting, the Secretary of the Corporation shall promptly call a
special meeting of shareholders for the purpose of voting upon the question of
removal of any director. The Secretary of the Corporation shall inform such
shareholders of the reasonable estimated costs of preparing and mailing the
notice of the meeting, and upon payment to the Corporation of such costs, the
Corporation shall give not less than ten nor more than sixty days notice of the
special meeting.
PERFORMANCE INFORMATION
As described in the "About the Funds - Performance Information" section of
the Funds' Prospectus, each Fund's historical performance or return may be
shown in the form of "average annual total return," "total return," and
"cumulative total return." In addition, each Fund's performance may be shown
in the form of "yield" and "distribution rate." From time to time, the Advisor
may agree to waive or reduce its management fee and to absorb certain operating
expenses for a Fund. Without these waivers and absorption of expenses, the
performance results for the Funds noted herein would have been lower. All
performance and returns noted herein are historical and do not represent the
future performance of the Funds.
YIELD
A Fund's yield is computed in accordance with a standardized method
prescribed by rules of the SEC. Under that method, the current yield quotation
for the Fund is based on a one month or 30-day period. The yield is computed
by dividing the net investment income per share earned during the 30-day or one
month period by the maximum offering price per share on the last day of the
period, according to the following formula:
6
YIELD = 2[( a-b + 1) - 1]
cd
Where a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
45
<PAGE> 97
For the 30-day period ended October 31, 1995, the American Utilities
Fund's yield was 3.27%. In computing its yield, the Fund follows certain
standardized accounting practices specified by rules of the SEC. These
practices are not necessarily consistent with those that the Fund uses to
prepare annual and interim financial statements in conformity with generally
accepted accounting principles.
DISTRIBUTION RATE
The distribution rate for the a Fund is computed, according to a
non-standardized formula, by dividing the total amount of actual distributions
per share paid by the Fund over a twelve month period by the Fund's net asset
value on the last day of the period. The distribution rate differs from the
Fund's yield because the distribution rate includes distributions to
shareholders from sources other than dividends and interest, such as premium
income from option writing and short-term capital gains. Therefore, a Fund's
distribution rate may be substantially different than its yield. Both a Fund's
yield and distribution rate will fluctuate.
AVERAGE ANNUAL TOTAL RETURN
The Funds' average annual total return quotation is computed in accordance
with a standardized method prescribed by rules of the SEC. The average annual
total return for a Fund for a specific period is found by first taking a
hypothetical $10,000 investment ("initial investment") in the Fund's shares on
the first day of the period and computing the "redeemable value" of that
investment at the end of the period. The redeemable value is then divided by
the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by a Fund have been reinvested at
net asset value on the reinvestment dates during the period. Average annual
total return figures for various periods are set forth in the table below.
TOTAL RETURN
Calculation of each Fund's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by first
taking an investment (assumed below to be $10,000) ("initial investment") in a
Fund's shares on the first day of the period and computing the "ending value"
of that investment at the end of the period. The total return percentage is
then determined by subtracting the initial investment from the ending value and
dividing the remainder by the initial investment and expressing the result as a
percentage. The calculation assumes that all income and capital gains
dividends paid by a Fund have been reinvested at net asset value of the Fund on
the reinvestment dates during the period. Total return may also be shown as
the increased dollar value of the hypothetical investment over the period.
Total return figures for various periods are set forth in the table below.
CUMULATIVE TOTAL RETURN
Cumulative total return represents the simple change in value of an
investment over a stated period and may be quoted as a percentage or as a
dollar amount. Total returns and cumulative total returns may be broken down
into their components of income and capital (including capital gains and
changes in share price) in order to illustrate the relationship between these
factors and their contributions to total return.
A Fund's performance figures are based upon historical results and do not
represent future performance. Each Fund's shares are sold at net asset value
per share. The Funds' returns and net asset value will fluctuate and shares
are redeemable at the then current net asset value of each Fund, which may be
more or less than original cost. Factors affecting a Fund's performance
include general market conditions, operating expenses, and investment
management. Any additional fees charged by a dealer or other financial
services firm would reduce the returns described in this section.
The figures below show performance information for the various periods
ended October 31, 1995. No adjustment has been made for taxes, if any, payable
on dividends. Securities prices fluctuated during these periods.
46
<PAGE> 98
ASSET ALLOCATION FUND
- ---------------------
<TABLE>
<CAPTION>
Total Average Annual
Return Total Return
---------- --------------
Initial
$10,000 Ending Value Percentage Percentage
Investment October 31, 1995 Increase Increase
---------- ---------------- ---------- --------------
<S> <C> <C> <C> <C>
Life of Fund(1) $10,000 $60,379.44 503.79% 13.88%
Ten Years 10,000 25,880.52 158.81 9.98
Five Years 10,000 16,639.40 66.39 10.72
One Year 10,000 11,620.59 16.21 16.21
</TABLE>
- ---------------
(1) Commenced operations on December 30, 1981.
AMERICAN UTILITIES FUND
--------------------------------
<TABLE>
<CAPTION>
Total Average Annual
Return Total Return
---------- --------------
Initial
$10,000 Ending Value Percentage Percentage
Investment October 31, 1995 Increase Increase
------------ ---------------- ---------- --------------
<S> <C> <C> <C> <C>
Life of Fund(1) $10,000 $12,913.41 29.13% 11.56%
One Year 10,000 12,271.81 22.72 22.72
</TABLE>
- ---------------
(1) Commenced operations on July 1, 1993.
TOTAL RETURN FUND
------------------
<TABLE>
<CAPTION>
Total Average Annual
Return Total Return
---------- --------------
Initial
$10,000 Ending Value Percentage Percentage
Investment October 31, 1994 Increase Increase
---------- ---------------- ---------- --------------
<S> <C> <C> <C> <C>
Life of Fund(1) $10,000 $70,725.08 607.25% 15.19%
Ten Years 10,000 30,322.52 203.23 11.73
Five Years 10,000 19,918.96 99.19 14.78
One Year 10,000 11,748.36 17.48 17.48
</TABLE>
- ----------------
(1) Commenced operations on December 30, 1981.
The American Utilities, Asset Allocation, and Total Return Funds' total
return for the three months ending January 31, 1996 were 10.00%, 4.28%, and
7.49%, respectively.
COMPARISONS
(1) U.S. TREASURY BILLS, NOTES, OR BONDS
Investors may want to compare the performance of a Fund to that of U.S.
Treasury bills, notes, or bonds, which are issued by the U.S. Government.
Treasury obligations are issued in selected denominations. Rates of Treasury
obligations are fixed at the time of issuance and payment of principal and
interest is backed by the full faith and credit of the Treasury. The market
value of such instruments will generally fluctuate inversely with interest
rates prior to maturity and will equal par value at maturity. Generally, the
values of obligations with shorter maturities will fluctuate less than those
with longer maturities.
47
<PAGE> 99
(2) CERTIFICATES OF DEPOSIT
Investors may want to compare a Fund's performance to that of certificates
of deposit offered by banks and other depositary institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of the deposits prior to maturity normally will
be subject to a penalty. Rates offered by banks and other depositary
institutions are subject to change at any time specified by the issuing
institution.
(3) MONEY MARKET FUNDS
Investors may also want to compare performance of a Fund to that of money
market funds. Money market fund yields will fluctuate and shares are not
insured, but share values usually remain stable.
(4) LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT RANKING
ORGANIZATIONS
From time to time, in marketing and other fund literature, a Fund's
performance may be compared to the performance of other mutual funds in general
or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value,
with all income and capital gains dividends reinvested. Such calculations do
not include the effect of any sales charges imposed by other funds. A Fund
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings. A Fund's performance may also be compared to
the average performance of its Lipper category.
(5) MORNINGSTAR, INC.
A Fund's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc., which rates funds on the basis of historical
risk and total return. Morningstar's ratings range from five stars (highest)
to one star (lowest) and represent Morningstar's assessment of the historical
risk level and total return of a fund as a weighted average for 3, 5, and 10
year periods. Ratings are not absolute and do not represent future results.
(6) INDEPENDENT SOURCES
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning a Fund, including reprints of, or selections
from, editorials or articles about the Fund, especially those with similar
objectives. Sources for Fund performance and articles about a Fund may include
publications such as Money, Forbes, Kiplinger's, Smart Money, Financial World,
Business Week, U.S. News and World Report, The Wall Street Journal, Barron's
and a variety of investment newsletters.
(7) INDICES
The Funds may compare their performance to a wide variety of indices
including the following:
(a) The Consumer Price Index
(b) Dow Jones Average of 30 Industrials
(c) Dow Jones Utility Average
(d) Standard & Poor's 500 Stock Index
(e) Standard & Poor's Utility Index
(f) NASDAQ Over-the-Counter Composite Index
(g) Russell 1000 Stock Index
(h) Russell 1000 Growth Index
(i) Russell 2000 Small Stock Index
(j) Russell 2500 Stock Index
(k) Russell 3000 Stock Index
(l) Russell Midcap Index
(m) Russell Midcap Growth Index
(n) Salomon Brothers 3-Month Treasury Bill Index
(o) Salomon Brothers Broad Investment-Grade Bond Index
(p) Lehman Brothers Aggregate Bond Index
(q) Lehman Brothers Intermediate Government/Corporate Bond Index
(r) A blended index consisting of: Standard & Poor's 500 Stock
Index (40% weighted),
48
<PAGE> 100
Salomon Brothers Broad Investment-Grade Bond Index (40%
weighted), and
Salomon Brothers 3-Month Treasury Bill Index (20% weighted)
(s) A blended index consisting of: Standard & Poor's 500 Stock
Index (40% weighted), Lehman Brothers Intermediate
Government/Corporate Bond Index (40% weighted), and Salomon
Brothers 3-Month Treasury Bill Index (20% weighted)
There are differences and similarities between the investments that a Fund
may purchase and the investments measured by the indices which are noted
herein.
(8) HISTORICAL ASSET CLASS RETURNS
From time to time, marketing materials may portray the historical returns
of various asset classes. Such presentations will typically compare the
average annual rates of return of inflation, U.S. Treasury bills, bonds, common
stocks, and small stocks. There are important differences between each of these
investments that should be considered in viewing any such comparison. The
market value of stocks will fluctuate with market conditions, and small-stock
prices generally will fluctuate more than large-stock prices. Stocks are
generally more volatile than bonds. In return for this volatility, stocks have
generally performed better than bonds or cash over time. Bond prices generally
will fluctuate inversely with interest rates and other market conditions, and
the prices of bonds with longer maturities generally will fluctuate more than
those of shorter-maturity bonds. Interest rates for bonds may be fixed at the
time of issuance, and payment of principal and interest may be guaranteed by
the issuer and, in the case of U.S. Treasury obligations, backed by the full
faith and credit of the U.S. Treasury.
49
<PAGE> 101
(9) STRONG FAMILY OF FUNDS
The Strong Family of Funds offers a comprehensive range of conservative to
aggressive investment options. All of the members of the Strong Family and
their investment objectives are listed below. The Funds are listed in ascending
order of risk and return, as determined by the Funds' Advisor.
<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVE
<S> <C>
Strong U.S. Treasury Money Fund Current income, a stable share price, and daily liquidity.
Strong Money Market Fund Current income, a stable share price, and daily liquidity.
Strong Heritage Money Fund Current income, a stable share price, and daily liquidity.
Strong Municipal Money Market Federally tax-exempt current income, a stable share-price, and daily
Fund liquidity.
Strong Municipal Advantage Fund Federally tax-exempt current income with a very low degree of
share-price fluctuation.
Strong Advantage Fund Current income with a very low degree of share-price fluctuation.
Strong Short-Term Municipal Total return by investing for a high level of federally tax-exempt
Bond Fund current income with a low degree of share-price fluctuation.
Strong Short-Term Bond Fund Total return by investing for a high level of current income with a low
degree of share-price fluctuation.
Strong Short-Term Global Bond Total return by investing for a high level of income with a low degree
Fund of share-price fluctuation.
Strong Government Securities Total return by investing for a high level of current income with a
Fund moderate degree of share-price fluctuation.
Strong Insured Municipal Bond Total return by investing for a high level of federally tax-exempt
Fund current income with a moderate degree of share-price fluctuation.
Strong Municipal Bond Fund Total return by investing for a high level of federally tax-exempt
current income with a moderate degree of share-price fluctuation.
Strong Corporate Bond Fund Total return by investing for a high level of current income with a
moderate degree of share-price fluctuation.
Strong High-Yield Municipal Total return by investing for a high level of federally tax-exempt
Bond Fund current income.
Strong High-Yield Bond Fund Total return by investing for a high level of current income and
capital growth.
Strong International Bond Fund High total return by investing for both income and capital appreciation.
Strong Asset Allocation Fund High total return consistent with reasonable risk over the long term.
Strong Equity Income Fund Total return by investing for both income and capital growth.
Strong American Utilities Fund Total return by investing for both income and capital growth.
Strong Total Return Fund High total return by investing for capital growth and income.
Strong Growth and Income Fund High total return by investing for capital growth and income.
Strong Schafer Value Fund Long-term capital appreciation principally through investment in common
stocks and other equity securities. Current income is a secondary
objective.
Strong Value Fund Capital growth.
Strong Opportunity Fund Capital growth.
Strong Growth Fund Capital growth.
Strong Common Stock Fund* Capital growth.
Strong Small Cap Fund Capital growth.
Strong Discovery Fund Capital growth.
Strong International Stock Fund Capital growth.
Strong Asia Pacific Fund Capital growth.
</TABLE>
* The Fund is currently closed to new investors.
50
<PAGE> 102
The Advisor also serves as Advisor or Subadvisor to several management
investment companies, some of which fund variable annuity separate accounts of
certain insurance companies.
Each Fund may from time to time be compared to the other funds in the
Strong Family of Funds based on a risk/reward spectrum. In general, the amount
of risk associated with any investment product is commensurate with that
product's potential level of reward. The Strong Funds risk/reward continuum or
any Fund's position on the continuum may be described or diagrammed in
marketing materials. The Strong Funds risk/reward continuum positions the risk
and reward potential of each Strong Fund relative to the other Strong Funds,
but is not intended to position any Strong Fund relative to other mutual funds
or investment products. Marketing materials may also discuss the relationship
between risk and reward as it relates to an individual investor's portfolio.
Financial goals vary from person to person. You may choose one or more of
the Strong Funds to help you reach your financial goals. To help you better
understand the Strong Conservative Equity Funds and determine which Fund or
combination of Funds best meets your personal investment objectives, they are
described in the same Prospectus.
(10) TYING TIME FRAMES TO YOUR GOALS
There are many issues to consider as you make your investment decisions,
including analyzing your risk tolerance, investing experience, and asset
allocations. You should start to organize your investments by learning to link
your many financial goals to specific time frames. Then you can begin to
identify the appropriate types of investments to help meet your goals. As a
general rule of thumb, the longer your time horizon, the more price fluctuation
you will be able to tolerate in pursuit of higher returns. For that reason,
many people with longer-term goals select stocks or long-term bonds, and many
people with nearer-term goals match those up with for instance, short-term
bonds. The Advisor developed the following suggested holding periods to help
our investors set realistic expectations for both the risk and reward potential
of our funds. (See table below.) Of course, time is just one element to
consider when making your investment decision.
STRONG FUNDS SUGGESTED MINIMUM HOLDING PERIODS
<TABLE>
<CAPTION>
UNDER 1 YEAR 1 TO 2 YEARS 4 TO 7 YEARS 5 OR MORE YEARS
- ------------------------ --------------------------- -------------------------- ------------------------
<S> <C> <C> <C>
U.S. Treasury Money Fund Advantage Fund Government Securities Fund
Money Market Fund Municipal Advantage Fund Insured Municipal Bond Total Return Fund
Heritage Money Fund Fund Opportunity Fund
Municipal Money Market Municipal Bond Fund Growth Fund
Fund 2 TO 4 YEARS Corporate Bond Fund Common Stock Fund*
--------------------------- International Bond Fund Discovery Fund
Short-Term Bond Fund High-Yield Municipal Bond International Stock Fund
Short-Term Municipal Bond Fund Asia Pacific Fund
Fund Asset Allocation Fund Value Fund
Short-Term Global Bond Fund American Utilities Fund Small Cap Fund
High-Yield Bond Fund Growth and Income Fund
Equity Income Fund Schafer Value Fund
</TABLE>
*This fund is currently closed to new investors.
ADDITIONAL FUND INFORMATION
(1) PORTFOLIO CHARACTERISTICS
In order to present a more complete picture of a Fund's portfolio,
marketing materials may include various actual or estimated portfolio
characteristics, including but not limited to median market capitalizations,
earnings per share, alphas, betas, price/earnings ratios, returns on equity,
dividend yields, capitalization ranges, growth rates, price/book ratios, top
holdings, sector breakdowns, asset allocations, quality breakdowns, and
breakdowns by geographic region.
51
<PAGE> 103
(2) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE
Occasionally statistics may be used to specify Fund volatility or risk.
The general premise is that greater volatility connotes greater risk undertaken
in achieving performance. Measures of volatility or risk are generally used to
compare a Fund's net asset value or performance relative to a market index.
One measure of volatility is beta. Beta is the volatility of a fund relative
to the total market as represented by the Standard & Poor's 500 Stock Index. A
beta of more than 1.00 indicates volatility greater than the market, and a beta
of less than 1.00 indicates volatility less than the market. Another measure
of volatility or risk is standard deviation. Standard deviation is a
statistical tool that measures the degree to which a fund's performance has
varied from its average performance during a particular time period.
Standard deviation is calculated using the following formula:
2
Standard deviation = the square root of E(x - x )
i m
-----------
n-1
where E ="the sum of",
x = each individual return during the time period,
i
x = the average return over the time period, and
m
n = the number of individual returns during the time period.
Statistics may also be used to discuss a Fund's relative performance. One
such measure is alpha. Alpha measures the actual return of a fund compared to
the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.
Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
GENERAL INFORMATION
BUSINESS PHILOSOPHY
The Advisor is an independent, Midwestern-based investment advisor, owned
by professionals active in its management. Recognizing that investors are the
focus of its business, the Advisor strives for excellence both in investment
management and in the service provided to investors. This commitment affects
many aspects of the business, including professional staffing, product
development, investment management, and service delivery. Through its
commitment to excellence, the Advisor intends to benefit investors and to
encourage them to think of Strong Funds as their mutual fund family.
The increasing complexity of the capital markets requires specialized
skills and processes for each asset class and style. Therefore, the Advisor
believes that active management should produce greater returns than a passively
managed index. The Advisor has brought together a group of top-flight
investment professionals with diverse product expertise, and each concentrates
on their investment specialty. The Advisor believes that people are the firm's
most important asset. For this reason, continuity of professionals is critical
to the firm's long-term success.
INVESTMENT ENVIRONMENT
Discussions of economic, social, and political conditions and their impact
on the Funds may be used in advertisements and sales materials. Such factors
that may impact the Funds include, but are not limited to, changes in interest
rates, political developments, the competitive environment, consumer behavior,
industry trends, technological advances, macroeconomic trends, and the supply
and demand of various financial instruments. In addition, marketing materials
may cite the portfolio management's views or interpretations of such factors.
52
<PAGE> 104
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common sense rules are followed by many successful investors. They
make sense for beginners, too. If you have a question on these principles, or
would like to discuss them with us, please contact us at 1-800-368-3863.
1. Have a plan - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your circumstances
change.
2. Start investing as soon as possible. Make time a valuable ally. Let it
put the power of compounding to work for you, while helping to reduce your
potential investment risk.
3. Diversify your portfolio. By investing in different asset classes -
stocks, bonds, and cash - you help protect against poor performance in one
type of investment while including investments most likely to help you
achieve your important goals.
4. Invest regularly. Investing is a process, not a one-time event. By
investing regularly over the long term, you reduce the impact of
short-term market gyrations, and you attend to your long-term plan before
you're tempted to spend those assets on short-term needs.
5. Maintain a long-term perspective. For most individuals, the best
discipline is staying invested as market conditions change. Reactive,
emotional investment decisions are all too often a source of regret - and
principal loss.
6. Consider stocks to help achieve major long-term goals. Over time, stocks
have provided the more powerful returns needed to help the value of your
investments stay well ahead of inflation.
7. Keep a comfortable amount of cash in your portfolio. To meet current
needs, including emergencies, use a money market fund or a bank account -
not your long-term investment assets.
8. Know what you're buying. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions...request
information...make up your own mind. And choose a fund company that helps
you make informed investment decisions.
STRONG RETIREMENT PLAN SERVICES
Strong Retirement Plan Services offers a full menu of high quality,
affordable retirement plan options, including traditional money purchase
pension and profit sharing plans, 401(k) plans, simplified employee pension
plans, salary reduction plans, Keoghs, and 403(b) plans. Retirement plan
specialists are available to help companies determine which type of retirement
plan may be appropriate for their particular situation.
Markets:
The retirement plan services provided by the Advisor focus on four
distinct markets, based on the belief that a retirement plan should fit the
customer's needs, not the other way around.
1. Small company plans. Small company plans are designed for companies with
1-50 plan participants. The objective is to incorporate the features and
benefits typically reserved for large companies, such as sophisticated
recordkeeping systems, outstanding service, and investment expertise, into
a small company plan without administrative hassles or undue expense.
Small company plan sponsors receive a comprehensive plan administration
manual as well as toll-free telephone support.
2. Large company plans. Large company plans are designed for companies with
between 51 and 1,000 plan participants. Each large company plan is
assigned a team of professionals consisting of an account manager, who is
typically an attorney, CPA, or holds a graduate degree in business, a
conversion specialist (if applicable), an accounting manager, a
legal/technical manager, and an education/communications educator.
53
<PAGE> 105
3. Women-owned businesses.
4. Non-profit and educational organizations (the 403(b) market).
Turnkey approach:
The retirement plans offered by the Advisor are designed to be streamlined
and simple to administer. To this end, the Advisor has invested heavily in the
equipment, systems, and people necessary to adopt or convert a plan, and to
keep it running smoothly. The Advisor provides all aspects of the plan,
including plan design, administration, recordkeeping, and investment
management. To streamline plan design, the Advisor provides customizable
IRS-approved prototype documents. The Advisor's services also include annual
government reporting and testing as well as daily valuation of each
participant's account. This structure is intended to eliminate the confusion
and complication often associated with dealing with multiple vendors. It is
also designed to save plan sponsors time and expense.
The Advisor strives to provide one-stop retirement savings programs that
combine the advantages of proven investment management, flexible plan design
and a wide range of investment options. The open architecture design of the
plans allow for the use of the family of mutual funds managed by the Advisor as
well as a stable asset value option. Large company plans may supplement these
options with their company stock (if publicly traded) or funds from other
well-known mutual fund families.
Education:
Participant education and communication is key to the success of any
retirement program, and therefore is one of the most important services that
the Advisor provides. The Advisor's goal is twofold: to make sure that plan
participants fully understand their options and to educate them about the
lifelong investment process. To this end, the Advisor provides attractive,
readable print materials that are supplemented with audio and video tapes and
retirement education programs.
Service:
The Advisor's goal is to provide a world class level of service. One
aspect of that service is an experienced, knowledgeable team that provides
ongoing support for plan sponsors, both at adoption or conversion and
throughout the life of a plan. The Advisor is committed to delivering accurate
and timely information, evidenced by straightforward, complete, and
understandable reports, participant account statements and plan summaries.
The Advisor has designed both "high-tech" and "high-touch" systems,
providing an automated telephone system as well as personal contact.
Participants can access daily account information, conduct transactions, or
have questions answered in the way that is most comfortable for them.
STRONG FINANCIAL ADVISORS GROUP
The Strong Financial Advisors Group is dedicated to helping financial
advisors better serve their clients. Financial advisors receive regular
updates on the mutual funds managed by the Advisor, access to portfolio
managers through special conference calls, consolidated mailings of duplicate
confirmation statements, access to the Advisor's network of regional
representatives, and other specialized services. For more information on the
Strong Financial Advisors Group, call 1-800-368-1683.
PORTFOLIO MANAGEMENT
Each portfolio manager works with a team of analysts, traders, and
administrative personnel. From time to time, marketing materials may discuss
various members of the team, including their education, investment experience,
and other credentials.
54
<PAGE> 106
ASSET ALLOCATION FUND
The Advisor believes that active management is the best way to achieve the
Asset Allocation Fund's objective. This policy is based on the fundamental
belief that economic and financial conditions create favorable and unfavorable
investment periods (or seasons) and that these different seasons require
different investment approaches. During favorable investment periods, the Fund
seeks to generate real (inflation plus) growth, and its portfolio may be more
heavily weighted in equities. During uncertain periods, income and capital
preservation may be emphasized, and the Fund's portfolio may be more heavily
weighted in bonds or short-term securities. Through their understanding and
willingness to change with investment cycles or periods, the co-managers of the
Fund seek to achieve the Fund's objectives throughout the seasons of
investment.
The Fund's co-managers intend to employ an investment strategy which will
permit it to participate in a rising market in equities with less risk and
volatility and more income than a fund which concentrates its investments in
stocks. On the other hand, since the Fund's portfolio will generally have
significant holdings in equities, it will be subject to greater volatility and
produce less income than a fund which concentrates its investments solely in
bonds or money market instruments.
In allocating the Fund's assets among equities, bonds, and short-term
securities, the team's lead portfolio manager will employ top-down fundamental
analysis in evaluating the attractiveness of the three asset components on the
basis of economic trends such as inflation, growth of corporate profits and
Federal Reserve Board policies in conjunction with measures of market valuation
such as price-earnings ratios, dividend yields and real interest rates. The
relative weights of the Fund's three asset components are adjusted gradually,
perhaps as often as several times a year, rather than making dramatic
reallocations in anticipation of a major shift in the attractiveness of one
asset category over another. Therefore, the Fund should be viewed as a
long-term investment suitable for investors with an investment horizon of at
least four to seven years. In light of the nature of the Fund and its
long-term investment horizon, it may be most appropriate for persons attempting
to achieve long-term goals such as accumulating funds for retirement, college
tuition or a better life for one's family.
AMERICAN UTILITIES FUND
In selecting securities for the American Utilities Fund, the Subadvisor
looks for certain investment attributes including strong financial quality,
seasoned management, a favorable regulatory environment, and attractive stock
valuations. The Subadvisor also seeks positive changes that are not yet fully
recognized by the marketplace. The Subadvisor continually monitors the
utilities industry for what it believes are attractive stocks or sectors. When
market conditions warrant, the Subadvisor may advocate opportunistic purchases
or focus on a particular sector of the utilities industry. The Subadvisor
believes that individual stock selection is the key to successfully managing a
sector fund. The team approach utilized by the Subadvisor allows the analysis
of companies and situations from many points of view.
TOTAL RETURN FUND
Conventional wisdom often divides fund managers into two schools -- growth
and value. Growth-style managers look for companies that exhibit
faster-than-average gains in earnings and profits. Value-style managers
generally concentrate more on the price side of the equation, looking for
companies that are undervalued and selling at a discount to what they believe
is their intrinsic value.
The style of the portfolio managers for the Total Return Fund, Mr. Ronald
C. Ognar and Mr. Ian J. Rogers, leans more toward growth, although they keep an
eye on valuations. The Advisor invests chiefly in the stocks of large- to
medium-sized growth companies and dividend paying stocks. The Fund's charter
also enables it to invest in small-sized companies. In selecting its equity
investments, the Advisor looks for growth of both sales and earnings. The
Advisor believes that, in general, good growth companies exhibit accelerating
sales and earnings, high return on equity, and, typically, low debt. They
offer products or services that should show strong future growth, and their
market share is expanding. In short, they offer some unique, sustainable
competitive advantage, such as low cost production or innovative products and
services. The key, however, is the management. Members of the portfolio
management team meet face-to-face with the management of many companies, which
helps them get to know and trust a company and the people in charge of it.
From time to time, the Advisor focuses on some companies that are
undergoing positive change. Oftentimes, a new product, a new technology, or a
change in management can positively affect a company's earnings growth
prospects. Themes also play a part in the investment strategy. Some examples
would be the aging population, telecommunications, and
55
<PAGE> 107
the rapid development of foreign economies where U.S. companies have strong
revenue growth. The Advisor seeks to manage risk by adhering to price
disciplines, diversifying holdings across sectors, and, when appropriate,
building cash reserves.
As was true with respect to its management of the Asset Allocation Fund,
the Advisor believes that active management is the best way to achieve the
Total Return Fund's objectives. This policy is based on a fundamental belief
that economic and financial conditions create favorable and unfavorable
investment periods (or seasons) and that these different seasons require
different investment approaches. Through its understanding and willingness to
change with these investment cycles, the Advisor seeks to achieve the Fund's
objectives throughout the seasons of investment.
EQUITY INCOME AND GROWTH AND INCOME FUNDS
The Advisor utilizes a research-driven, growth-oriented approach that
focuses on companies with stable and predictable revenue and earnings growth,
as well as those with a steady or growing dividend stream. These are typically
medium- to large-sized companies with dominant, market-leading positions in
their respective industries. The Growth and Income Fund may also invest a
portion of its assets in smaller company or value stocks for added growth
potential.
The Advisor's investment process involves both bottom-up analysis and the
consideration of macroeconomic factors that may influence company-specific
performance. Fundamental research is augmented by meetings with company
management. The Advisor diversifies its holdings among sectors and industries
with positive dynamics that are likely to serve as a solid base for future
growth in revenues and earnings.
The Advisor intends to emphasize investments in companies that display
superior financial performance as defined by: above-average revenue and
earnings growth, moderate levels of financial leverage, above-average return on
equity, positive cash flow, and a management team that is focused on enhancing
shareholder value. Investments are typically not based on short-term
speculative events; instead, they are based on long-term industry
characteristics and company-specific dynamics.
The Advisor also evaluates a company's price in comparison to its own
historical levels, to its industry peer group, and to the overall market.
Stocks are sold when, in the Advisor's opinion, they approach full valuation
based upon historical, absolute, or relative levels, or when the prospects for
growth decline or company fundamentals deteriorate.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 411 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, are the independent accountants for the Funds, providing audit services
and assistance and consultation with respect to the preparation of filings with
the SEC.
LEGAL COUNSEL
Godfrey & Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin 53202,
acts as outside legal counsel for the Funds.
FINANCIAL STATEMENTS
The Annual Report for the American Utilities, Asset Allocation, and Total
Return Funds that is attached hereto contains the following audited financial
information for the Funds:
(a) Schedules of Investments in Securities.
(b) Statements of Operations.
(c) Statements of Assets and Liabilities.
(d) Statements of Changes in Net Assets.
(e) Notes to Financial Statements.
(f) Financial Highlights.
(g) Report of Independent Accountants.
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APPENDIX
BOND RATINGS
STANDARD & POOR'S DEBT RATINGS
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such information, or based on
other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default capacity and willingness of
the obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of,
the obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
INVESTMENT GRADE
AAA Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation
and 'C' the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
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B Debt rated 'B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'B' or 'B-' rating.
CC Debt rated 'CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.
C Debt rated 'C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' rating. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI The rating 'CI' is reserved for income bonds on which no interest is
being paid.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grade period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
MOODY'S LONG-TERM DEBT RATINGS
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may be
small.
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Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
FITCH INVESTORS SERVICE, INC. BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories
are not significantly vulnerable to foreseeable future
developments, short-term debt of the issuers is generally rated
'F-1+'.
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with
higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have
adverse impact on these bonds and, therefore, impair timely payment.
The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
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Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or
liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk.
BB Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified, which could assist the obligor in
satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in
this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of
the issue.
CCC Bonds have certain identifiable characteristics that, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD, DD,
and D Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or
reorganization of the obligor. 'DDD' represents the highest
potential for recovery of these bonds, and 'D' represents the
lowest potential for recovery.
DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and
expertise. The projected viability of the obligor at the trough of the cycle
is a critical determination.
Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important
to the analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary). Ratings of 'BBB' and higher fall within the
definition of investment grade securities, as defined by bank and insurance
supervisory authorities.
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<TABLE>
<CAPTION>
RATING SCALE DEFINITION
<S> <C>
AAA Highest credit quality. The risk factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest, but may
AA vary slightly from time to time because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are more
A variable and greater in periods of economic stress.
A-
BBB+ Below-average protection factors but still considered sufficient for prudent
BBB investment. Considerable variability in risk during economic cycles.
BBB-
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according to
BB- industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be met
B when due. Financial protection factors will fluctuate widely according to
B- economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty exists as to
timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>
SHORT-TERM RATINGS
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
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Ratings are graded into several categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
STANDARD & POOR'S NOTE RATINGS
An S&P note rating reflects the liquidity factors and market-access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating.
The following criteria will be used in making the assessment:
o Amortization schedule - the larger the final maturity
relative to other maturities, the more likely the issue is to be
treated as a note.
o Source of payment - the more the issue depends on the market
for its refinancing, the more likely it is to be considered a note.
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
MOODY'S SHORT-TERM RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
A-6
<PAGE> 114
Issuers rated PRIME-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment will
often be evidenced by many of the following characteristics: (i) leading
market positions in well-established industries, (ii) high rates of return on
funds employed, (iii) conservative capitalization structure with moderate
reliance on debt and ample asset protection, (iv) broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and (v)
well established access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated PRIME-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
MOODY'S NOTE RATINGS
MIG 1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
SG This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for
timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in degree
than issues rated 'F-1+'.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the margin
of safety is not as great as for issues assigned 'F-1+' and 'F-1'
ratings.
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<PAGE> 115
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial
and economic conditions.
D Default. Issues assigned this rating are in actual or
imminent payment default.
LOC The symbol LOC indicates that the rating is based on a letter
of credit issued by a commercial bank.
DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria
used by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
Rating Scale:
- -------------
Definition
High Grade
D-1+ Highest certainty of timely payment. Short-Term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk
factors are very small.
Good Grade
D-2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
Satisfactory Grade
D-3 Satisfactory liquidity and other protection factors qualify
issues as to investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
Non-Investment Grade
D-4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service. Operating
factors and market access may be subject to a high degree of
variation.
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Default
D-5 Issuer failed to meet scheduled principal and/or interest payments.
THOMSON BANKWATCH (TBW) SHORT-TERM RATINGS
The TBW Short-Term Ratings apply, unless otherwise noted, to specific debt
instruments of the rated entities with a maturity of one year or less. TBW
Short-Term Ratings are intended to assess the likelihood of an untimely or
incomplete payments of principal or interest.
TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
TBW-3 The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
IBCA SHORT-TERM RATINGS
IBCA Short-Term Ratings assess the borrowing characteristics of banks and
corporations, and the capacity for timely repayment of debt obligations. The
Short-Term Ratings relate to debt which has a maturity of less than one year.
A1+ Obligations supported by the highest capacity for timely
repayment and possess a particularly strong credit feature.
A1 Obligations supported by the highest capacity for timely repayment.
A2 Obligations supported by a good capacity for timely repayment.
A3 Obligations supported by a satisfactory capacity for timely
repayment.
B Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.
C Obligations for which there is a high risk of default or which are
currently in default.
A-9
<PAGE> 6
STRONG TOTAL RETURN FUND, INC.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (all included or incorporated by reference
in Parts A & B)
Schedules of Investments in Securities
Statements of Operations
Statements of Assets and Liabilities
Statements of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
(b) Exhibits
(1) Amended and Restated Articles of Incorporation
(2) Bylaws
(3) Inapplicable
(4) Specimen Stock Certificate
(5) Investment Advisory Agreement
(6) Distribution Agreement
(7) Inapplicable
(8.1) Custody Agreement
(8.2) Global Custody Agreement
(9) Shareholder Servicing Agent Agreement
(10) Opinion of Counsel
(11) Consent of Auditor
(12) Inapplicable
(13) Inapplicable
(14.1) Prototype Defined Contribution Retirement Plan - No. 1
(14.1.1) Prototype Defined Contribution Retirement Plan - No. 2
(14.2) Individual Retirement Custodial Account
(14.3) Section 403(b)(7) Retirement Plan
(15) Inapplicable
(16) Computation of Performance Figures
(17) Power of Attorney
(18) Letter of Representation
(27) Financial Data Schedule
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant neither controls any person nor is under common control with
any other person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of January 31, 1996
---------------------------- ------------------------
Common Stock, $.01 par value 61,945
C-1
<PAGE> 7
Item 27. Indemnification
Officers and directors are insured under a joint errors and omissions
insurance policy underwritten by American International Surplus Lines Insurance
Company and First State Insurance Company in the aggregate amount of
$10,000,000, subject to certain deductions. Pursuant to the authority of the
Wisconsin Business Corporation Law, Article VII of Registrant's Bylaws provides
as follows:
ARTICLE VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 7.01. Mandatory Indemnification. The Corporation shall
indemnify, to the full extent permitted by the WBCL, as in effect from
time to time, the persons described in Sections 180.0850 through 180.0859
(or any successor provisions) of the WBCL or other provisions of the law
of the State of Wisconsin relating to indemnification of directors and
officers, as in effect from time to time. The indemnification afforded
such persons by this section shall not be exclusive of other rights to
which they may be entitled as a matter of law.
SECTION 7.02. Permissive Supplementary Benefits. The Corporation
may, but shall not be required to, supplement the right of indemnification
under Section 7.01 by (a) the purchase of insurance on behalf of any one
or more of such persons, whether or not the Corporation would be obligated
to indemnify such person under Section 7.01; (b) individual or group
indemnification agreements with any one or more of such persons; and (c)
advances for related expenses of such a person.
SECTION 7.03. Amendment. This Article VII may be amended or
repealed only by a vote of the shareholders and not by a vote of the Board
of Directors.
SECTION 7.04. Investment Company Act. In no event shall the
Corporation indemnify any person hereunder in contravention of any
provision of the Investment Company Act of 1940.
Item 28. Business and Other Connections of Investment Advisor
The information contained under "About the Funds - Management" in the
Prospectus and under "Directors and Officers of the Fund" and "Investment
Advisor and Distributor" in the Statement of Additional Information is hereby
incorporated by reference pursuant to Rule 411 under the Securities Act of
1933.
Item 29. Principal Underwriters
(a) Strong Funds Distributors, Inc., principal underwriter for Registrant,
also serves as principal underwriter for Strong Advantage Fund, Inc.; Strong
Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong Common
Stock Fund, Inc.; Strong Conservative Equity Funds, Inc.; Strong Corporate Bond
Fund, Inc.; Strong Discovery Fund, Inc.; Strong Equity Funds, Inc.; Strong
Government Securities Fund, Inc.; Strong Heritage Reserve Series, Inc.; Strong
High-Yield Municipal Bond Fund, Inc.; Strong Income Funds, Inc.; Strong
Institutional Funds, Inc.; Strong Insured Municipal Bond Fund, Inc.; Strong
International Bond Fund, Inc.; Strong International Stock Fund, Inc.; Strong
Money Market Fund, Inc.; Strong Municipal Bond Fund, Inc.; Strong Municipal
Funds, Inc.; Strong Opportunity Fund, Inc.; Strong Short-Term Bond Fund, Inc.;
Strong Short-Term Global Bond Fund, Inc.; Strong Short-Term Municipal Bond
Fund, Inc.; Strong Special Fund II, Inc.; and Strong Variable Insurance Funds,
Inc.
(b) The information contained under "About the Funds - Management" in the
Prospectus and under "Directors and Officers of the Fund" and "Investment
Advisor and Distributor" in the Statement of Additional Information is hereby
incorporated by reference pursuant to Rule 411 under the Securities Act of
1933.
(c) None
C-2
<PAGE> 8
Item 30. Location of Accounts and Records
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Treasurer, Ronald A.
Neville, at Registrant's corporate offices, 100 Heritage Reserve, Menomonee
Falls, Wisconsin 53051.
Item 31. Management Services
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
The Registrant undertakes to furnish to each person to whom a prospectus
is delivered, upon request and without charge, a copy of the Registrant's
latest annual report to shareholders.
C-3
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that this
Post-Effective Amendment No. 20 meets all the requirements for effectiveness
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933, as
amended, and that it has duly caused this Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Village of Menomonee Falls, and
State of Wisconsin on the 25th day of February, 1996.
STRONG TOTAL RETURN FUND, INC.
(Registrant)
BY: /s/ John Dragisic
------------------------
John Dragisic, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
President (Principal Executive
/s/ John Dragisic Officer) and a Director February 25, 1996
- ---------------------
John Dragisic
Treasurer (Principal Financial and
/s/ Ronald A. Neville Accounting Officer) February 25, 1996
- ---------------------
Ronald A. Neville
/s/ Richard S. Strong Chairman of the Board and a Director February 25, 1996
- ---------------------
Richard S. Strong
Director February 25, 1996
- ---------------------
Marvin E. Nevins*
Director February 25, 1996
- ---------------------
Willie D. Davis*
Director February 25, 1996
- ---------------------
William F. Vogt*
Director February 25, 1996
- ---------------------
Stanley Kritzik*
</TABLE>
* Ann E. Oglanian signs this document pursuant to powers of attorney filed with
Post-Effective Amendment No. 19 to the Registration Statement of Registrant
filed with the SEC on or about April 24, 1995.
By: /s/ Ann E. Oglanian
-------------------
Ann E. Oglanian
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR
Exhibit No. Exhibit Exhibit No.
- ----------- ------------------------------------------------------ -------------
<S> <C> <C>
(1) Amended and Restated Articles of Incorporation EX-99.B1(1)
(2) Bylaws EX-99.B2
(3) Inapplicable
(4) Specimen Stock Certificate EX-99.B4
(5) Investment Advisory Agreement EX-99.B5(1)
(6) Distribution Agreement EX-99.B6
(7) Inapplicable
(8.1) Custody Agreement EX-99.B8.1
(8.2) Global Custody Agreement EX-99.B8.2
(9) Shareholder Servicing Agent Agreement EX-99.B9
(10) Opinion of Counsel EX-99.B10
(11) Consent of Auditor EX-99.B11
(12) Inapplicable
(13) Inapplicable
(14.1) Prototype Defined Contribution Retirement Plan - No. 1 Ex-99.B14.1
(14.1.1) Prototype Defined Contribution Retirement Plan - No. 2 EX-99.B14.1.1
(14.2) Individual Retirement Custodial Account EX-99.B14.2
(14.3) Section 403(b)(7) Retirement Plan EX-99.B14.3
(15) Inapplicable
(16) Computation of Performance Figures EX-99.B16
(17) Power of Attorney(1)
(18) Letter of Representation EX-99.B18
(27) Financial Data Schedule EX-27.CLASSA
</TABLE>
(1) Incorporated herein by reference to Post-Effective Amendment No. 19 to
the Registration Statement on Form N-1A of Registrant filed on or about
April 24, 1995.
<PAGE> 1
EXHIBIT 99.B2
BYLAWS
ARTICLE I. OFFICES
SECTION 1.01. Principal and Other Offices. The principal
office of the Corporation shall be located at any place either within or
outside the State of Wisconsin as designated in the Corporation's most current
Annual Report filed with the Wisconsin Secretary of State. The Corporation may
have such other offices, either within or outside the State of Wisconsin, as
the Board of Directors may designate or as the business of the Corporation may
require from time to time.
SECTION 1.02. Registered Office. The registered office of
the Corporation required by the Wisconsin Business Corporation Law (the "WBCL")
to be maintained in the State of Wisconsin may, but need not, be the same as
any of its places of business. The registered office may be changed from time
to time.
SECTION 1.03. Registered Agent. The registered agent of the
Corporation required by the WBCL to maintain a business office in the State of
Wisconsin may, but need not, be an officer or employee of the Corporation as
long as such agent's business office is identical with the registered office.
The registered agent may be changed from time to time.
ARTICLE II. SHAREHOLDERS
SECTION 2.01. Annual Meeting. The annual meeting of the
shareholders, if the annual meeting shall be held, shall be held in April of
each year, or at such other time and date as may be fixed by or under the
authority of the Board of Directors, for the purpose of electing directors and
for the transaction of such other business as may properly come before the
meeting. The Corporation shall not be required to hold an annual meeting in
any year in which none of the following is required to be acted on by
shareholders under the Investment Company Act of 1940, as amended, and the
rules and regulations promulgated thereunder (the "Investment Company Act"):
(i) Election of directors;
(ii) Approval of the Corporation's investment advisory
contract;
(iii) Ratification of the selection of the Corporation's
independent public accountants; or
(iv) Approval of the Corporation's distribution agreement.
<PAGE> 2
SECTION 2.02. Special Meetings. Special meetings of the
shareholders for any purpose or purposes, unless otherwise prescribed by the
WBCL, may be called by the Board of Directors, the Chairman of the Board, Vice
Chairman or President. Notwithstanding any other provision of these By-Laws,
the Corporation shall call a special meeting of shareholders in the event that
the holders of at least 10% of all of the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting sign, date and
deliver to the Corporation one or more written demands for the meeting
describing one or more purposes for which it is to be held. The Secretary
shall inform such shareholders of the reasonable estimated costs of preparing
and mailing the notice of the meeting, and upon payment to the Corporation of
such costs, the Corporation shall give not less than ten nor more than sixty
days notice of the special meeting.
SECTION 2.03. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of Wisconsin, as the
place of meeting for any annual or special meeting of shareholders. If no
designation is made, the place of meeting shall be the principal office of the
Corporation. Any meeting may be adjourned to reconvene at any place designated
by vote of a majority of the shares represented thereat.
SECTION 2.04. Notice of Meeting. Written notice stating the
date, time and place of any meeting of shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten days nor more than sixty days before the date of
the meeting (unless a different time is provided by applicable law or
regulation or the Articles of Incorporation), either personally or by mail, by
or at the direction of the Chairman of the Board, Vice Chairman, President or
Secretary, to each shareholder of record entitled to vote at such meeting and
to such other persons as required by the WBCL. If mailed, such notice shall be
deemed to be effective when deposited in the United States mail, addressed to
the shareholder at his or her address as it appears on the stock record books
of the Corporation, with postage thereon prepaid. If an annual or special
meeting of shareholders is adjourned to a different date, time or place, the
Corporation shall not be required to give notice of the new date, time or place
if the new date, time or place is announced at the meeting before adjournment;
provided, however, that if a new record date for an adjourned meeting is or
must be fixed, the Corporation shall give notice of the adjourned meeting to
persons who are shareholders as of the new record date.
SECTION 2.05. Waiver of Notice. A shareholder may waive any
notice required by the WBCL, the Articles of Incorporation or these By-Laws
before or after the date and time stated in the notice. The waiver shall be in
writing and signed by the shareholder entitled to the notice, contain the same
information that would have been required in the notice
<PAGE> 3
under applicable provisions of the WBCL (except that the time and place of
meeting need not be stated) and be delivered to the Corporation for inclusion
in the corporate records. A shareholder's attendance at a meeting, in person
or by proxy, waives objection to all of the following: (a) lack of notice or
defective notice of the meeting, unless the shareholder at the beginning of the
meeting or promptly upon arrival objects to holding the meeting or transacting
business at the meeting; and (b) consideration of a particular matter at the
meeting that is not within the purpose described in the meeting notice, unless
the shareholder objects to considering the matter when it is presented.
SECTION 2.06. Fixing of Record Date. For the purpose of
determining shareholders of any voting group entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any distribution or dividend, or in order to
make a determination of shareholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders. Such record date shall not be more than 70 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. If no record date is so fixed for the
determination of shareholders entitled to notice of, or to vote at a meeting of
shareholders, or shareholders entitled to receive a share dividend or
distribution, the record date for determination of such shareholders shall be
at the close of business on:
(a) With respect to an annual shareholders meeting or any
special shareholders meeting called by the Board of Directors or any
person specifically authorized by the Board of Directors or these
By-Laws to call a meeting, the day before the first notice is mailed
to shareholders;
(b) With respect to a special shareholders meeting demanded
by the shareholders, the date the first shareholder signs the demand;
(c) With respect to the payment of a share dividend, the date
the Board of Directors authorizes the share dividend; and
(d) With respect to a distribution to shareholders (other
than one involving a repurchase or reacquisition of shares), the date
the Board of Directors authorizes the distribution.
SECTION 2.07. Voting Lists. After fixing a record date for a
meeting, the Corporation shall prepare a list of the name of all its
shareholders who are entitled to notice of a shareholders meeting. The list
shall be arranged by class or series of shares and show the address of and the
number of shares held by each shareholder. The shareholders list must be
3
<PAGE> 4
available for inspection by any shareholder, beginning two business days after
notice of the meeting is given for which the list was prepared and continuing
to the date of the meeting. The list shall be available at the Corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting is to be held. Subject to the provisions of the WBCL, a
shareholder or his or her agent or attorney may, on written demand, inspect and
copy the list during regular business hours and at his expense, during the
period it is available for inspection. The Corporation shall make the
shareholders list available at the meeting, and any shareholder or his or her
agent or attorney may inspect the list at any time during the meeting or any
adjournment thereof. Refusal or failure to prepare or make available the
shareholders list shall not affect the validity of any action taken at such
meeting.
SECTION 2.08. Shareholder Quorum and Voting Requirements.
Shares entitled to vote as a separate voting group may take action on a matter
at a meeting only if a quorum of those shares exists with respect to that
matter. Unless the Articles of Incorporation or the WBCL provide otherwise, a
majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
If the Articles of Incorporation or the WBCL provide for
voting by two or more voting groups on a matter, action on that matter is taken
only when voted upon by each of those voting groups counted separately as
provided in the WBCL. Action may be taken by one voting group on a matter even
though no action is taken by another voting group entitled to vote on the
matter. A voting group described in the WBCL constitutes a single voting group
for purpose of voting on the matter on which the shares are entitled to vote,
unless otherwise required under applicable laws and regulations, including the
Investment Company Act.
Once a share is represented for any purpose at a meeting,
other than for the purpose of objecting to holding the meeting or transacting
business at the meeting, it is deemed present for purposes of determining
whether a quorum exists, for the remainder of the meeting and for any
adjournment of that meeting to the extent provided in Section 2.13.
If a quorum exists, action on a matter, other than the
election of directors, by a voting group is approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the action,
unless the Articles of Incorporation, the By-Laws, the WBCL or other applicable
laws and regulations, including the Investment Company Act, require a greater
number of affirmative votes. With respect to the election of directors, unless
otherwise provided in the Articles of Incorporation, directors are elected by a
plurality of the votes cast by the shares entitled to vote. For purposes of
this Section 2.08, "plurality" means that the individuals with the largest
number of votes are elected as directors up to the maximum number of directors
to be chosen at the election.
4
<PAGE> 5
SECTION 2.09. Proxies. For all meetings of shareholders, a
shareholder may appoint a proxy to vote or otherwise act for the shareholder by
signing an appointment form, either personally or by a duly authorized
attorney-in-fact. Such proxy shall be effective when filed with the Secretary
of the Corporation or other officer or agent authorized to tabulate votes
before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.
SECTION 2.10. Voting of Shares. Unless otherwise provided in
the Articles of Incorporation, each outstanding share, regardless of class, is
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders.
No shares in the Corporation held by another corporation may
be voted if the Corporation owns, directly or indirectly, a sufficient number
of shares entitled to elect a majority of the directors of such other
corporation; provided, however, that the Corporation shall not be limited in
its power to vote any shares, including its own shares, held by it in a
fiduciary capacity.
Redeemable shares are not entitled to vote after written
notice of redemption that complies with the WBCL is mailed to the holders
thereof and a sum sufficient to redeem the shares has been deposited with a
bank, trust company or other financial institution under an irrevocable
obligation to pay the holders the redemption price on surrender of the shares.
SECTION 2.11. Voting Shares Owned by the Corporation. Shares
of the Corporation belonging to it shall not be voted directly or indirectly at
any meeting and shall not be counted in determining the total number of
outstanding shares at any given time, but shares held by the Corporation in a
fiduciary capacity may be voted and shall be counted in determining the total
number of outstanding shares at any given time.
SECTION 2.12. Acceptance of Instruments Showing Shareholder
Action.
(a) If the name signed on a vote, consent, waiver or proxy
appointment corresponds to the name of a shareholder, the Corporation,
if acting in good faith, may accept the vote, consent, waiver or proxy
appointment and give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver or proxy
appointment does not correspond to the name of a shareholder, the
Corporation, if acting in good faith,
5
<PAGE> 6
may accept the vote, consent, waiver or proxy appointment and give it effect as
the act of the shareholder if any of the following apply:
(1) the shareholder is an entity, within the meaning
of the WBCL, and the name signed purports to be that of an
officer or agent of the entity;
(2) the name signed purports to be that of a
personal representative, administrator, executor, guardian or
conservator representing the shareholder and, if the
Corporation or its agent request, evidence of fiduciary status
acceptable to the Corporation is presented with respect to the
vote, consent, waiver or proxy appointment;
(3) the name signed purports to be that of a
receiver or trustee in bankruptcy of the shareholder and, if
the Corporation or its agent request, evidence of this status
acceptable to the Corporation is presented with respect to the
vote, consent, waiver or proxy appointment;
(4) the name signed purports to be that of a
pledgee, beneficial owner, or attorney-in-fact of the
shareholder and, if the Corporation or its agent request,
evidence acceptable to the Corporation of the signatory's
authority to sign for the shareholder is presented with
respect to the vote, consent, waiver or proxy appointment; or
(5) two or more persons are the shareholders as
cotenants or fiduciaries and the name signed purports to be
the name of at least one of the coowners and the persons
signing appears to be acting on behalf of all coowners.
(c) The Corporation may reject a vote, consent, waiver or
proxy appointment if the Secretary or other officer or agent of the
Corporation who is authorized to tabulate votes, acting in good faith,
has reasonable basis for doubt about the validity of the signature on
it or about the signatory's authority to sign for the shareholder.
SECTION 2.13. Adjournments. An annual or special meeting of
shareholders may be adjourned at any time, including after action on one or
more matters, by a majority of shares represented, even if less than a quorum.
The meeting may be adjourned for any purpose, including, but not limited to,
allowing additional time to solicit votes on one or more matters, to
disseminate additional information to shareholders or to count votes. Upon
being reconvened, the adjourned meeting shall be deemed to be a continuation of
the initial meeting.
6
<PAGE> 7
(a) Quorum. Once a share is represented for any purpose at
the original meeting, other than for the purpose of objecting to
holding the meeting or transacting business at a meeting, it is
considered present for purposes of determining if a quorum exists, for
the remainder of the meeting and for any adjournment of that meeting
unless a new record date is or must be set for that adjourned meeting.
(b) Record Date. When a determination of shareholders
entitled to notice of or to vote at any meeting of shareholders has
been made as provided in Section 2.06, such determination shall be
applied to any adjournment thereof unless the Board of Directors fixes
a new record date, which it shall do if the meeting is adjourned to a
date more than 120 days after the date fixed for the original meeting.
(c) Notice. Unless a new record date for an adjourned
meeting is or must be fixed pursuant to Section 2.13(b), the
Corporation is not required to give notice of the new date, time or
place if the new date, time or place is announced at the meeting
before adjournment.
SECTION 2.14. Waiver of Notice by Shareholders. A
shareholder may waive any notice required by the WBCL, the Articles of
Incorporation or the By-Laws before or after the date and time stated in the
notice. The waiver shall be in writing and signed by the shareholder entitled
to the notice, contain the same information that would have been required in
the notice under any applicable provisions of the WBCL, except that the time
and place of the meeting need not be stated, and be delivered to the
Corporation for inclusion in the Corporation's records. A shareholder's
attendance at a meeting, in person or by proxy, waives objection to (i) lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting or promptly upon arrival objects to the holding of the
meeting or transacting business at the meeting, and (ii) consideration of a
particular matter at the meeting that is not within the purpose described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.
SECTION 2.15. Conduct of Meeting. The Chairman of the Board,
Vice Chairman, President or any person chosen by the Chairman of the Board,
shall call the meeting of the shareholders to order and shall act as chairman
of the meeting, and the Secretary of the Corporation or any other person
appointed by the chairman of the meeting, shall act as secretary of all
meetings of the shareholders.
SECTION 2.16. Unanimous Consent without Meeting. Any action
required or permitted to be taken at a meeting of shareholders may be taken
without a meeting only by
7
<PAGE> 8
unanimous written consent or consents signed by all of the shareholders of the
Corporation and delivered to the Corporation for inclusion in the Corporation's
records.
ARTICLE III. BOARD OF DIRECTORS
SECTION 3.01. General Powers and Number. All corporate
powers shall be exercised by or under the authority of, and the business and
affairs of the Corporation managed under the direction of, the Board of
Directors. The number of directors of the Corporation shall be six.
SECTION 3.02. Tenure and Qualifications. Each director shall
hold office until the next annual meeting of shareholders and until his or her
successor shall have been elected and, if necessary, qualified, or until there
is a decrease in the number of directors which takes effect after the
expiration of his or her term, or until his or her prior death, resignation or
removal. A director may be removed by the shareholders, with or without cause,
only at a meeting called for the purpose of removing the director, and the
meeting notice shall state that the purpose, or one of the purposes, of the
meeting is removal of the director. A director may resign at any time by
delivering written notice which complies with the WBCL to the Board of
Directors, to the Chairman of the Board or to the Corporation. A director's
resignation is effective when the notice is delivered unless the notice
specifies a later effective date. Directors need not be residents of the State
of Wisconsin or shareholders of the Corporation.
SECTION 3.03. Regular Meetings. A regular meeting of the
Board of Directors shall be held without other notice than this Section 3.03
immediately before or after the annual meeting of shareholders and each
adjourned session thereof. The place of such regular meeting shall be the same
as the place of the meeting of shareholders which precedes or follows it, as
the case may be, or such other suitable place as may be announced at such
meeting of shareholders. The Board of Directors shall provide, by resolution,
the date, time and place, either within or without the State of Wisconsin, for
the holding of additional regular meetings of the Board of Directors without
other notice than such resolution. Regular meetings of the Board of Directors
may also be called by the Chairman of the Board, Vice Chairman, President or
Secretary.
SECTION 3.04. Special Meetings. Special meetings of the
Board of Directors may be called by or at the request of the Chairman of the
Board, Vice Chairman, President, Secretary or any two directors. The Chairman
of the Board, Vice Chairman, President or Secretary may fix any place, either
within or without the State of Wisconsin, as the place for holding any special
meeting of the Board of Directors, and if no other place is fixed the place of
the meeting shall be the principal business office of the Corporation in the
State of Wisconsin.
8
<PAGE> 9
SECTION 3.05. Notice; Waiver. Notice of special meetings
shall be given at least twenty-four hours previously thereto and shall state
the date, time and place of the meeting of the Board of Directors or committee.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors or committee need be specified in the
notice of such meeting. Notice may be communicated in person, by telephone,
telegraph, teletype, facsimile or other form of wire or wireless communication,
or by mail or private carrier. Written notice is effective at the earliest of
the following: (1) when received; (2) when mailed postpaid and correctly
addressed; (3) when given to a telegram carrier; or (4) the date it is
deposited with a private carrier. Oral notice is deemed effective when
communicated. Facsimile or teletype notice is deemed effective when sent.
A director may waive any notice required by the WBCL, the
Articles of Incorporation or the By-Laws before or after the date and time
stated in the notice. The waiver shall be in writing, signed by the director
entitled to the notice and retained by the Corporation. Notwithstanding the
foregoing, a director's attendance at or participation in a meeting waives any
required notice to such director of the meeting unless the director at the
beginning of the meeting or promptly upon such director's arrival objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
SECTION 3.06. Quorum. Except as otherwise provided by the
WBCL, the Articles of Incorporation or the By-Laws, a majority of the number of
directors specified in Section 3.01 shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors. A majority
of the directors present (though less than such quorum) may adjourn any meeting
of the Board of Directors or any committee thereof, as the case may be, from
time to time without further notice.
SECTION 3.07. Manner of Acting. The affirmative vote of a
majority of the directors present at a meeting of the Board of Directors at
which a quorum is present shall be the act of the Board of Directors, unless
the WBCL, the Articles of Incorporation, the By-Laws or other applicable law or
regulation, including the Investment Company Act, require the vote of a greater
number of directors.
SECTION 3.08. Conduct of Meetings. The Chairman of the
Board, and in his absence, the Vice Chairman or any director chosen by the
directors present, shall call meetings of the Board of Directors to order and
shall act as chairman of the meeting. The Secretary of the Corporation shall
act as secretary of all meetings of the Board of Directors unless the presiding
officer appoints another person present to act as secretary of the meeting.
Minutes of any
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<PAGE> 10
regular or special meeting of the Board of Directors shall be prepared and
distributed to each director.
SECTION 3.09. Vacancies. Except as provided below, any
vacancy occurring in the Board of Directors, including a vacancy resulting from
an increase in the number of directors, may be filled, subject to the
requirements of the Investment Company Act, by any of the following: (a) the
shareholders; (b) the Board of Directors; or (c) if the directors remaining in
office constitute fewer than a quorum of the Board of Directors, the directors,
by the affirmative vote of a majority of all directors remaining in office. If
the vacant office was held by a director elected by a voting group of
shareholders, only the holders of shares of that voting group may vote to fill
the vacancy if it is filled by the shareholders, and only the remaining
directors elected by that voting group may vote to fill the vacancy if it is
filled by the directors. A vacancy that will occur at a specific later date,
because of a resignation effective at a later date or otherwise, may be filled
before the vacancy occurs, but the new director may not take office until the
vacancy occurs.
SECTION 3.10. Compensation. No director shall receive any
stated salary or fees from the Corporation for his services as such director if
such director is, otherwise than by reason of being such director, an
interested person (as such term is defined by the Investment Company Act) of
the Corporation or its investment adviser. Except as provided in the preceding
sentence, directors shall be entitled to receive such compensation from the
Corporation for their services as may from time to time be voted by the Board
of Directors.
SECTION 3.11. Presumption of Assent. A director who is
present and is announced as present at a meeting of the Board of Directors,
when corporate action is taken, assents to the action taken unless any of the
following occurs: (a) the director objects at the beginning of the meeting or
promptly upon his or her arrival to holding the meeting or transacting business
at the meeting; (b) the director dissents or abstains from an action taken and
minutes of the meeting are prepared that show the director's dissent or
abstention; (c) the director delivers written notice that complies with the
WBCL of his or her dissent or abstention to the presiding officer of the
meeting before its adjournment or to the Corporation immediately after
adjournment of the meeting; or (d) the director dissents or abstains from an
action taken, minutes of the meeting are prepared that fail to show the
director's dissent or abstention from the action taken and the director
delivers to the Corporation a written notice of that failure that complies with
the WBCL promptly after receiving the minutes. Such right of dissent or
abstention shall not apply to a director who votes in favor of the action
taken.
SECTION 3.12. Telephonic Meetings. Except as herein provided
and notwithstanding any place set forth in the notice of the meeting or these
By-Laws, members of
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<PAGE> 11
the Board of Directors may participate in regular or special meetings by, or
through the use of, any means of communication by which all participants may
simultaneously hear each other, such as by conference telephone. If a meeting
is conducted by such means, then at the commencement of such meeting the
presiding officer shall inform the participating directors that a meeting is
taking place at which official business may be transacted. Any participant in
a meeting by such means shall be deemed present in person at such meeting.
Notwithstanding the foregoing, no action may be taken at any meeting held by
such means (i) on any particular matter which the presiding officer determines,
in his or her sole discretion, to be inappropriate under the circumstances for
action at a meeting held by such means (such determination shall be made and
announced in advance of such meeting), or (ii) if the action must be approved
in person pursuant to the requirements of the Investment Company Act.
SECTION 3.13. Action Without Meeting. Any action required or
permitted by the WBCL to be taken at a meeting of the Board of Directors may be
taken without a meeting if the action is taken by all members of the Board.
The action shall be evidenced by one or more written consents describing the
action taken, signed by each director and retained by the Corporation. Such
action shall be effective when the last director signs the consent, unless the
consent specifies a different effective date. Notwithstanding this Section
3.13, no action may be taken by the Board of Directors pursuant to a written
consent with respect to which the action must be approved in person pursuant to
the requirements of the Investment Company Act.
ARTICLE IV. OFFICERS
SECTION 4.01. Number. The principal officers of the
Corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a
President, the number of Vice Presidents as authorized from time to time by the
Board of Directors, a Secretary, and a Treasurer, each of whom shall be elected
by the Board of Directors. Such other officers and assistant officers as may
be deemed necessary may be elected or appointed by the Board of Directors. The
Board of Directors may also authorize any duly authorized officer to appoint
one or more officers or assistant officers. Any two or more offices may be
held by the same person.
SECTION 4.02. Election and Term of Office. The officers of
the Corporation to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the shareholders, if any, or on or
after the anniversary of the last annual meeting if no annual meeting is held.
If the election of officers shall not be held at such first meeting of the
Board of Directors, such election shall be held as soon thereafter as is
practicable. Each officer shall hold office until his or her successor shall
have been duly elected or until his or her prior death, resignation or removal.
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<PAGE> 12
SECTION 4.03. Removal. The Board of Directors may remove any
officer and, unless restricted by the Board of Directors or these By-Laws, an
officer may remove any officer or assistant officer appointed by that officer.
An officer may be removed at any time, with or without cause and
notwithstanding the contract rights, if any, of the officer removed. The
appointment of an officer does not of itself create contract rights.
SECTION 4.04. Resignation. An officer may resign at any time
by delivering notice to the Corporation that complies with the WBCL. The
resignation shall be effective when the notice is delivered, unless the notice
specifies a later effective date and the Corporation accepts the later
effective date.
SECTION 4.05. Vacancies. A vacancy in any principal office
because of death, resignation, removal, disqualification or otherwise, shall be
filled by the Board of Directors for the unexpired portion of the term. If a
resignation of an officer is effective at a later date as contemplated by
Section 4.04 hereof, the Board of Directors may fill the pending vacancy before
the effective date if the Board provides that the successor may not take office
until the effective date of the registration.
SECTION 4.06. Chairman of the Board. The Chairman of the
Board shall be the chief executive officer of the Corporation. The Chairman of
the Board shall preside at all meetings of the shareholders and directors,
shall have general and active management of the business of the Corporation,
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
SECTION 4.07. The Vice Chairman. During the absence or
disability of the Chairman of the Board, the Vice Chairman shall exercise all
the functions of the Chairman of the Board. The Vice Chairman shall perform
all duties incident to the office of the Vice Chairman and such other duties as
shall from time to time be assigned by the Board of Directors, the Chairman of
the Board or as prescribed by these By-Laws.
SECTION 4.08. President. The President shall be the chief
operating officer of the Corporation and, subject to the direction of the Board
of Directors, shall in general supervise and control all of the business and
affairs of the Corporation. The President shall, when present, preside at all
meetings of the shareholders in the absence of the Chairman of the Board and
the Vice Chairman. The President shall have authority, subject to such rules
as may be prescribed by the Board of Directors, to appoint such agents and
employees of the Corporation as he or she shall deem necessary, to prescribe
their powers, duties and compensation, and to delegate authority to them. Such
agents and employees shall hold office at the discretion of the President.
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<PAGE> 13
The President shall have authority to sign, execute and acknowledge, on behalf
of the Corporation, all deeds, mortgages, bonds, stock certificates, contracts,
leases, reports and all other documents or instruments necessary or proper to
be executed in the course of the Corporation's regular business, or which shall
be authorized by resolution of the Board of Directors; and, except as otherwise
provided by law or the Board of Directors, he or she may authorize any Vice
President or other officer or agent of the Corporation to sign, execute and
acknowledge such documents or instruments in his or her place and stead. In
general he or she shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board of Directors from time
to time.
SECTION 4.09. The Vice Presidents. In the absence of the
President or in the event of the President's death, inability or refusal to
act, or in the event for any reason it shall be impracticable for the President
to act personally, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated by the Board of
Directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the Corporation; and shall perform such
other duties and have such authority as from time to time may be delegated or
assigned to him or her by the Chairman of the Board, Vice Chairman or President
or by the Board of Directors. The execution of any instrument of the
Corporation by any Vice President shall be conclusive evidence, as to third
parties, of his or her authority to act for the Corporation.
SECTION 4.10. The Secretary. The Secretary shall: (a) keep
minutes of the meetings of the shareholders and of the Board of Directors (and
of committees thereof) in one or more books provided for that purpose
(including records of actions taken by the shareholders or the Board of
Directors (or committees thereof) without a meeting); (b) see that all notices
are duly given in accordance with the provisions of these By-Laws or as
required by the WBCL; (c) be custodian of the corporate records and of the seal
of the Corporation and see that the seal of the Corporation is affixed to all
documents the execution of which on behalf of the Corporation under its seal is
duly authorized; (d) maintain a record of the shareholders of the Corporation,
in a form that permits preparation of a list of the names and addresses of all
shareholders, by class or series of shares and showing the number and class or
series of shares held by each shareholder; (e) sign with the President, a Vice
President, or any other officer authorized by the Board of Directors,
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the Corporation; and (g) in general
perform all duties incident to the office of Secretary and have such other
duties and exercise such authority as from time to time may be
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<PAGE> 14
delegated or assigned by the Chairman of the Board, Vice Chairman, President or
the Board of Directors.
SECTION 4.11. The Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he or she shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. The Treasurer shall
render to the Board of Directors, whenever directed by the Board, an account of
the financial condition of the Corporation and of all his or her transactions
as Treasurer. The Treasurer shall perform all acts incidental to the office of
Treasurer, subject to the control of the Board of Directors.
SECTION 4.12. Assistant Secretaries and Assistant Treasurers.
There shall be such number of Assistant Secretaries and Assistant Treasurers as
the Board of Directors may from time to time authorize. The Assistant
Secretaries may sign with the President, a Vice President or any other officer
authorized by the Board of Directors, certificates for shares of the
Corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties and have such authority as shall from time
to time be delegated or assigned to them by the Secretary or the Treasurer,
respectively, or by the Chairman of the Board, Vice Chairman, President or the
Board of Directors.
SECTION 4.13. Other Assistants and Acting Officers. The
Board of Directors shall have the power to appoint, or to authorize any duly
appointed officer of the Corporation to appoint, any person to act as assistant
to any officer, or as agent for the Corporation in his or her stead, or to
perform the duties of such officer whenever for any reason it is impracticable
for such officer to act personally, and such assistant or acting officer or
other agent so appointed by the Board of Directors or an authorized officer
shall have the power to perform all the duties of the office to which he or she
is so appointed to be an assistant, or as to which he or she is so appointed to
act, except as such power may be otherwise defined or restricted by the Board
of Directors or the appointing officer.
SECTION 4.14. Surety Bonds. The Board of Directors may
require any officer or agent of the Corporation to execute a bond (including,
without limitation, any bond required by the Investment Company Act of 1940) to
the Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his or
her duties to the Corporation, including responsibility for negligence and for
the accounting of any of the Corporation's property, funds or securities that
may come into his or her hands.
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<PAGE> 15
ARTICLE V. CERTIFICATES FOR SHARES; TRANSFER OF SHARES
SECTION 5.01. Certificates for Shares. Each shareholder
shall be entitled upon request to have a certificate or certificates which
shall represent and certify the number and kind of shares owned by him or her
in the Corporation. Certificates representing shares of the Corporation shall
be in such form, consistent with the WBCL, as shall be determined by the Board
of Directors. Such certificates shall be signed, either manually or in
facsimile, by the President, a Vice President or any other officer authorized
by the Board of Directors and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and class of shares and series,
if any, and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except as provided in Section 5.04.
Shares may also be issued without certificates. Within a
reasonable time after issuance or transfer of shares without certificates, the
Corporation shall send the shareholder a written statement of the information
required on share certificates under the WBCL, including the following:
(a) the name of the Corporation;
(b) the name of the person to whom shares were issued;
(c) the number and class of shares and the designation of the
series, if any, of the shares issued; and
(d) either (i) a summary of the designations, relative
rights, preferences and limitations, applicable to each class, and the
variations in rights, preferences and limitations determined for each
series and the authority of the Board of Directors to determine
variations for future series, or (ii) a conspicuous statement that the
Corporation will furnish the information specified in clause (i),
above, on request, in writing and without charge.
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<PAGE> 16
SECTION 5.02. Signature by Former Officers. The validity of
a share certificate is not affected if a person who signed the certificate
(either manually or in facsimile) no longer holds office when the certificate
is issued.
SECTION 5.03. Transfer of Shares. Prior to due presentment
of a certificate for shares for redemption or registration of transfer, the
Corporation may treat the registered owner of such shares as the person
exclusively entitled to vote, to receive notifications and otherwise to have
and exercise all the rights and power of an owner. Where a certificate for
shares is presented to the Corporation with a request for redemption or to
register for transfer, the Corporation shall not be liable to the owner or any
other person suffering loss as a result of such registration of transfer or
redemption if (a) there were on or with the certificate the necessary
endorsements, and (b) the Corporation had no duty to inquire into adverse
claims or has discharged any such duty. The Corporation may require reasonable
assurance that such endorsements are genuine and effective and compliance with
such other regulations as may be prescribed by or under the authority of the
Board of Directors. All certificates and uncertificated shares surrendered to
the Corporation for redemption shall be cancelled, returned to the status of
authorized and unissued shares and the transaction recorded in the stock
transfer books. Transfer or redemption of shares of the Corporation shall be
made only on the stock transfer books of the Corporation by the holder of
record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto duly authorized
by power of attorney duly executed and filed with the transfer agent or the
Secretary of the Corporation, and on surrender for cancellation of the
certificate for such shares, if any.
SECTION 5.04. Lost, Destroyed or Stolen Certificates. Where
the owner claims that certificates for shares have been lost, destroyed or
wrongfully taken, a new certificate shall be issued in place thereof if the
owner (a) so requests before the Corporation has notice that such shares have
been acquired by a bona fide purchaser, (b) files with the Corporation a
sufficient indemnity bond if required by the Board of Directors or any
principal officer, and (c) satisfies such other reasonable requirements as may
be prescribed by or under the authority of the Board of Directors.
SECTION 5.05. Stock Regulations. The Board of Directors
shall have the power and authority to make all such further rules and
regulations not inconsistent with law as it may deem expedient concerning the
issue, transfer and registration of shares of the Corporation and to appoint or
designate one or more stock transfer agents and one or more stock registrars.
ARTICLE VI. SEAL
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<PAGE> 17
SECTION 6.01. The seal of the Corporation shall be circular
in form and shall bear, at a minimum, the name of the Corporation, Wisconsin as
its state of incorporation and the words "Corporate Seal."
ARTICLE VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 7.01. Mandatory Indemnification. The Corporation
shall indemnify, to the full extent permitted by the WBCL, as in effect from
time to time, the persons described in Sections 180.0850 through 180.0859 (or
any successor provisions) of the WBCL or other provisions of the law of the
State of Wisconsin relating to indemnification of directors and officers, as in
effect from time to time. The indemnification afforded such persons by this
section shall not be exclusive of other rights to which they may be entitled as
a matter of law.
SECTION 7.02. Permissive Supplementary Benefits. The
Corporation may, but shall not be required to, supplement the right of
indemnification under Section 7.01 by (a) the purchase of insurance on behalf
of any one or more of such persons, whether or not the Corporation would be
obligated to indemnify such person under Section 7.01; (b) individual or group
indemnification agreements with any one or more of such persons; and (c)
advances for related expenses of such a person.
SECTION 7.03. Amendment. This Article VII may be amended or
repealed only by a vote of the shareholders and not by a vote of the Board of
Directors.
SECTION 7.04. Investment Company Act. In no event shall the
Corporation indemnify any person hereunder in contravention of any provision of
the Investment Company Act.
ARTICLE VIII. AMENDMENTS
SECTION 8.01. By Shareholders. These By-Laws may be amended
or repealed and new By-Laws may be adopted by the shareholders at any annual or
special meeting of the shareholders at which a quorum is in attendance.
SECTION 8.02. By Board of Directors. Except as otherwise
provided by the WBCL, the Articles of Incorporation or a particular By-Law
herein, these By-Laws may also be amended or repealed and new By-Laws may be
adopted by the Board of Directors by affirmative vote of a majority of the
number of directors present at any meeting at which a quorum is in
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<PAGE> 18
attendance; provided, however, that the shareholders in adopting, amending or
repealing a particular By-Law may provide therein that the Board of Directors
may not amend, repeal or readopt that By-Law.
SECTION 8.03. Implied Amendments. Any action taken or
authorized by the shareholders or by the Board of Directors which would be
inconsistent with the By-Laws then in effect but which is taken or authorized
by affirmative vote of not less than the number of shares or the number of
directors required to amend the By-Laws so that the By-Laws would be consistent
with such action shall be given the same effect as though the By-Laws had been
temporarily amended or suspended so far, but only so far, as is necessary to
permit the specific action so taken or authorized.
ARTICLE IX. DEPOSITARIES, CUSTODIANS, ENDORSEMENTS
SECTION 9.01. Depositories. The funds of the Corporation
shall be deposited with such banks or other depositories as the Board of
Directors of the Corporation may from time to time determine in accordance with
the requirements of the Investment Company Act.
SECTION 9.02. Custodians. All securities and other similar
investments of the Corporation shall be deposited in the safekeeping of such
banks or other companies as the Board of Directors may from time to time
determine in accordance with the requirements of the Investment Company Act.
Every arrangement entered into with any bank or other company for the
safekeeping of the securities and other similar investments of the Corporation
shall contain provisions complying with the requirements of the Investment
Company Act.
SECTION 9.03. Checks, Notes, Drafts, etc. Checks, notes,
drafts, acceptances, bills of exchange and other orders or obligations for the
payment of money shall be signed by such officer or officers or such person or
persons as designated from time to time by the Board of Directors.
SECTION 9.04. Endorsements, Assignments and Transfer of
Securities. All endorsements, assignments, stock powers or other instruments
of transfer of securities standing in the name of the Corporation or its
nominee or directions for the transfer of securities belonging to the
Corporation shall be made by such officer or officers or other person or
persons as may be designated from time to time by the Board of Directors.
ARTICLE X. INDEPENDENT PUBLIC ACCOUNTANTS
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<PAGE> 19
SECTION 10.01. Independent Public Accountants. The
Corporation shall employ an independent public accountant or a firm of
independent public accountants as its accountants to examine the accounts of
the Corporation and to sign and certify financial statements filed by the
Corporation.
ARTICLE XI. SALES AND REDEMPTION OF SHARES; DIVIDENDS
SECTION 11.01. Sale of Shares. Shares of Common Stock of the
Corporation shall be sold by it for the net asset value per share of such
Common Stock calculated in accordance with the requirements of the Investment
Company Act, and the Corporation's then current prospectus.
SECTION 11.02. Periodic Investment, Dividend Reinvestment and
Other Plans. The Corporation shall offer such periodic investment, dividend
reinvestment, periodic redemption or other plans as are specified in the
Corporation's then current prospectus, provided such plans are offered in
accordance with the requirements of the Investment Company Act. Any such plans
may be discontinued at any time if determined advisable by or under the
authority of the Board of Directors.
SECTION 11.03. Redemption of Shares. Subject to the
suspension of the right of redemption or postponement of the date of payment or
satisfaction upon redemption in accordance with the Investment Company Act,
each shareholder, upon request and after complying with the redemption
procedures established by or under the supervision of the Board of Directors,
shall be entitled to require the Corporation to redeem out of legally available
funds all or any part of the Common Stock standing in the name of such holder
at the net asset value per share calculated in accordance with the requirements
of the Investment Company Act, and the Corporation's then current prospectus.
SECTION 11.04. Dividends and Other Distributions. The
Corporation shall pay such dividends and make other distributions to
shareholders, at such times and in such amounts as are determined by or under
the authority of the Board of Directors, from time to time and in accordance
with the requirements of the WBCL, the Investment Company Act, and other
applicable laws and regulations.
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<PAGE> 1
EXHIBIT 99.B4
SPECIMEN STOCK CERTIFICATE
NUMBER STRONG LOGO SHARES
________ _______
CUSIP ___________
STRONG <<FUND>>, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WISCONSIN
This Certifies that is the owner of
Shares of the Common Stock, Par Value $._____ per share, of Strong <<Fund>>,
Inc. transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this certificate
properly endorsed.
This certificate is not valid until countersigned by the Transfer
Agent.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
CORPORATE SEAL
/s/ Ann E. Oglanian /s/ John Dragisic
Secretary Vice Chairman
Countersigned:
Strong Capital Management, Inc.
Transfer Agent
Authorized Signature
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate shall be construed as though they were written out in full
according to applicable laws or regulations:
UNIF GIFT MIN ACT _____Custodian_______
(Cust) (Minor)
Under Uniform Gift to Minors
Act - _________________________________
State
TEN COM - as tenants in common
TEN ENT - as tenants by the
entireties UNIF TRANS MIN ACT ____Custodian _______
JT TEN - as joint tenants with (Cust) (Minor)
right of survivorship
and not as tenants Under Uniform Transfers to Minors
in common Act - _________________________________
State
Additional abbreviations also may be used though not in the above list.
For Value Received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
Shares of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney, to transfer the said shares on the books of the within named
Corporation with full power of substitution in the premises.
Date ________________________________ ___________________________________
Signature
___________________________________
Signature
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
___________________________________
Signature(s) Guarantee
Strong <<Fund>>, Inc. is authorized to issue common stock for multiple series.
Upon request, a Shareholder will be given a summary of the designations,
relative rights, preferences and limitations determined by the Board of
Directors for each series in writing and without charge. The Board of
Directors is authorized to determine variations for different series.
<PAGE> 1
EXHIBIT 99.B6
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into on this ______day of
___________,____, between STRONG [ ] FUNDS, INC., a Wisconsin
corporation (the "Corporation"), and STRONG FUNDS DISTRIBUTORS, INC., a
Wisconsin corporation (the "Distributor"):
WITNESSETH:
WHEREAS, the Corporation is an open-end management investment company
registered under the Investment Company Act of 1940 (the "Investment Company
Act");
WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio, and the beneficial interest in each
such series will be represented by a separate series of shares;
WHEREAS, the Corporation is authorized to issue shares of its $.______
par value common stock (the "Shares") in separate series;
WHEREAS, the Distributor is a registered broker-dealer under state and
federal laws and regulations and is a member of the National Association of
Securities Dealers (the "NASD"); and
WHEREAS, the Corporation desires to retain Distributor as the
distributor of the Shares of each series on whose behalf this Agreement has
been executed.
NOW, THEREFORE, the Corporation and Distributor mutually agree and
promise as follows:
1. Appointment of Distributor
The Company hereby appoints the Distributor as its agent for the
distribution of the Shares of each series of the Corporation listed on Schedule
A attached hereto (each series is hereinafter referred to as a "Fund"), as such
Schedule may be amended from time to time, in jurisdictions wherein the Shares
may legally be offered for sale; provided, however, that the Corporation may
(a) issue or sell Shares directly to holders of such Shares upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the
payment or reinvestment of dividends or distributions, or otherwise; or (b)
issue or sell Shares at net asset value to the shareholders of any other
investment corporation, as defined in the Investment Company Act, for which the
Distributor shall act as exclusive distributor, who wish to exchange all or a
portion of their investment in shares of such other investment company for
Shares of the Corporation.
2. Acceptance; Services of Distributor
The Distributor hereby accepts appointment as agent for the
distribution of the Shares and agrees that it will use its best efforts with
reasonable promptness to sell such part of the authorized Shares remaining
unissued as from time to time shall be effectively registered under the
Securities Act of 1933 (the "Securities Act"), at prices determined as
hereinafter provided and on terms hereinafter set forth, all
<PAGE> 2
subject to applicable federal and state laws and regulations and the Articles
of Incorporation and By-Laws of the Corporation.
3. Manner of Sale; Compliance with Securities Laws and Regulations
a. The Distributor shall sell Shares to or through qualified
dealers or others in such manner, not inconsistent with the provisions hereof
and the Corporation's then effective Registration Statement under the
Securities Act, as the Distributor may determine from time to time, provided
that no dealer or other person shall be appointed or authorized to act as agent
of the Corporation without the prior consent of the Corporation. The
Distributor shall cause subscriptions for Shares to be transmitted in
accordance with any subscription agreement then in force for the purchase of
Shares. Distributor and Corporation shall cooperate in implementing procedures
to ensure that the sales commission, if any, payable on the purchase of Shares
is paid to the Distributor in a timely manner.
b. The Distributor, as agent of and for the account of the
Corporation, may repurchase Shares at such prices and upon such terms and
conditions as shall be specified in the Corporation's current prospectus
relating to each Fund.
c. The Corporation will furnish to the Distributor from time to
time such information with respect to the Corporation, each Fund, and the
Shares as the Distributor may reasonably request for use in connection with the
sale of the Shares. The Distributor agrees that it will not use or distribute
or authorize the use, distribution or dissemination by its dealers or others,
in connection with the sale of such Shares, of any statements, other than those
contained in the Corporation's current prospectus relating to each Fund, except
such supplemental literature or advertising as shall be lawful under federal
and state securities laws and regulations, and that it will furnish the
Corporation with copies of all such material.
d. In selling or reacquiring Shares for the account of the
Corporation, the Distributor will in all respects conform to the requirements
of all state and federal laws and the Rules of Fair Practice of the NASD,
relating to such sale or reacquisition, as the case may be, and will indemnify
and save harmless the Corporation, each Fund, each person who has been, is or
may hereafter be a director or officer of the Corporation or any Fund from any
damage or expense on account of any wrongful act by the Distributor or any
employee, representative or agent of the Distributor. The Distributor will
observe and be bound by all the provisions of the Articles of Incorporation of
the Corporation (and of any fundamental policies adopted by the Corporation
and/or each Fund pursuant to the Investment Company Act, notice of which shall
have been given to the Distributor) which at the time in any way require,
limit, restrict or prohibit or otherwise regulate any action on the part of the
Distributor.
e. The Distributor will require each dealer to conform to the
provisions hereof and the Registration Statement (and related prospectus or
prospectuses) at the time in effect under the Securities Act with respect to
the public offering price of the Shares.
2
<PAGE> 3
4. Price of Shares
a. Shares offered for sale or sold by the Distributor for the
account of the Corporation shall be so offered or sold at a price per Share
determined in accordance with the then current prospectus relating to the sale
of such Shares except as departure from such prices shall be permitted by the
rules and regulations of the Securities and Exchange Commission (the "SEC").
b. The price the Corporation shall receive for all Shares
purchased from the Corporation shall be the net asset value used in determining
the public offering price applicable to the sale of each Fund's Shares. The
excess, if any, of the sales price over the net asset value of the Shares sold
by the Distributor as agent for the account of the Corporation shall be
retained by the Distributor as a commission for its services hereunder.
5. Registration of Shares and Distributor
a. The Corporation agrees that it will use its best efforts to
keep effectively registered under the Securities Act for sale as herein
contemplated such Shares as the Distributor shall reasonably request and as the
SEC shall permit to be so registered.
b. The Corporation on behalf of each Fund will execute any and all
documents and furnish any and all information which may be reasonably necessary
in connection with the qualification of its Shares for sale (including the
qualification of the Corporation or a Fund as a dealer where necessary or
advisable) in such states as the Distributor may reasonably request (it being
understood that the Corporation shall not be required without its consent to
comply with any requirement which in its opinion is unduly burdensome). The
Distributor, at its own expense, will effect all required qualifications of the
Distributor as a dealer or broker or otherwise under all applicable state or
federal laws in order that the Shares may be sold in as broad a territory as is
reasonably practicable.
c. Notwithstanding any other provision hereof, the Corporation on
behalf of a Fund may terminate, suspend or withdraw the offering of its Shares
whenever, in its sole discretion, the Corporation deems such action to be
desirable.
6. Expenses
The Corporation or respective Fund will pay or cause to be paid the
expenses (including the fees and disbursements of its own counsel) of any
registration of the Shares under the Securities Act, expenses of qualifying or
continuing the qualification of the Shares for sale, and in connection
therewith, of qualifying or continuing the qualification of the Corporation or
respective Fund as a dealer or broker under the laws of such states as may be
designated by the Distributor under the conditions herein specified, and
expenses incident to the issuance of Shares, such as the cost of share
certificates, issue taxes and fees of the transfer agent. The Distributor will
pay all other expenses (other than expenses which one or more dealers may bear
pursuant to any agreement with the Distributor) incident to the sale and
distribution of the Shares issued or sold hereunder, including, without
limiting the generality of the foregoing, all (a) expenses of printing and
distributing or disseminating any other literature, advertising
3
<PAGE> 4
and selling aids in connection with such offering of the Shares for
sale (except that such expenses shall not include expenses incurred by the
Corporation or any Fund in connection with the preparation, printing and
distribution of any report or other communication to holders of Shares in their
capacity as such); and (b) expenses of advertising in connection with such
offering. No transfer taxes, if any, which may be payable in connection with
the issue or delivery of Shares sold as herein contemplated or of the
certificates for such Shares shall be borne by the Corporation or any Fund, and
the Distributor will indemnify and hold harmless the Corporation and each Fund
against liability for all such transfer taxes.
7. Duration and Termination
a. This Agreement shall become effective as of the date hereof
and shall continue in effect until ________, 1996, and from year to year
thereafter, but only so long as such continuance is specifically approved each
year by either (i) the Board of Directors of the Corporation, or (ii) the
affirmative vote of a majority of the relevant Fund's respective outstanding
voting securities. In addition to the foregoing, each renewal of this
Agreement must be approved by the vote of a majority of the Corporation's
directors who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on
such approval. Prior to voting on the renewal of this Agreement, the Board of
Directors of the Corporation shall request and evaluate, and the Distributor
shall furnish, such information as may reasonably be necessary to enable the
Corporation's Board of Directors to evaluate the terms of this Agreement.
b. Notwithstanding whatever may be provided herein to the
contrary, this Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Board of Directors of the Corporation, or
by vote of a majority of the outstanding voting securities of the relevant
Fund, or by the Distributor, in each case, on not more than sixty (60) days'
written notice to the other party and shall terminate automatically in the
event of its assignment as set forth in paragraph 9 of this Agreement.
8. Notice
Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may from time to time designate for the receipt of such
notice.
9. Assignment
This Agreement shall neither be assignable nor subject to pledge or
hypothecation and in the event of assignment, pledge or hypothecation shall
automatically terminate. For purposes of determining whether an "assignment"
has occurred, the definition of "assignment" in Section 2(a)(4) of the
Investment Company Act shall control.
10. Miscellaneous
4
<PAGE> 5
a. This Agreement shall be construed in accordance with the laws
of the State of Wisconsin, provided that nothing herein shall be construed in a
manner inconsistent with the Investment Company Act, the Securities Act, the
Securities Exchange Act of 1934 or any rule or order of the SEC under such Acts
or any rule of the NASD.
b. The captions of this Agreement are included for convenience
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
c. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions of
this Agreement shall be deemed to be severable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed as of the day and year first stated above.
Attest: Strong Funds Distributors, Inc.
__________________________________________ ___________________________________
Thomas M. Zoeller, Treasurer and Secretary Stephen J. Shenkenberg, President
Attest: Strong ________________ Funds, Inc.
__________________________________________ ___________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
5
<PAGE> 6
SCHEDULE A
The Fund(s) of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
Fund(s) to this Agreement
------- -----------------
Strong [ ] Fund ____________
Attest: Strong Funds Distributors, Inc.
__________________________________________ __________________________________
Thomas M. Zoeller, Treasurer and Secretary Stephen J. Shenkenberg, President
Attest: Strong ______________ Funds, Inc.
__________________________________________ __________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
6
<PAGE> 1
EXHIBIT 99.B8
CUSTODIAN AGREEMENT
THIS AGREEMENT is made and entered into on this ___ day of ____, ____,
between STRONG <<FUND>>, INC., a Wisconsin corporation (the "Corporation"), on
behalf of the Funds (as defined below) of the Corporation, and FIRSTAR TRUST
COMPANY, a Wisconsin corporation (the "Custodian").
WITNESSETH:
WHEREAS, the Corporation is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940 (the "Investment Company Act");
WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio, and the beneficial interest in each
such series will be represented by a separate series of shares (each series
indicated on Schedule A is hereinafter individually referred to as a "Fund" and
collectively as the "Funds"); and
WHEREAS, the Corporation desires to retain the Custodian to hold and
administer the securities and cash of each Fund listed in Schedule A hereto,
and any additional Funds the Corporation and the Custodian may agree upon and
include in Schedule A as such Schedule may be amended from time to time,
pursuant to the terms of this Agreement.
NOW, THEREFORE, the Corporation and the Custodian do mutually agree and
promise as follows:
1. Definitions
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Corporation by any two of
the President, a Vice President, the Secretary and the Treasurer of the
Corporation, or any other persons duly authorized to sign by the Board of
Directors.
The word "Board" shall mean the Board of Directors the Corporation.
2. Names, Titles and Signatures of the Corporation's Officers
An officer of the Corporation will certify to the Custodian the names
and signatures of those persons authorized to sign the officers' certificates
described in Section 1, hereof, and the names of the members of the Board of
Directors, together with any changes which may occur from time to time.
<PAGE> 2
3. Receipt and Disbursement of Money
A. The Custodian shall open and maintain a separate account or
accounts in the name of each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement. The Custodian shall
hold in such account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of a Fund. The Custodian shall make
payments of cash to, or for the account of, a Fund from such cash only:
(a) for the purchase of securities for the portfolio of a
Fund upon the delivery of such securities to the Custodian, registered
in the name of the Fund or of the nominee of the Custodian referred to
in Section 7 or in proper form for transfer;
(b) for the purchase or redemption of shares of common
stock of a Fund upon delivery thereof to Custodian, or upon proper
instructions from the Fund;
(c) for the payment of interest, dividends, taxes,
investment adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing and custodian
services and expenses for printing and postage);
(d) for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by a Fund
held by or to be delivered to Custodian; or
(e) for other proper corporate purposes certified by
resolution of the Board of Directors of the Corporation, on behalf of a
Fund.
Before making any such payment, the Custodian shall receive
(and may rely upon) an officers' certificate requesting such payment
and stating that it is for a purpose permitted under the terms of
items (a), (b), (c) or (d) of this Subsection A, and also, in respect
of item (e), upon receipt of an officers' certificate specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not
precede the disbursement of cash for the purpose of purchasing a money
market instrument, or any other security with same or next-day
settlement, if the President, a Vice President, the Secretary or the
Treasurer of the Corporation, on behalf of a particular Fund, issues
appropriate oral or facsimile instructions to the Custodian and an
appropriate officers' certificate is received by the Custodian within
two business days thereafter.
Regardless of the foregoing, if the Corporation's investment
advisor (the "Advisor") is a member of the Institutional Delivery
("ID") system and desires to affirm trades on behalf of a Fund with
the Depository Trust Company ("DTC") for those transactions affirmed
through the ID system; or (ii) has established an automated interface
to transmit trade authorization detail to the Custodian, then no
officers' certificate is required; provided that the appropriate
ID/DTC letter agreement or automated trade authorization agreement has
been executed by both the Advisor and the Custodian.
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<PAGE> 3
B. The Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received by the
Custodian for each Fund's account.
C. The Custodian shall, upon receipt of proper instructions, make
federal funds available to the Funds as of specified times agreed upon from
time to time by the Corporation, on behalf of the Funds, and the Custodian in
the amount of checks received in payment for shares of the Funds which are
deposited into the respective Fund's account.
4. Segregated Accounts
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to paragraph 14
hereof, (i) in accordance with the provisions of any agreement among the
Corporation, on behalf of a Fund or Funds, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the National Association of
Securities Dealers, Inc. (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 organization or organizations, regarding escrow or
other arrangements in connection with transactions for a Fund, (ii) for the
purpose of segregating cash or securities in connection with options purchased,
sold or written for a Fund or commodity futures contracts or options thereon
purchased or sold for a Fund, (iii) for the purpose of compliance by the
Corporation or a Fund with the procedures required by any release or
interpretations of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies, and (iv)
as mutually agreed upon from time to time between the Corporation, on behalf of
a Fund or Funds, and the Custodian.
5. Transfer, Exchange, Redelivery, etc. of Securities
The Custodian shall have sole power to release or deliver any
securities of the Funds held by it pursuant to this Agreement. The Custodian
agrees to transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of a Fund upon
receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or
otherwise become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities
alone or other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or otherwise;
3
<PAGE> 4
(e) upon conversion of such securities pursuant to their terms
into other securities;
(f) upon exercise of subscription, purchase or other similar
rights represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of
a Fund upon delivery thereof to the Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a), (b),
(d), (e), (f), and (g), securities or cash receivable in exchange therefore
shall be deliverable to the Custodian.
Before making any such transfer, exchange or delivery, the Custodian
shall receive (and may rely upon) an officers' certificate requesting such
transfer, exchange or delivery, and stating that it is for a purpose permitted
under the terms of items (a), (b), (c), (d), (e), (f), (g) or (h) of this
Section 5 and also, in respect of item (i), upon receipt of an officers'
certificate specifying the securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to whom delivery of
such securities shall be made, provided, however, that an officers' certificate
need not precede any such transfer, exchange or delivery of a money market
instrument, or any other security with same or next-day settlement, if the
President, a Vice President, the Secretary or the Treasurer of the Corporation,
on behalf of a particular Fund, issues appropriate oral or facsimile
instructions to the Custodian and an appropriate officers' certificate is
received by the Custodian within two business days thereafter.
Regardless of the foregoing, if the Advisor is a member of the ID
system and desires to affirm trades on behalf of a Fund with the DTC for those
transactions affirmed through the ID system; or (ii) has established an
automated interface to transmit trade authorization detail to the Custodian,
then no officers' certificate is required; provided that the appropriate ID/DTC
letter agreement or automated trade authorization agreement has been executed
by both the Advisor and the Custodian.
6. Custodian's Acts Without Instructions
Unless and until the Custodian receives an officers' certificate to
the contrary, the Custodian shall: (a) present for payment all coupons and
other income items held by it for the account of each Fund which call for
payment upon presentation, and hold the cash received by it upon such payment
for the account of the respective Fund; (b) collect interest and cash dividends
received, with notice to each Fund, for the account of the respective Fund; (c)
hold for the account of each Fund hereunder all stock dividends, rights and
similar securities issued with respect to any securities held by it hereunder;
and (d) execute, as agent on behalf of each Fund, all necessary ownership
certificates required by the Internal
4
<PAGE> 5
Revenue Code or the Income Tax Regulations of the United States Treasury
Department or under 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.
7. Registration of Securities
Except as otherwise directed by an officers' certificate, the
Custodian shall register all securities, except such as are in bearer form, in
the name of a registered nominee of the Custodian as defined in the Internal
Revenue Code and any Regulations of the Treasury Department issued hereunder or
in any provision of any subsequent federal tax law exempting such transaction
from liability for stock transfer taxes, and shall 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 Custodian shall use its best
efforts to the end that the specific securities held by it hereunder shall be
at all times identifiable in its records.
The Corporation shall from time to time furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee, any
securities which it may hold for the account of the Funds and which may from
time to time be registered in the name of a particular Fund.
8. Voting and Other Action
Neither the Custodian nor any nominee of the Custodian shall vote any
of the securities held hereunder by or for the account of any Fund, except in
accordance with the instructions contained in an officers' certificate. The
Custodian shall deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation
to such securities, such proxies to be executed by the registered holder of
such securities (if registered otherwise than in the name of a Fund), but
without indicating the manner in which such proxies are to be voted.
9. Transfer Tax and Other Disbursements
The Corporation, on behalf of the Funds, shall pay or reimburse the
Custodian from time to time for any transfer taxes payable upon transfers of
securities made hereunder, and for all other necessary and proper disbursements
and expenses made or incurred by the Custodian in the performance of this
Agreement.
The Custodian shall execute and deliver such certificates in
connection with 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, to exempt from taxation any exemptable transfers and/or deliveries
of any such securities.
10. Concerning Custodian
The Custodian shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed upon in
writing between the Corporation, on behalf of
5
<PAGE> 6
the Funds, and the Custodian. Until modified in writing, such compensation
shall be as set forth in Schedule B attached hereto.
The Custodian shall not be liable for any action taken in good faith
upon any certificate herein described or certified copy of any resolution of
the Board, and may rely on the genuineness of any such document which it may in
good faith believe to have been validly executed.
The Corporation, on behalf of the Funds, agrees to indemnify and hold
harmless the Custodian and its nominee from all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees) incurred or
assessed against it or by its nominee in connection with the performance of
this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct. The
Custodian is authorized to charge the applicable account of a Fund for such
items. In the event of any advance of cash by the Custodian which results in
any overdraft of a Fund, which is a money market fund subject to Rule 2a-7
under the Investment Company Act, the Custodian is granted a security interest
in such Fund's assets limited to the extent of the overdraft.
11. Subcustodians
The Custodian is hereby authorized to engage another bank or trust
company as a Subcustodian for all or any part of the Corporation's assets, so
long as any such bank or trust company meets the requirements of the Investment
Company Act, as amended and the rules and regulations thereunder and provided
further that, if the Custodian utilizes the services of a Subcustodian, the
Custodian shall remain fully liable and responsible for any losses caused to
any of the Funds by the Subcustodian as fully as if the Custodian was directly
responsible for any such losses under the terms of the Custodian Agreement.
Notwithstanding anything contained herein, if the Corporation requires
the Custodian to engage specific Subcustodians for the safekeeping and/or
clearing of assets, the Corporation agrees to indemnify and hold harmless the
Custodian from all claims, expenses and liabilities incurred or assessed
against it in connection with the use of such Subcustodian in regard to the
Corporation's assets, except as may arise from its own negligent action,
negligent failure to act or willful misconduct.
12. Reports by Custodian
The Custodian shall furnish the Corporation periodically as agreed upon
with a statement summarizing all transactions and entries for the account of
each Fund. The Custodian shall furnish to the Corporation, at the end of every
month, a list of the securities held by each Fund, showing the aggregate cost
of each issue. The books and records of the Custodian pertaining to its
actions under this Agreement shall be open to inspection and audit at
reasonable times by officers of, and of auditors employed by, the Corporation.
13. Termination or Assignment
This Agreement may be terminated by the Corporation, on behalf of the
Funds, or by the Custodian, on ninety (90) days notice, given in writing and
sent by registered mail to the Custodian at P. O. Box 2054, Milwaukee,
Wisconsin 53201, or to the Corporation at 100 Heritage Reserve, Menomonee Falls,
Wisconsin 53051, as the case may be. Upon any termination of this Agreement,
pending appointment of a successor to the Custodian or a vote of the
shareholders of the Corporation to dissolve or
6
<PAGE> 7
to function without a custodian of its cash, securities and other property,
the Custodian shall not deliver cash, securities or other property of
the Corporation to the Corporation, but may deliver them to a bank or trust
company of its own selection, that meets the requirements of the Investment
Company Act as a Custodian for the Corporation to be held under terms similar
to those of this Agreement, provided, however, that the Custodian shall not be
required to make any such delivery or payment until full payment shall have
been made by the Corporation of all liabilities constituting a charge on or
against the properties then held by the Custodian or on or against the
Custodian, and until full payment shall have been made to the Custodian of all
its fees, compensation, costs and expenses, subject to the provisions of
Section 10 of this Agreement.
This Agreement may not be assigned by the Custodian without the consent
of the Corporation, authorized or approved by a resolution of its Board of
Directors.
14. Deposits of Securities in Securities Depositories
No provision of this Agreement shall be deemed to prevent the use by
the Custodian of a central securities clearing agency or securities depository,
provided, however, that the Custodian and the central securities clearing
agency or securities depository meet all applicable federal and state laws and
regulations, including the requirements of the Investment Company Act, and the
Board of Directors of the Corporation approves by resolution the use of such
central securities clearing agency or securities depository.
15. Records
To the extent that the Custodian in any capacity prepares or maintains
any records required to be maintained and preserved by the Corporation pursuant
to the provisions of the Investment Company Act, the Custodian agrees to make
any such records available to the Corporation upon request and to preserve such
records for the periods prescribed in Rule 31a-2 under the Investment Company
Act.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
Attest: Firstar Trust Company
____________________________________ ___________________________________
By: By:
Its: Its:
Attest: Strong <<Name>>, Inc.
____________________________________ ___________________________________
By: Ann E. Oglanian By: Lawrence A. Totsky
Its: Secretary Its: Vice President
7
<PAGE> 8
SCHEDULE A
The Fund(s) of the Corporation currently subject to this Agreement are as
follows:
Fund(s) Date of Addition
------- to this Agreement
-----------------
<<SERIES>> <<AGT DATE>>
Attest: Firstar Trust Company
______________________ ______________________________
By: By:
Its: Its:
Attest: Strong <<NAME>>, Inc.
_______________________ ______________________________
By: Ann E. Oglanian By: Lawrence A. Totsky
Its: Secretary Its: Vice President
<PAGE> 9
SCHEDULE B
FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES
MUTUAL FUND CUSTODIAL AGENT SERVICE
ANNUAL FEE SCHEDULE FOR THE
STRONG MUTUAL FUNDS
EFFECTIVE JULY 1, 1993
Annual fee on the aggregate market value of all Strong Mutual Funds
$0.10 per $1,000 (one basis point) on the first $2 billion
$0.08 per $1,000 (.8 basis point) on the balance
Aggregate fee shall be apportioned among the funds(1) based upon
market value.
Investment transactions; (purchase, sale, exchange, tender,
redemption, maturity, receipt, delivery)
$ 9.00 per Depository Trust Company or Federal Reserve System
trade, automated and non-automated
$25.00 per definitive security (physical)
$ 8.50 per commercial paper trade
$50.00 per Euroclear
$ 6.00 per principal reduction on pass-through certificates
$35.00 per option/futures contract
$ 7.50 per variation margin transaction
$ 7.50 per Fed wire deposit or withdrawal
__________________________________
1 The term "fund" includes each series of a series company.
<PAGE> 1
EXHIBIT 99.B8.2
AGREEMENT BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
FIRSTAR TRUST COMPANY
AND
THE STRONG FUNDS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Employment of Subcustodian 1
2. Powers and Duties of the Subcustodian
with respect to Property of the Funds
held by the Subcustodian 2
2.1 Safekeeping 2
2.2 Manner of Holding Securities 2
2.3 Registration 2
2.4 Purchases 3
2.5 Exchanges 4
2.6 Sales of Securities 5
2.7 Depositary Receipts 6
2.8 Exercise of Rights; Tender Offers 7
2.9 Stock Dividends, Rights, Etc. 7
2.10 Options 7
2.11 Borrowings 8
2.12 Demand Deposit Bank Accounts 9
2.13 Interest Bearing Call or Time Deposits 10
2.14 Futures Contracts 12
2.15 Foreign Exchange Transactions 13
2.16 Stock Loans 14
2.17 Collections 14
2.18 Dividends, Distributions and Redemptions 16
2.19 Proxies, Notices, Etc. 16
2.20 Nondiscretionary Details 17
2.21 Bills 17
2.22 Deposit of Fund Assets in Securities Systems 18
2.23 Other Transfers 20
2.24 Investment Limitations 21
2.25 Subcustodian Advances 21
2.26 Restricted Securities 22
2.27 Proper Instructions 24
2.28 Segregated Account 26
2.29 Opinion of Fund's Independent Certified
Public Accountants 27
2.30 Reports by Independent Certified Public Accountants 27
2.31 Proceeds from Shares Sold 27
3. Powers and Duties of the Subcustodian with
Respect to the Appointment of Secondary Subcustodians 28
4. Assistance by the Subcustodian as to Certain Matters 33
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5. Powers and Duties of the Subcustodian with
Respect to its Role as Recordkeeping Agent 34
5.1 Records 34
5.2 Accounts 34
5.3 Access to Records 34
6. Standard of Care and Related Matters 35
6.1 Liability of the Subcustodian with
Respect to Proper Instructions;
Evidence of Authority; Etc. 35
6.2 Liability of the Subcustodian with
Respect to Use of Securities Systems
and Foreign Depositories 36
6.3 Liability of the Subcustodian with
respect to Secondary Subcustodians 37
6.4 Standard of Care; Liability;
Indemnification 38
6.5 Mitigation by Subcustodian 40
6.6 Expenses of the Custodian and the Funds 40
6.7 Liability for Past Records 41
6.8 Reimbursement of Disbursements, Etc. 41
6.9 Notice of Litigation; Right to Prosecute, Etc. 41
6.10 Security for Obligations to Subcustodian 42
6.11 Appointment of Agents 45
6.12 Powers of Attorney 45
7. Compensation of the Subcustodian 46
8. Termination; Successor Custodian/Subcustodian;
Additional Funds 46
9. Amendment; Waiver 48
10. Governing Law 48
11. Notices 48
12. Binding Effect 49
13. Severability 49
14. Counterparts 49
</TABLE>
<PAGE> 4
CUSTODIAN AGREEMENT
AGREEMENT made this 22nd day of December, 1993, between FIRSTAR TRUST
COMPANY (the "Custodian") and each of the Funds listed in Appendix B attached
hereto as said Exhibit may from time to time be revised (collectively, the
"Funds" individually, a "Fund") and Brown Brothers Harriman & Co, (the
"Subcustodian");
WITNESSETH: That in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Employment of Subcustodian: The Custodian and the Funds hereby
employ and appoint the Subcustodian as a subcustodian for the term and subject
to the provisions of this Agreement. The Subcustodian shall not be under any
duty or obligation to require a Fund to deliver to it any securities, funds or
other property owned by the Fund and shall have no responsibility or liability
for or on account of securities, funds or other property not so delivered. Each
Fund will deposit with the Subcustodian copies of its Declaration of Trust or
Certificate of Incorporation and By-Laws (or comparable documents) and all
amendments thereto, and copies of such votes and other proceedings of the
shareholders or Trustees or Directors of the Fund as may be necessary for or
convenient to the Subcustodian in the performance of its duties. The
Subcustodian shall maintain separate accounts and records for each of the Funds.
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<PAGE> 5
2. Powers and Duties of the Subcustodian with respect to Property
of the Funds held by the Subcustodian: Except for securities, funds and other
property held by any Secondary Subcustodian appointed pursuant to the
provisions of Section 3 hereof or held by any Foreign Depository (as said term
is defined in Section 3) utilized by a Secondary Subcustodian, the Subcustodian
shall have and perform the following powers and duties with respect to
securities, funds and other property of the Funds:
2.1 Safekeeping - To keep safely the securities, funds and other
property of each Fund that have been delivered to the Subcustodian and, on
behalf of the Custodian and each Fund, from time to time to receive delivery of
securities and other property for safekeeping.
2.2 Manner of Holding Securities - To hold securities of each Fund
(1) by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form, or (2) in book-entry
form by a Securities System (as said term is defined in Section 2.22) or a
Foreign Depository,
2.3 Registration - To hold registered securities of each Fund, with
or without any indication of fiduciary capacity, provided that securities are
held in an account of the Subcustodian containing only property of such Fund or
only property held as fiduciary or custodian for customers; provided that the
records of the Subcustodian shall indicate at all times the Funds or other
customers for which such securities and other
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<PAGE> 6
property are held in such account and the respective interests therein.
2.4 Purchases - Upon receipt of proper instructions, as defined in
Section 2.27, insofar as funds are available for the purpose, to pay for and
receive securities purchased for the account of a Fund, payment being made only
upon receipt of the securities (1) by the Subcustodian, or (2) by a clearing
corporation of a national securities exchange of which the Subcustodian is a
member, or (3) by a Securities System or a Foreign Depository. However, (i) in
the case of repurchase agreements entered into by a Fund, the Subcustodian (as
well as an Agent) may release funds to a Securities System, a Foreign
Depository or a Secondary Subcustodian prior to the receipt of advice from the
Securities System, Foreign Depository or Secondary Subcustodian that the
securities underlying such repurchase agreement have been transferred by
book-entry into the Account (as defined in Section 2.22) of the Subcustodian
(or such Agent) maintained with such Securities System or to the Foreign
Depository or Secondary Subcustodian, so long as such payment instructions to
the Securities System, Foreign Depository or Secondary Subcustodian include a
requirement that delivery is only against payment for securities, (ii) in the
case of foreign exchange contracts, options, time deposits, call account
deposits, currency deposits, and other deposits, contracts or options pursuant
to Sections 2.10, 2.72, 2.13, 2.14 and 2.15, the Subcustodian may make payment
therefor without receiving an
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<PAGE> 7
instrument evidencing said deposits, contracts or options so long as such
payment instructions detail specific deposits, contracts or options to be
acquired, and (iii) in the case of securities as to which payment for the
securities and receipt of the instrument evidencing the securities ordinarily
take place in different locations or through separate parties, the Subcustodian
may make payment for such securities prior to delivery thereof only if such
payment is in accordance with the terms of the instrument representing the
security or the generally accepted practice of Institutional Clients (as
hereinafter defined) in the country or countries in which the settlement occurs
or the terms of the instrument representing the security, but in all events
subject to the standard of care set forth in Section 6 hereof. "Institutional
Clients" shall mean major commercial banks, corporations, insurance companies,
or substantially similar institutions, which, as a substantial part of their
business operations, purchase or sell securities and make use of custodial
services.
2.5 Exchanges - Upon receipt of proper instructions, to exchange
securities held by it for the account of a Fund for other securities in
connection with any reorganization, recapitalization, split-up of shares,
change of par value, conversion or other event relating to the securities or
the issuer of such securities and to deposit any such securities in accordance
with the terms of any reorganization or protective plan. Without proper
instructions, the Subcustodian may
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<PAGE> 8
surrender securities in temporary form for definitive securities, may surrender
securities for transfer into an account as permitted in Section 2.3, and may
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of
indebtedness, provided the securities to be issued are to be delivered to the
Subcustodian.
2.6 Sales of Securities - Upon receipt of proper instructions, to
make delivery of securities which have been sold for the account of a Fund, but
only against payment therefor (1) in cash, by a certified check, bank cashier's
check, bank credit, or bank wire transfer, or (2) by credit to the account of
the Subcustodian with a clearing corporation of a national securities exchange
of which the Subcustodian is a member, or (3) by credit to the account of the
Subcustodian or an Agent of the Subcustodian with a Securities System or a
Foreign Depository. Notwithstanding the foregoing: (i) in the case of delivery
of physical certificates or instruments representing securities, the
Subcustodian may make delivery to the broker buying the securities, against
receipt therefor, for examination in accordance with "street delivery" custom,
provided that the payment therefor is to be made to the Subcustodian (which
payment may be made by a broker's check) or that such securities are to be
returned to the Subcustodian, and (ii) in the case of securities referred to in
clause (iii) of Section 2.4, the Subcustodian may make settlement, including
with respect to the
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<PAGE> 9
form of payment, in accordance with the terms of the instrument representing
the security or the generally accepted trade practice of Institutional Clients
in the country or countries in which the settlement occurs, but in all events
subject to the standard of care set forth in Section 6 hereof, provided that
the Subcustodian shall have taken all reasonable steps to ensure prompt
collection of the payment for, or return of, such securities by the broker or
its clearing agent and provided further that the Subcustodian shall not be
responsible for the selection of a broker or clearing agent that fails or is
unable to perform.
2.7 Depositary Receipts - Upon receipt of proper instructions, to
instruct a Secondary Subcustodian or an Agent to surrender securities to the
depositary used by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter collectively referred to as "ADRs") for such
securities against a written receipt therefor adequately describing such
securities and written evidence satisfactory to the Secondary Subcustodians or
Agent that the depositary has acknowledged receipt of instructions to issue
with respect to such securities ADRs in the name of the Subcustodian, or a
nominee of the Subcustodian, for delivery to the Subcustodian in Boston,
Massachusetts, or at such other place as the Subcustodian may from time to time
designate.
Upon receipt of proper instructions, to surrender ADRs to the issuer
thereof against a written receipt therefor adequately
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<PAGE> 10
describing the ADRs surrendered and written evidence satisfactory to the
Subcustodian that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depositary to deliver the securities underlying such
ADRs to a Secondary Subcustodian or an Agent.
2.8 Exercise of Rights; Tender Offers - Upon timely receipt of
proper instructions, to promptly deliver to the issuer or trustee thereof, or
to the agent of either, warrants, puts, calls, rights or similar securities for
the purpose of being exercised or sold, provided that the new securities and
cash, if any, acquired by such action are to be delivered to the Subcustodian,
and, upon receipt of proper instructions, to promptly deposit securities upon
invitations for tenders of securities, provided that the consideration is to be
paid or delivered or the tendered securities are to be returned to the
Subcustodian.
2.9 Stock Dividends, Rights, Etc. - To receive and collect all
stock dividends, rights and other items of like nature; and to deal
with the same pursuant to proper instructions relative thereto.
2.10 Options - Upon receipt of proper instructions or upon
receipt of instructions given pursuant to any agreement relating to an option
or as otherwise provided in any such agreement to (i) receive and retain, to
the extent provided to the Subcustodian, confirmations or other documents
evidencing the purchase, sale or writing of an option of any type on or in
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<PAGE> 11
respect of a security, securities index or similar form of property by a Fund;
(ii) deposit and maintain in a segregated account, either physically or by
book-entry in a Securities System or Foreign Depository or with a broker,
dealer or other entity, securities, funds or other property in connection with
options transactions entered into by a Fund; (iii) transfer securities, funds
or other property to a Securities System, Foreign Depository, broker, dealer or
other entity, as margin (including variation margin) or other security for a
Fund's obligations in respect of any option; and (iv) pay, release and/or
transfer such securities, funds or other property in accordance with a notice
or other communication evidencing the expiration, termination or exercise of or
default under any such option furnished by The Options Clearing Corporation, by
the securities or options exchange on which such option is traded or by such
broker, dealer or other entity as may be responsible for handling such options
transaction or have authority to give such notice or communication. The
Subcustodian shall not be responsible for the sufficiency of property held in
any segregated account established in compliance with applicable margin
maintenance requirements or the performance of the other terms of any agreement
relating to an option. Notwithstanding the foregoing, options on futures
contracts and options to purchase and sell foreign currencies shall be governed
by Sections 2.14 and 2.15.
2.11 Borrowings - Upon receipt of proper instructions, to
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<PAGE> 12
deliver securities of a Fund to lenders or their agents as collateral for
borrowings effected by the Fund, provided that such borrowed money is payable
by the lender to or upon the Subcustodian's order as Subcustodian for the Fund.
2.12 Demand Deposit Bank Accounts - To open and operate an account or
accounts in the name of each Fund, subject only to draft or order by the
Custodian or a Fund, and to hold in such account or accounts as a deposit
accepted on the Subcustodian's books cash, including foreign currency, received
for the account of such Fund other than cash held as deposits with Banking
Institutions in accordance with the following paragraph. The responsibilities
of the Subcustodian for cash, including foreign currency, of a Fund accepted on
the Subcustodian's books as a deposit shall be that of a U. S. bank for a
similar deposit.
If and when authorized by proper instructions, the Subcustodian may open
and operate an additional account(s) in such other banks or trust companies as
may be designated by the Custodian or a Fund in such instructions (any such
bank or trust company so designated by the Custodian and a Fund being referred
to hereafter as a "Banking Institution"), and may deposit cash, including
foreign currency, of such Fund in such account or accounts, provided that such
account(s) (hereinafter collectively referred to as "demand deposit bank
accounts") shall be in the name of the Subcustodian or a nominee of the
Subcustodian for the account of such Fund or for the account of the
Subcustodian's customers generally and shall be subject only to the
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<PAGE> 13
Subcustodian's draft or order; provided that any such demand deposit bank
account shall contain only property held by the Subcustodian as a fiduciary or
custodian for the Fund and/or other customers and that the records of the
Subcustodian shall indicate at all times such Fund and/or other customers for
which such funds are held in such account and the respective interests therein.
Such demand deposit accounts may be opened with Banking Institutions in the
United States and in other countries and may be denominated in either U. S.
Dollars or other currencies as the Custodian or a Fund may determine. The
records for each such account will be maintained by the Subcustodian but the
deposits in any such account shall not constitute a deposit liability of the
Subcustodian. All such deposits, including with Secondary Subcustodians, shall
be deemed to be portfolio securities of a Fund and accordingly the
responsibility of the Subcustodian therefor shall be the same as and no greater
than the Subcustodian's responsibility in respect of other portfolio securities
of the Fund. The authorization by Custodian or a Fund to appoint a Secondary
Subcustodian as such shall also constitute a proper instruction to open a
demand deposit bank account subject to the provisions of this paragraph with
such Secondary Subcustodian.
2.13 Interest Bearing Call or Time Deposits - To place interest
bearing fixed term and call deposits with such banks and in such amounts as the
Custodian or a Fund may authorize pursuant to proper instructions. Such
deposits may be placed with the
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<PAGE> 14
Subcustodian or with Secondary Subcustodians or other Banking Institutions as
the Custodian or a Fund may determine, in the name of the Subcustodian or a
nominee of the Subcustodian for the account of the Fund or the account of the
Subcustodian's customers generally and subject only to the Subcustodian's draft
or order; provided that any such deposit shall be held in an account containing
only property held by the Subcustodian as a fiduciary or custodian for the Fund
and/or other customers and that the records of the Subcustodian shall indicate
at all times such Fund and/or other customers for which such funds are held in
such account and the respective interests therein. Deposits may be denominated
in U. S. Dollars or other currencies and need not be evidenced by the issuance
or delivery of a certificate to the Subcustodian, provided that the
Subcustodian shall include in its records with respect to the assets of a Fund
appropriate notation as to the amount and currency of each such deposit, the
accepting Banking Institution and other appropriate details, and shall retain
such forms of advice or receipt evidencing the deposit, if any, as may be
forwarded to the Subcustodian by the Banking Institution. Funds, other than
those accepted on the Subcustodian's books as a deposit, but including those
placed with Secondary Subcustodians, shall be deemed portfolio securities of a
Fund and the responsibilities of the Subcustodian therefor shall be the same as
those for demand deposit bank accounts placed with other banks, as described in
the second paragraph of Section 2.12 of this Agreement. The responsibility
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<PAGE> 15
of the Subcustodian for funds accepted on the Subcustodian's books as a deposit
shall be that of a U. S. bank for a similar deposit.
2.14 Futures Contracts - Upon receipt of proper instructions or upon
receipt of instructions given pursuant to any agreement relating to a futures
contract or an option thereon or as otherwise provided in any such agreement,
to (i) receive and retain, to the extent provided to the Subcustodian,
confirmations or other documents evidencing the purchase or sale of a futures
contract or an option on a futures contract by a Fund; (ii) deposit and
maintain in a segregated account, either physically or by book-entry in a
Securities System or Foreign Depository, for the benefit of any futures
commission merchant, or pay to such futures commission merchant, securities,
cash or other property designated by the Custodian or a Fund as initial,
maintenance or variation "margin" deposits intended to secure the Fund's
performance of its obligations under any futures contract purchased or sold or
any option on a futures contract written, purchased or sold by the Fund, in
accordance with the provisions of any agreement relating thereto or the rules
of the Commodity Futures Trading Commission and/or any contract market or any
similar organization on which such contract or option is traded; and (iii) pay,
release and/or transfer securities, cash or other property into or out of such
margin accounts only in accordance with any such agreement or rules. The
Subcustodian shall not be responsible for the sufficiency of property held in
any
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<PAGE> 16
segregated account established in compliance with applicable margin maintenance
requirements or the performance of the other terms of any agreement relating to
a futures contract or an option thereon.
2.15 Foreign Exchange Transactions - Pursuant to proper instructions,
to settle foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf and for the account of a Fund
with such currency brokers or Banking Institutions, including Secondary
Subcustodians, as the Custodian or the Fund may direct pursuant to proper
instructions. The Subcustodian shall be responsible for the transmission of
cash and instructions to and from the currency broker or Banking Institution
with which the contract or option is made, the safekeeping of all certificates
and other documents and agreements evidencing or relating to such foreign
exchange transactions as the Subcustodian may receive and the maintenance of
proper records as set forth in Section 5.1. In connection with such
transactions, the Subcustodian is authorized to make free outgoing payments of
cash in the form of U. S. Dollars or foreign currency without receiving
confirmation of a foreign exchange contract or option or confirmation that the
countervalue currency completing the foreign exchange contract has been
delivered or received or that the option has been delivered or received. Each
Fund accepts full responsibility for its use of third-party foreign exchange
dealers and for execution of said foreign exchange contracts and options and
understands
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<PAGE> 17
that the Fund shall be responsible for any and all costs and interest charges
which may be incurred by the Fund or the Subcustodian as a result of the
failure or delay of third parties to deliver foreign exchange.
Alternatively, such transactions may be undertaken by the Subcustodian
as principal, if instructed by a Fund.
Foreign exchange contracts and options, other than those executed with
the Subcustodian as principal, but including those executed with Secondary
Subcustodians, shall be deemed to be portfolio securities of a Fund and the
responsibility of the Subcustodian therefor shall be the same as and no greater
than the Subcustodian's responsibility in respect of other portfolio securities
of the Fund. The responsibility of the Subcustodian with respect to foreign
exchange contracts and options executed with the Subcustodian as principal
shall be that of a U. S. bank with respect to a similar contract or option.
2.16 Stock Loans - Upon receipt of proper instructions, to deliver
securities of a Fund, in connection with loans of securities by the Fund, to
the borrower thereof prior to receipt of the collateral, if any, for such
borrowing, provided that for stock loans secured by cash collateral the
Subcustodian's instructions to any Securities System holding such securities
require that the Securities System may deliver the securities to the borrower
thereof only upon receipt of the collateral for such borrowing.
2.17 Collections - (i) To collect and receive all income,
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<PAGE> 18
payments of principal and other payments with respect to the securities held
hereunder, and in connection therewith to deliver the certificates or other
instruments representing the securities to the issuer thereof or its agent when
securities are called, redeemed, retired or otherwise become payable; provided,
that the payment is to be made in such form and manner and at such time, which
may be after delivery by the Subcustodian of the instrument representing the
security, as is in accordance with the terms of the instrument representing the
security, or such proper instructions as the Subcustodian may receive, or
governmental regulations, the rules of Securities Systems, Foreign Depositories
or other U.S. or foreign securities depositories and clearing agencies or, with
respect to securities referred to in clause (iii) of Section 2.4, in accordance
with the terms of the instrument representing the security or the generally
accepted practice of Institutional Clients in the country or countries in which
the settlement occurs, but in all events subject to the standard of care set
forth in Section 6 hereof, provided that the Subcustodian shall have taken all
reasonable steps to ensure prompt collection of the payment for, or return of,
such securities by the broker or its clearing agent and provided further that
the Subcustodian shall not be responsible for the selection of a broker or
clearing agent that fails or is unable to perform; (ii) to execute ownership
and other certificates and affidavits for all federal and state tax purposes in
connection with receipt of income, principal or other payments with respect
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<PAGE> 19
to securities of a Fund or in connection with transfer of securities; and (iii)
pursuant to proper instructions to take such other actions with respect to
collection or receipt of funds or transfer of securities which involve an
investment decision.
2.18 Dividends, Distributions and Redemptions - Upon receipt of
proper instructions from the Custodian or a Fund, or upon receipt of
instructions from the Fund's shareholder servicing agent or agent with
comparable duties (the "Shareholder Servicing Agent") (given by such person or
persons and in such manner on behalf of the Shareholder Servicing Agent as the
Custodian or the Fund shall have authorized), the Subcustodian shall release
securities, funds or other property to the Shareholder Servicing Agent or other
wise apply securities, funds or other property, insofar as available, for the
payment of dividends or other distributions to Fund shareholders. Upon receipt
of proper instructions from the Custodian or the Fund, or upon receipt of
instructions from the Shareholder Servicing Agent (given by such person or
persons and in such manner on behalf of the Shareholder Servicing Agent as the
Custodian or the Fund shall have authorized), the Subcustodian shall release
securities, funds or other property, insofar as available, to the Shareholder
Servicing Agent or as such Agent shall otherwise instruct for payment to Fund
shareholders who have delivered to such Agent a request for repurchase or
redemption of their shares of the Fund.
2.19 Proxies, Notices, Etc. - Promptly to deliver or mail
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<PAGE> 20
to the Custodian or a Fund all forms of proxies and all notices of meetings and
any other notices or announcements affecting or relating to securities owned by
the Fund that are received by the Subcustodian, and upon receipt of proper
instructions, to promptly execute and deliver or cause its nominee to promptly
execute and deliver such proxies or other authorizations as may be required.
Neither the Subcustodian nor its nominee shall vote upon any of such securities
or execute any proxy to vote thereon or give any consent or take any other
action with respect thereto (except as otherwise herein provided) unless
ordered to do so by proper instructions.
2.20 Nondiscretionary Details - Without the necessity of express
authorization from the Custodian or a Fund, (1) to attend to all
nondiscretionary details in connection with the sale, exchange, substitution,
purchase, transfer or other dealings with securities, funds or other property
of the Fund held by the Subcustodian except as otherwise directed from time to
time by the Custodian or the Directors or Trustees of the Fund, and (2) to
make payments to itself or others for minor expenses of handling securities or
other similar items relating to the Subcustodian's duties under this Agreement,
provided that all such payments shall be accounted for to a Fund.
2.21 Bills - Upon receipt of proper instructions, to pay or cause to
be paid, insofar as funds are available for the purpose, bills, statements and
other obligations of a Fund (including but not limited to interest charges,
taxes, management
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<PAGE> 21
fees, compensation to Fund officers and employees, and other operating expenses
of a Fund).
2.22 Deposit of Fund Property in Securities Systems - The
Subcustodian may deposit and/or maintain securities owned by a Fund in (i) The
Depository Trust Company, (ii) the Participants Trust Company, (iii) any
book-entry system as provided in Subpart O of Treasury Circular No. 300, 31 CFR
306, Subpart B of 31 CFR Part 350, or the book-entry regulations of federal
agencies substantially in the form of Subpart O, or (iv) any other domestic
clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934 which acts as a securities
depository and whose use the Custodian or the Fund has previously approved in
writing (each of the foregoing being referred to in this Agreement as a
"Securities System"). Utilization of a Securities System shall be in
accordance with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Subcustodian may deposit and/or maintain Fund securities, either
directly or through one or more Agents appointed by the Subcustodian (provided
that any such agent shall be qualified to act as a custodian of a Fund pursuant
to the Investment Company Act of 1940 and the rules and regulations
thereunder), in a Securities System provided that such securities are
represented in an account ("Account") of the Subcustodian or such Agent in the
Securities System which shall not include any
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<PAGE> 22
assets of the Subcustodian or Agent other than property held as a fiduciary,
custodian, or otherwise for customers;
2) The records of the Subcustodian with respect to securities of a Fund
which are maintained in a Securities System shall identify by book-entry those
securities belonging to the Fund;
3) The Subcustodian shall pay for securities purchased for the account
of a Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an
entry on the records of the Subcustodian to reflect such payment and transfer
for the account of the Fund. The Subcustodian shall transfer securities sold
for the account of a Fund upon (i) receipt of advice from the Securities System
that payment for such securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Subcustodian to reflect such
transfer and payment for the account of the Fund. Copies of all advices from
the Securities System of transfers of securities for the account of a Fund
shall identify the Fund, be maintained for a Fund by the Subcustodian or an
Agent as referred to above, and be provided to the Custodian or the Fund at its
request. The Subcustodian shall furnish the Custodian or a Fund confirmation
of each transfer to or from the account of the Fund in the form of a written
advice or notice and shall furnish to the Custodian or the Fund copies of daily
transaction sheets reflecting each day's transactions in the Securities System
for the account of the Custodian or the Fund on the next business day;
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<PAGE> 23
4) The Subcustodian shall provide the Custodian or a Fund with any
report obtained by the Subcustodian or any Agent as referred to above on the
Securities System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the Securities System; and
the Subcustodian and such Agents shall send to the Custodian or the Fund such
reports on their own systems of internal accounting control as the Custodian or
the Fund may reasonably request from time to time; and
5) At the written request of the Custodian or the Fund, the Subcustodian
will terminate the use of any such Securities System on behalf of the Fund as
promptly as practicable.
2.23 Other Transfers - Upon receipt of proper instructions, to deliver
securities, funds and other property of a Fund to a Secondary Subcustodian or
another custodian for the Fund as necessary to effect transactions authorized
by proper instructions and upon receipt of proper instructions, to deliver
securities, funds and other property of a Fund to a Secondary Subcustodian or
another custodian of the Fund; and, upon receipt of proper instructions, to
make such other disposition of securities, funds or other property of a Fund in
a manner other than or for purposes other than as enumerated elsewhere in this
Agreement, provided that the instructions relating to such disposition shall
state the amount of securities to be delivered and the name of the person or
persons to whom delivery is to be made.
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<PAGE> 24
2.24 Investment Limitations - In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for a Fund, the Subcustodian may assume unless and until
notified in writing to the contrary that proper instructions received by it are
not in conflict with or in any way contrary to any provisions of the Fund's
Declaration of Trust or Certificate of Incorporation or By-Laws (or comparable
documents) or votes or proceedings of the shareholders or Trustees or Directors
of the Fund. The Subcustodian shall in no event be liable to the Custodian or
any Fund and shall be indemnified by the Custodian and the Fund for any
violation which occurs in the course of carrying out instructions given by the
Custodian or the Fund of any investment limitations to which the Fund is
subject or other limitations with respect to the Fund's powers to make
expenditures, encumber securities, borrow or take similar actions affecting the
Fund.
2.25 Subcustodian Advances - In the event that the Subcustodian is
directed by proper instructions to make any payment or transfer of funds on
behalf of a Fund for which there would be, at the close of business on the date
of such payment or transfer, insufficient funds held by the Subcustodian on
behalf of the Fund, the Subcustodian may, in its discretion without further
proper instructions, provide an advance ("Advance") to the Fund in an amount
sufficient to allow the completion of the transaction by reason of which such
payment or transfer of funds is to be made. In addition, in the event the
Subcustodian is
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<PAGE> 25
directed by proper instructions to make any payment or transfer of funds on
behalf of a Fund as to which it is subsequently determined that the Fund has
overdrawn its cash account with the Subcustodian as of the close of business on
the date of such payment or transfer, said overdraft shall constitute an
Advance. Any Advance shall be payable by the Fund or the Custodian on demand by
Subcustodian, unless otherwise agreed by the Custodian or the Fund and the
Subcustodian, and shall accrue interest from the date of the Advance to the
date of payment by the Fund or the Custodian at a rate agreed upon in writing
from time to time by the Subcustodian and the Custodian or the Fund. It is
understood that any transaction in respect of which the Subcustodian shall have
made an Advance, including but not limited to a foreign exchange contract or
transaction in respect of which the Subcustodian is not acting as a principal,
is for the account of and at the risk of a Fund, and not, by reason of such
Advance, deemed to be a transaction undertaken by the Subcustodian for its own
account and risk. The Subcustodian and each Fund acknowledge that the purpose
of Advances is to finance temporarily the purchase or sale of securities for
prompt delivery in accordance with the settlement terms of such transactions or
to meet emergency expenses not reasonably foreseeable by the Fund. The
Subcustodian shall promptly notify a Fund of any Advance. Such notification
shall be sent by facsimile transmission or in such other manner as such Fund
and the Subcustodian may agree.
2.26 Restricted Securities - In the case of a "restricted
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<PAGE> 26
security", the Custodian or the Fund shall have the responsibility to provide
to or obtain for the Subcustodian, the issuer of the security or other
appropriate third party any necessary documentation, including without
limitation, legal opinions or consents, and to take any necessary actions
required in connection with the registration of restricted securities in the
manner provided in Section 2.3 upon acquisition thereof by the Fund or required
in connection with any sale or other disposition thereof by the Fund. Upon
acquisition and until so registered, the Subcustodian shall use its best
efforts to service such restricted securities (including, without limitation,
the receipt and collection of cash and stock dividends, rights and other items
of like nature); to exercise in a timely manner any right in respect of any
restricted security; and to take any action in a timely manner in respect of
any other type of corporate action relating to a restricted security. The
Subcustodian shall not have responsibility for the inability of a Fund to sell
or otherwise transfer in a timely manner any restricted security in the absence
of any such documentation or action to be provided, obtained or taken by the
Custodian or the Fund or for the Subcustodian's inability to take in a timely
manner any of the actions referred to in the preceeding sentence provided that
such inability of the Custodian or the Fund to sell or otherwise transfer
restricted securities pursuant to this Section 2.26 or the Subcustodian's
inability to take the aforesaid actions is not caused by the negligence,
misfeasance or
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<PAGE> 27
misconduct of the Subcustodian or its nominees. At such time as the
Subcustodian shall receive any restricted security, regardless of when it shall
be registered as aforesaid, the Custodian or the Fund shall also deliver to the
Subcustodian a term sheet summarizing those rights, restrictions or other
matters of which the Subcustodian should have knowledge, such as exercise
periods, expiration dates and payment dates, in order to assist the
Subcustodian in servicing such securities. As used herein, the term
"restricted security" shall mean a security which is subject to restrictions on
transfer, whether by reason of contractual restrictions or federal, state or
foreign securities or similar laws, or a security which has special rights or
contractual features which do not apply to publicly-traded shares of, or
comparable interests representing, such security.
2.27 Proper Instructions - Proper instructions shall mean a tested
telex or a swift message from the Custodian or a Fund or a written request,
direction, instruction or certification signed or initialled on behalf of the
Custodian or the Fund by two or more persons as the Custodian or the Board of
Trustees or Directors of the Fund shall have from time to time authorized,
provided, however, that no such instructions directing the delivery of
securities or the payment of funds to an authorized signatory of the Custodian
or the Fund shall be signed by such person. Those persons authorized to give
proper instructions may be identified by the Custodian or the Fund's Board of
Trustees or
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<PAGE> 28
Directors by name, title or position and will include at least one officer
empowered by the Custodian or the Board to name other individuals who are
authorized to give proper instructions on behalf of the Custodian or the Fund.
Telephonic or other oral instructions or instructions given by facsimile
transmission may be given by any one of the above persons and will be
considered proper instructions if the Subcustodian reasonably believes them to
have been given by a person authorized to give such instructions with respect
to the transaction involved. Oral instructions will be confirmed by tested
telex or in writing in the manner set forth above but the lack of such
confirmation shall in no way affect any action taken by the Subcustodian in
reasonable reliance upon such oral instructions. The Custodian and each Fund
authorizes the Subcustodian to tape record any and all telephonic or other oral
instructions given to the Subcustodian by or on behalf of the Custodian or the
Fund (including any of their respective officers, Directors, Trustees,
employees or agents or any investment manager or adviser of the Fund or person
or entity with similar reponsibilities which is authorized to give proper
instructions on behalf of the Custodian or the Fund to the Subcustodian).
Proper instructions may relate to specific transactions or to types or classes
of transactions, and may be in the form of standing instructions.
Proper instructions may include communications effected directly between
electromechanical or electronic devices or systems, in addition to tested
telex, provided that the Custodian
- 25 -
<PAGE> 29
or the Fund and the Subcustodian agree to the use of such device or system.
2.28 Segregated Account - The Subcustodian shall upon receipt of
proper instructions establish and maintain on its books a segregated account or
accounts for and on behalf of each Fund, into which account or accounts may be
transferred cash and/or securities of the Fund, including securities maintained
by the Subcustodian pursuant to Section 2.22 hereof, (i) in accordance with the
provisions of any agreement among the Fund, the Subcustodian and/or Custodian
and a broker-dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. (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 any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund, (ii) for purposes of segregating cash or securities
in connection with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund, (iii) 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
- 26 -
<PAGE> 30
companies, or (iv) as mutually agreed from time to time between the Custodian
or the Fund and the Subcustodian.
2.29 Opinion of Fund's Independent Certified Public Accountants - The
Subcustodian shall take all reasonable action as a Fund may request to obtain
from year to year favorable opinions from the Fund's independent certified
public accountants with respect to the Subcustodian's activities hereunder in
connection with the preparation of the Fund's Securities and Exchange
Commission registration statement and all amendments thereto and the Fund's
Form N-SAR or other periodic reports to the Securities and Exchange Commission
and with respect to any other requirements of the Securities and Exchange
Commission.
2.30 Reports by Independent Certified Public Accountants - At the
request of a Fund, the Subcustodian shall deliver to the Fund a written report
prepared by the Subcustodian's independent certified public accountants with
respect to the services provided by the Subcustodian under this Agreement,
including, without limitation, the Subcustodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
property, including cash, securities and other property deposited and/or
maintained in a Securities System or with a Secondary Subcustodian. Such
report shall be sufficient scope and in sufficient detail as may reasonably be
required by a Fund and as may reasonably be obtained by the Subcustodian.
2.31 Proceeds from Shares Sold - The Subcustodian shall
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<PAGE> 31
receive funds representing cash payments received for Fund shares issued or
sold from time to time by a Fund, and shall promptly credit such funds to the
account of the applicable Fund. The Subcustodian shall promptly notify such
Fund of the Subcustodian's receipt of cash in payment for shares issued by the
Fund by facsimile transmission or in such other manner as the Fund and
Subcustodian may agree in writing. Upon receipt of proper instructions, the
Subcustodian shall: (a) deliver all federal funds received by the Subcustodian
in payment for Fund shares in payment for such investments and at the time
agreed upon by the Subcustodian and the relevant Fund; and (b) make federal
funds available to such Fund as of specified times agreed upon from time to
time by the Fund and the Subcustodian, in the amount of checks received in
payment for Fund shares that are deposited in the account of the Fund.
3. Powers and Duties of the Subcustodian with Respect to the
Appointment of Secondary Subcustodians: With regard to the selection of a
Secondary Subcustodian or Foreign Depository pursuant to this Section 3, the
Subcustodian may, at any time and from time to time; appoint, subject to
approval of the relevant Fund or Funds: (i) any bank, trust company or other
entity meeting the requirements of an "eligible foreign custodian" under
Section 17(f) of the Investment Company Act of 1940 and the rules and
regulations thereunder or by order of the Securities and Exchange Commission
exempted therefrom, or (ii) any bank as defined in Section 2(a)(5) of the
Investment Company Act of 1940
- 28 -
<PAGE> 32
meeting the requirements of a custodian under Section 17(f) of the Investment
Company Act of 1940 and the rules and regulations thereunder. The Custodian
and each Fund hereby authorize and instruct the Subcustodian to hold
securities, funds and other property of the Fund which are maintained outside
the United States at subcustodians appointed pursuant to the provisions of this
Section 3 (a "Secondary Subcustodian"). The Custodian and each Fund shall
approve in writing (1) the appointment of each Secondary Subcustodian and the
subcustodian agreement to be entered into between such Secondary Subcustodian
and the Subcustodian, and (2) if the Secondary Subcustodians is organized under
the laws of a country other than the United States, the country or countries in
which the Secondary Subcustodians is authorized to hold securities, funds and
other property of the Fund. The Custodian and each Fund hereby further
authorize and instruct the Subcustodian and any Secondary Subcustodian to
utilize such securities depositories located outside the United States which
are approved in writing by the Custodian and the Fund to hold securities, funds
and other property of the Fund (a "Foreign Depository"). Upon such approval by
the Custodian and the Fund, the Subcustodian is authorized on behalf of the
Custodian and the Fund to notify each Secondary Subcustodian of its appointment
as such.
Those Secondary Subcustodians, and the countries where and the Foreign
Depositories through which they or the Subcustodian may hold securities, funds
and other property of a Fund which the
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<PAGE> 33
Custodian and each Fund has approved to date are set forth on Appendix A
hereto. The Custodian shall monitor the performance and financial condition of
the Subcustodians, Secondary Subcustodians and Foreign Depositories to the
extent practicable and shall promptly report to each Fund any material adverse
facts of which it becomes aware. Upon request of a Fund, the Custodian shall
deliver to the Fund a certificate stating: (i) the identity of each
Subcustodian or Secondary Subcustodian then acting on behalf of the Custodian,
as identified in Appendix A and as such Appendix may be amended from time to
time; (ii) the countries in which and the securities depositories and clearing
agents through which each such Subcustodian or Secondary Subcustodian is then
holding securities, funds and other property of the Fund; and (iii) such other
information as may be requested by the Fund and as the Custodian shall be
reasonably able to obtain to evidence compliance with Rule 17f-5 under the
Investment Company Act of 1940. Upon approval by a Fund in accordance with
this Section 3, Appendix A shall be amended from time to time as Secondary
Subcustodians, and/or countries and/or Foreign Depositories are changed, added
or deleted. The Custodian or the Fund shall be responsible for informing the
Subcustodian sufficiently in advance of a proposed investment which is to be
held in a country not listed on Appendix A, in order that there shall be
sufficient time for the Custodian and the Fund to give the approval required by
the preceding paragraph and for the Subcustodian to put the appropriate
arrangements in
- 30 -
<PAGE> 34
place with such Secondary Subcustodian, including negotiation of a subcustodian
agreement and submission of such subcustodian agreement to the Custodian and
the Fund for approval.
If a Fund shall have invested in a security to be held in a country
before the foregoing procedures have been completed, such security shall be
held by such agent as the Subcustodian may appoint. In any event, the
Subcustodian shall be liable to the Custodian and the Fund for the actions of
such agent if and only to the extent the Subcustodian shall have recovered from
such agent for any damages caused the Custodian and/or the Fund by such agent.
At the request of the Custodian or a Fund, the Subcustodian agrees to remove
any securities held on behalf of the Fund by such agent, if practical, to an
approved Secondary Subcustodian. Under such circumstances the Subcustodian
will collect income and respond to corporate actions on a best efforts basis.
With respect to securities and funds held by a Secondary Subcustodian,
either directly or indirectly (including by a Foreign Depository or foreign
clearing agency) or by a Foreign Depository or foreign clearing agency utilized
by the Subcustodian, notwithstanding any provision of this Agreement to the
contrary, payment for securities purchased and delivery of securities sold may
be made prior to receipt of the securities or payment, respectively, and
securities or payment may be received in a form, in accordance with
governmental regulations, rules of Foreign Depositories and foreign clearing
agencies, or generally accepted trade practice in the applicable local market.
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<PAGE> 35
In the event that any Secondary Subcustodian appointed pursuant to the
provisions of this Section 3 fails to perform any of its obligations under the
terms and conditions of the applicable subcustodian agreement, the Subcustodian
shall use its best efforts to cause such Secondary Subcustodian to perform such
obligations. In the event that the Subcustodian is unable to cause such
Secondary Subcustodian to perform fully its obligations thereunder, the
Subcustodian shall forthwith upon the Custodian or a Fund's request terminate
such Secondary Subcustodian as a Secondary Subcustodian for such Fund in
accordance with the termination provisions under the applicable subcustodian
agreement and, if necessary or desirable, appoint another subcustodian in
accordance with the provisions of this Section 3. At the election of the
Custodian or a Fund, it shall have the right to enforce, to the extent
permitted by the subcustodian agreement and applicable law, the Subcustodian's
rights against any such Secondary Subcustodian for loss, damage or expense
caused the Custodian or the Fund by such Secondary Subcustodian. The
Subcustodian agrees to cooperate with the Fund and or the Custodian, as the
case may be, and take all actions reasonably requested by the Fund or the
Custodian, at the Fund's expense, in connection with the enforcement of any
rights of the Subcustodian by the Fund or the Custodian.
The Subcustodian will not amend any subcustodian agreement or agree to
change or permit any changes thereunder in respect of a Fund except upon the
prior written approval of the Custodian and the Fund.
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<PAGE> 36
The Subcustodian may, at any time in its discretion upon notification to
the Custodian and a Fund, terminate any Secondary Subcustodian of the Fund in
accordance with the termination provisions under the applicable secondary
subcustodian agreement, and at the written request of the Custodian or a Fund,
the Subcustodian will terminate any Secondary Subcustodian in respect of the
Fund in accordance with the termination provisions under the applicable
secondary subcustodian agreement.
If necessary or desirable, the Subcustodian may appoint another
subcustodian in respect of a Fund to replace a Secondary Subcustodian
terminated pursuant to the foregoing provisions of this Section 3, such
appointment to be made upon approval of the successor subcustodian by the
Custodian and the Fund's Board of Directors or Trustees in accordance with the
provisions of this Section 3.
In the event the Subcustodian receives a claim from a Secondary
Subcustodian under the indemnification provisions of any subcustodian agreement
in respect of a Fund, the Subcustodian shall promptly give written notice to
the Custodian and the Fund of such claim. No more than thirty days after
written notice to the Custodian and the Fund of the Subcustodian's intention to
make such payment, the Custodian or the Fund will reimburse the Subcustodian
the amount of such payment except in respect of any negligence or misconduct of
the Subcustodian.
4. Assistance by the Subcustodian as to Certain Matters: The
Subcustodian may assist generally in the preparation of
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<PAGE> 37
reports to Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature.
5. Powers and Duties of the Subcustodian with Respect to its Role
as Recordkeeping Agent: The Subcustodian shall have and perform the following
powers and duties with respect to recordkeeping:
5.1 Records - To create, maintain and retain such records relating
to its activities and obligations under this Agreement as are required under
the Investment Company Act of 1940 and the rules and regulations thereunder
(including Section 31 thereof and Rules 31a-1 and 31a-2 thereunder) and under
applicable Federal and State tax laws. All such records will be the property
of the relevant Fund and in the event of termination of this Agreement shall be
delivered to the Fund or successor custodian.
5.2 Accounts - To keep books of account and render statements,
including interim monthly and complete quarterly financial statements, or
copies thereof, from time to time as reasonably requested by proper
instructions.
5.3 Access to Records - The books and records maintained by the
Subcustodian pursuant to Sections 5.1 and 5.2 shall at all times during the
Subcustodian's regular business hours be open to inspection and audit by
officers of, attorneys for and auditors employed by the Custodian or a Fund and
by employees and agents of the Securities and Exchange Commission, provided
that all such individuals shall observe all security requirements of the
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<PAGE> 38
Subcustodian applicable to its own employees having access to similar records
within the Subcustodian and such regulations as may be reasonably imposed by
the Subcustodian.
6. Standard of Care and Related Matters:
6.1 Liability of the Subcustodian with Respect to Proper
Instructions; Evidence of Authority, Etc. The Subcustodian shall not be liable
for any action taken or omitted in reliance upon proper instructions reasonably
believed by it to be genuine or upon any other written notice, request,
direction, instruction, certificate or other instrument believed by it to be
genuine and signed by the proper party or parties.
The Secretary or Assistant Secretary of the Custodian and of each Fund
shall certify to the Subcustodian the names, signatures and scope of authority
of all persons authorized to give proper instructions or any other such notice,
request, direction, instruction, certificate or instrument on behalf of the
Custodian or the Fund, respectively, the names and signatures of the officers
of the Custodian or the Fund, respectively, the name and address of the
Shareholder Servicing Agent, and any resolutions, votes, instructions or
directions of the Custodian or the Fund's respective Board of Directors or
Trustees or shareholders. Such certificate may be accepted and relied upon by
the Subcustodian as conclusive evidence of the facts set forth therein and may
be considered in full force and effect until receipt of a similar certificate
to the contrary.
So long as and to the extent that it is in the exercise of
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<PAGE> 39
reasonable care, the Subcustodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto received
by it or delivered by it pursuant to this Agreement.
The Subcustodian shall be entitled, at the expense of a Fund, to receive
and act upon advice of (i) counsel regularly retained by the Subcustodian in
respect of custodian matters, (ii) counsel for the Custodian or the Fund, or
(iii) such other counsel as the Custodian or the Fund and the Subcustodian may
agree upon, with respect to all matters, and the Subcustodian shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
6.2 Liability of the Subcustodian with Respect to Use of Securities
Systems and Foreign Depositories - With respect to the portfolio securities,
funds and other property of a Fund held by a Securities System or by a Foreign
Depository utilized by the Subcustodian or any Secondary Subcustodian, the
Subcustodian shall be liable to the Custodian or a Fund only for any loss,
damage or expense to the Custodian or the Fund resulting from use of the
Securities System or Foreign Depository if caused by any negligence,
misfeasance or misconduct of the Subcustodian or any of its Agents (as said
term is defined in Section 6.6) or of any of its or its Agents' employees or
from any failure of the Subcustodian or any such Agent to enforce effectively
such rights as it may have against the Securities System or Foreign Depository.
At the election of the Custodian or a Fund, it shall
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<PAGE> 40
be entitled to be subrogated to the rights of the Subcustodian with respect to
any claim against the Securities System, Foreign Depository or any other person
which the Subcustodian may have as a consequence of any such loss, damage or
expense to the Custodian or the Fund if and to the extent that the Custodian or
the Fund has not been made whole for any such loss, damage or expense. The
Subcustodian agrees to cooperate with the Fund or the Custodian, as the case
may be, and take all actions reasonably requested by the Fund or the Custodian,
at the Fund's expense, in connection with the enforcement of any rights of the
Subcustodian by the Fund or the Custodian.
6.3 Liability of the Subcustodian with respect to Secondary
Subcustodians - The Subcustodian shall be liable to a Fund for the actions or
omissions of any Secondary Subcustodian to the same extent as if such actions
or omissions were performed by the Subcustodian itself in the country in which
the Secondary Subcustodian is operating under the terms of the secondary
subcustodian agreement; provided, however, that if there has been a final
adjudication of any term or provision thereof or of the governing law of such
agreement by a court of competent jurisdication, then such determination shall
govern the determination of the Subcustodian's liability under this Section
6.3. In the event of any loss, damage or expense suffered or incurred by a
Fund caused by or resulting from the actions or omissions of any Secondary
Subcustodian for which the Subcustodian would be liable pursuant to this
Section 6.3, the
- 37 -
<PAGE> 41
Subcustodian shall promptly reimburse the Fund in the amount of any such loss,
damage or expense.
The Subcustodian shall also be liable to a Fund for the Subcustodian's
own negligence in transmitting any instructions received by it from a Fund and
for the Subcustodian's own negligence in connection with the delivery of any
securities, funds or other property held by it to any Secondary Subcustodian.
6.4 Standard of Care; Liability; Indemnification - The Subcustodian
shall be held to the exercise of reasonable care and diligence in carrying out
the provisions of this Agreement, and shall be liable to the Custodian and the
relevant Fund for all loss, damage and expense suffered or incurred by the
Custodian or the Fund resulting from the failure of the Subcustodian to
exercise such reasonable care and diligence; provided that the Subcustodian
shall not thereby be required to take any action which is in contravention of
any applicable law, rule or regulation or any order or judgment of any court of
competent jurisdiction.
The Custodian and each Fund agree to indemnify and hold harmless the
Subcustodian and its nominees from all claims and liabilities (including
counsel fees) incurred or assessed against it or its nominees in connection
with the performance of this Agreement, except such as may arise from the
Subcustodian or its nominee's breach of the relevant standard of conduct set
forth in this Agreement. Notwithstanding the above, no Fund shall be liable to
indemnify the Subcustodian for any claims and liabilities other than those
arising from services provided to that particular Fund. Without limiting the
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<PAGE> 42
foregoing indemnification obligation of the Custodian and each Fund, the
Custodian and each relevant Fund agree to indemnify the Subcustodian and any
nominee in whose name portfolio securities or other property of the Fund is
registered against any liability the Subcustodian or such nominee may incur by
reason of taxes assessed to the Subcustodian or such nominee or other costs,
liability or expense incurred by the Subcustodian or such nominee resulting
directly or indirectly from the fact that portfolio securities or other
property of the Fund is registered in the name of the Subcustodian or such
nominee.
In no event shall the Subcustodian incur liability under this Agreement
if the Subcustodian or any Secondary Subcustodian, Securities System, Foreign
Depository, Banking Institution or any agent or entity utilized by any of them
(each individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Ageement provides
shall be performed or omitted to be performed, by reason of (i) any Sovereign
Risk or (ii) any provision of any present or future law or regulation or order
of the United States of America or any state thereof, or of any foreign country
or political subdivision thereof, or of any securities depository or clearing
agency which operates a central system for handling of securities or equivalent
book-entries in a country or which operates a transnational system for the
central handling of securities or equivalent book-entries, or (iii) any
provision of any order or judgment of any court of competent jurisdiction. A
"Sovereign Risk" shall mean nationalization, expropriation, devaluation,
revaluation,
- 39 -
<PAGE> 43
confiscation, seizure, cancellation, destruction or similar action by any
governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting a
Fund's property; or acts of war, terrorism, insurrection or revolution; or any
other act or event beyond the Subcustodian's control.
6.5 Mitigation by Subcustodian - Upon the occurence of any event
that causes or may cause loss, damage or expense to the Custodian or a Fund,
(i) the Subcustodian or a Secondary Subcustodian shall and (ii) the
Subcustodian or a Secondary Subcustodian shall cause any applicable
Subcustodian or Secondary Subcustodian to use all commercially reasonable
efforts and take all reasonable steps under the circumstances to mitigate the
effects of such event and to avoid continuing harm to the Custodian or the
Fund.
6.6 Expenses of the Custodian and the Funds - In addition to the
liability of the Subcustodian or a Secondary Subcustodian under this Section 6,
the Subcustodian or a Secondary Subcustodian shall be liable to the Custodian
or the relevant Fund for all reasonable costs and expenses incurred by the
Custodian or the Fund in connection with any claim by the Custodian or the Fund
against the Subcustodian or a Secondary Subcustodian arising from the
obligations of the Subcustodian or Secondary Subcustodian hereunder including,
without limitation,
- 40 -
<PAGE> 44
all reasonable attorneys' fees and expenses incurred by the Custodian or the
Fund in asserting any such claim, and all expenses incurred by the Fund in
connection with any investigations, lawsuits or proceedings relating to such
claims; provided, that the Custodian or relevant Fund has recovered from the
Subcustodian or a Secondary Subcustodian for such claim.
6.7 Liability for Past Records - The Subcustodian shall have no
liability in respect of any loss, damage or expense suffered by a Fund, insofar
as such loss, damage or expense arises from the performance of the
Subcustodian's duties hereunder by reason of the Subcustodian's reasonable
reliance upon records that were maintained for the Fund by entities other than
the Subcustodian prior to the Subcustodian's employment hereunder.
6.8 Reimbursement of Disbursements, Etc. - The Subcustodian shall be
entitled to receive reimbursement from the Custodian or the relevant Fund on
demand, in the manner provided in Section 7, for its cash disbursements,
expenses and charges (including the fees and expenses of any Secondary
Subcustodian or any Agent) in connection with this Agreement, but excluding
salaries and usual overhead expenses.
6.9 Notice of Litigation; Right to Prosecute, Etc. - Neither the
Custodian nor the Fund shall be liable for indemnification under Section 6 of
this Agreement unless a Person shall have promptly notified the Custodian or
the relevant Fund in writing of the commencement of any litigation or
proceeding
- 41 -
<PAGE> 45
brought against such Person in respect of which indemnity may be sought under
Section 6. With respect to claims in such litigation or proceedings for which
indemnity by the Custodian or a Fund may be sought and subject to applicable
law and the ruling of any court of competent jurisdiction, the Custodian and
the Fund shall be entitled to participate in any such litigation or proceeding
and, after written notice from the Custodian or the Fund to any Person, the
Custodian or the relevant Fund may assume the defense of such litigation or
proceeding with counsel of its choice at its own expense in respect of that
portion of the litigation for which the Custodian or the Fund may be subject to
an indemnification obligation; provided, however, a Person shall be entitled to
participate in (but not control), at its own expense, the defense of any such
litigation or proceeding if the Custodian or the Fund has not acknowledged in
writing its obligation to indemnify the Person with respect to such litigation
or proceeding. If the Custodian or the Fund is not permitted to participate in
or control such litigation or proceeding under applicable law or by a ruling of
a court of competent jurisdiction, such Person shall reasonably prosecute such
litigation or proceeding.
6.10 Security for Obligations to Subcustodian - If the Subcustodian
or any nominee thereof shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Agreement (collectively a "Liability"), except such as may arise from its
- 42 -
<PAGE> 46
or such nominee's breach of the relevant standard of conduct set forth in this
Agreement, or if the Subcustodian shall make any Advance to a Fund, then in
such event property equal in value to not more than 125% of such Advance and
accrued interest on the Advance or the anticipated amount of such Liability,
held at any time for the account of the Fund by the Subcustodian or a Secondary
Subcustodian may be held as security for such Liability or for such Advance and
accrued interest on the Advance. The Subcustodian shall designate the security
or securities constituting security for an Advance or Liability (the
"Designated Securities") by notice in writing to the Fund (which may be sent by
telefax or telex). In the event the value of the Designated Securities shall
decline to less than 110% of the amount of such Advance and accrued interest on
the Advance or the anticipated amount of such Liability, then the Subcustodian
may designate in the same manner an additional security for such obligation but
the aggregate value of the Designated Securities and Additional Securities
shall not be in excess of 125% of the amount of such Advance and the accrued
interest on the Advance or the anticipated amount of such Liability. At the
request of the Fund, the Subcustodian shall agree to substitution of a security
or securities which have a value equal to the value of the Designated or
Additional Securities which the Fund desires be released from their status as
security, and such release from status as security shall be effective upon the
Subcustodian and the Fund agreeing in writing as to the identity of the
- 43 -
<PAGE> 47
substituted security or securities, which shall thereupon become Designated
Securities.
Notwithstanding the above, the Subcustodian shall, at the request of a
Fund, immediately release from their status as security any or all of the
Designated Securities or Additional Securities upon the Subcustodian's receipt
from such Fund cash or cash equivalents in an amount equal to 100% of the value
of the Designated Securities or Additional Securities that the Fund desires to
be released from their status as security pursuant to this Section. The Fund
shall reimburse or indemnify the Subcustodian and shall pay any Advances upon
demand; provided, however, that the Subcustodian first notified the Custodian
or the Fund of such demand for repayment, reimbursement or indemnification.
If, upon notification, the Custodian or the Fund shall fail to pay such Advance
or interest when due or shall fail to reimburse or indemnify the Subcustodian
promptly in respect of a Liability, the Subcustodian shall be entitled to
dispose of the Designated Securities and Additional Securities to the extent
necessary to obtain repayment, reimbursement or indemnification. Interest,
dividends and other distributions paid or received on the Designated Securities
and Additional Securities, other than payments of principal or payments upon
retirement, redemption or repurchase, shall remain the property of the Fund,
and shall not be subject to this Section 6.10. To the extent that the
disposition of a Fund's property, designated as security for such Advance or
Liability, results in an amount
- 44 -
<PAGE> 48
less than necessary to obtain repayment, reimbursement or indemnification, the
Fund shall continue to be liable to the Subcustodian for the difference between
the proceeds of the disposition of the Fund's property, designated as security
for such Advance or Liability, and the amount of the repayment, reimbursement
or indemnification due to the Subcustodian.
6.11 Appointment of Agents - The Subcustodian may at any time or
times in its discretion appoint (and may at any time remove) any other bank or
trust company as its agent (an "Agent") to carry out such of the provisions of
this Agreement as the Subcustodian may from time to time direct, provided,
however, that the appointment of such Agent (other than an Agent appointed
pursuant to the third paragraph of Section 3) shall not relieve the
Subcustodian of any of its responsibilities under this Agreement.
In the event of any loss, damage, or expense suffered or incurred by the
Custodian or a Fund caused by or resulting from the actions or omissions of any
Agent for which the Subcustodian would otherwise be liable, the Subcustodian
shall promptly reimburse the Custodian or the Fund, as the case may be, in the
amount of any such loss, damage or expense.
6.12 Powers of Attorney - Upon request, the Custodian or a Fund shall
deliver to the Subcustodian such proxies, powers of attorney or other
instruments as may be reasonable and necessary or desirable in connection with
the performance by the Subcustodian or any Secondary Subcustodian of their
respective
- 45 -
<PAGE> 49
obligations under this Agreement or any applicable subcustodian agreement.
7. Compensation of the Subcustodian: The Custodian or such Fund
shall pay the Subcustodian a custody fee based on such fee schedule as may from
time to time be agreed upon in writing by the Subcustodian, the Custodian and
each Fund. Such fee, together with all amounts for which the Subcustodian is
to be reimbursed in accordance with Section 6.4, shall be billed to the
Custodian or the Fund and be paid in cash to the Subcustodian.
8. Termination; Successor Custodian/Subcustodian; Additional Funds:
This Agreement shall continue in full force and effect until terminated as to
one or more of the Funds by the Custodian, the Subcustodian or such Fund or
Funds by an instrument in writing delivered or mailed, postage prepaid, to the
other parties, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing. In the event of termination, the
Subcustodian shall be entitled to receive prior to delivery of the securities,
funds and other property held by it all accrued fees and unreimbursed expenses
the payment of which is contemplated by Sections 6.4 and 7, and all Advances
and Liabilities, upon receipt by the Custodian or the relevant Fund or Funds of
a statement setting forth such fees, expenses, Advances and Liabilities.
In the event of the appointment of a successor custodian, the
Subcustodian shall take all reasonable steps to execute an agreement with the
successor custodian and a Fund or Funds on
- 46 -
<PAGE> 50
substantially the same terms as contained in this Agreement. The Subcustodian
agrees to cooperate with the Custodian, the successor custodian, and such Fund
or Funds in execution of documents and performance of other actions necessary
or desirable in order to substitute the successor custodian for the Custodian.
In the event of the appointment of a successor subcustodian, it is
agreed that the securities, funds and other property owned by a Fund or Funds
as to which this Agreement has been terminated and held by the Subcustodian or
any Secondary Subcustodian shall be delivered to the successor subcustodian,
unless the Subcustodian is otherwise instructed by the Custodian or the Fund or
Funds. The Subcustodian agrees to cooperate with the Custodian, the successor
custodian, and such Fund or Funds in execution of documents and performance of
other actions necessary or desirable in order to substitute the successor
subcustodian for the Subcustodian under this Agreement.
An additional Fund or Funds may become a party to this Agreement after
the date hereof by an instrument in writing to such effect signed by such Fund
or Funds, the Custodian and the Subcustodian. If this Agreement is terminated
as to one or more of the Funds (but less than all of the Funds) of if an
additional Fund or Funds shall become a party to this Agreement, there shall be
delivered to the Subcustodian by the Custodian an amended Appendix B deleting
or adding such Fund or Funds, as the case may be. The termination of this
Agreement as to less than all of the Funds shall not affect the obligations of
the Custodian, the
- 47 -
<PAGE> 51
Subcustodian and the remaining Funds hereunder as set forth in Appendix B, as
revised from time to time.
9. Amendment; Waiver: This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof. No provision of this Agreement may be waived, amended or
terminated except by a statement in writing signed by the party or parties
against which enforcement of the waiver, amendment or termination is sought.
In connection with the operation of this Agreement, the Subcustodian,
the Custodian and one or more of the Funds may agree in writing from time to
time on such provisions interpretative of or in addition to the provisions of
this Agreement as may in their joint opinion be consistent with the general
tenor of this Agreement. No interpretative or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
The section headings in this Agreement are for the convenience of the
parties and in no way alter, amend, limit or restrict the contractual
obligations of the parties set forth in this Agreement.
10. Governing Law: This Agreement is executed and delivered in The
Commonwealth of Massachusetts and shall be governed by and construed according
to the laws of said Commonwealth.
11. Notices: Notices and other writings delivered or mailed
postage prepaid to a Fund addressed to the Fund at 100
- 48 -
<PAGE> 52
Heritage Reserve, Menomonee Falls, Wisconsin 53051 Attention: Helge Krist Lee,
or to such other address as the Fund may have designated to the Subcustodian
and the Custodian in writing, or to the Custodian at 615 East Michigan Street,
P. 0. Box 701, Milwaukee, Wisconsin 53201, Attention: J. Redwine, or to such
other address as the Custodian may have designated to the Funds and the
Subcustodian in writing or to the Subcustodian at 40 Water Street, Boston,
Massachusetts 02109, Attention: Manager, Securities Department, or to such
other address as the Subcustodian may have designated to the Custodian and the
Funds in writing, shall be deemed to have been properly delivered or given
hereunder to the respective addressee.
12. Binding Effect: This Agreement shall be binding on and shall
inure to the benefit of the Funds, the Custodian and the Subcustodian and their
respective successors and assigns, provided that no party hereto may assign
this Agreement or any of its rights or obligations hereunder without the prior
written consent of the other parties (except that assignment by a Fund shall
not require the consent of any other Funds).
13. Severability: If any provision of this Agreement shall be held
or made unenforceable by a court decision, statute, rule, regulation or
otherwise, the remaining provisions of this Agreement shall not be affected
thereby.
14. Counterparts: This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more
- 49 -
<PAGE> 53
counterparts have been signed and delivered by each of the parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
FIRSTAR TRUST COMPANY BROWN BROTHERS HARRIMAN & CO.
By _____________________ per pro ______________________
Title ____________________
FUNDS LISTED IN APPENDIX B
By ______________________
Title _____________________
- 50 -
<PAGE> 54
STRONG CAPITAL MANAGEMENT, INC.
DOMESTIC MUTUAL FUND
GLOBAL CUSTODY FEE SCHEDULE
JULY, 1995
Payable quarterly on the value of assets:
Foreign (excluding Euroclear)
.0015 per year on first $50 million
.0012 per year on next $50 million
.0010 per year on all over $100 million
Euroclear
.0012 per year on first $50 million
.0010 per year on next $50 million
.0008 per year on all over $100 million
Minimum: $45,000 (all domestic portfolios combined)
Transaction Charge: $35
Emerging markets will be negotiated at the time of investment
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses including, but not limited to telex, legal,
telephone, postage and direct expenses including but not limited to customized
systems programming, registration and certificate fees would be additional.
Brokerage, stamp duty and Euroclear deposit and withdrawl charges are for the
account of the Fund.
This schedule includes all custody fees and transaction charges of
subcustodians. Emerging markets may require the use of a local administrative
agent. Administrative fees will be for the account of the Fund. Charges
associated with income collection, governmental stamp or other taxes will also
be for the account of the Fund.
<PAGE> 55
STRONG CAPITAL MANAGEMENT, INC.
DOMESTIC MUTUAL FUND
DOMESTIC CUSTODY FEE SCHEDULE
JULY, 1993
Payable quarterly on the value of assets:
Domestic Assets (Based on Entire Relationship)
.0001 per year on first $1 billion
.000075 per year on all over $1 billion
Transaction Charges:
DTC Eligible: $8
Non-DTC Eligible: $10
Domestic Wires: $10
Options and Futures Variation Margin: $10
Mortgage Backed Securities Paydowns: $8
Transaction charges on trades where BBH&Co. acts as broker will be
waived.
Brokerage Credit
Brokerage commissions executed through BBH&Co. will be available to
reduce custody and transaction charges on the basis of the offset formula of
2:1.
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses including, but not limited to, telex, legal,
telephone and postage would be additional.
<PAGE> 1
EXHIBIT 99.B9
SHAREHOLDER SERVICING AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this ___ day of _____, 1995,
between STRONG [ ], INC., a Wisconsin corporation (the
"Corporation"), on behalf of the Funds (as defined below) of the Corporation,
and STRONG CAPITAL MANAGEMENT, INC., a Wisconsin corporation ("Strong").
WITNESSETH
WHEREAS, the Corporation is an open-end management investment company
registered under the Investment Company Act of 1940;
WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio, and the beneficial interest in each
such series will be represented by a separate series of shares (each series is
hereinafter individually referred to as a "Fund" and collectively, the
"Funds");
WHEREAS, the Corporation is authorized to issue shares of its $._____
par value common stock (the "Shares") of each Fund; and
WHEREAS, the Corporation desires to retain Strong as the shareholder
servicing agent of the Shares of each Fund on whose behalf this Agreement has
been executed.
NOW, THEREFORE, the Corporation and Strong do mutually agree and
promise as follows:
1. Appointment. The Corporation hereby appoints Strong to act as
shareholder servicing agent of the Shares of each Fund listed on Schedule A
hereto, as such Schedule may be amended from time to time. Strong shall, at
its own expense, render the services and assume the obligations herein set
forth subject to being compensated therefor as herein provided.
2. Authority of Strong. Strong is hereby authorized by the
Corporation to receive all cash which may from time to time be delivered to it
by or for the account of the Funds; to issue confirmations and/or certificates
for Shares of the Funds upon receipt of payment; to redeem or repurchase on
behalf of the Funds Shares upon receipt of certificates properly endorsed or
properly executed written requests as described in the current prospectus of
each Fund and to act as dividend disbursing agent for the Funds.
3. Duties of Strong. Strong hereby agrees to:
A. Process new accounts.
<PAGE> 2
B. Process purchases, both initial and subsequent, of
Fund Shares in accordance with conditions set forth
in the prospectus of each Fund as mutually agreed by
the Corporation and Strong.
C. Transfer Fund Shares to an existing account or to a
new account upon receipt of required documentation
in good order.
D. Redeem uncertificated and/or certificated shares upon
receipt of required documentation in good order.
E. Issue and/or cancel certificates as instructed;
replace lost, stolen or destroyed certificates upon
receipt of satisfactory indemnification or bond.
F. Distribute dividends and/or capital gain
distributions. This includes disbursement as cash or
reinvestment and to change the disbursement option at
the request of shareholders.
G. Process exchanges between Funds (process and direct
purchase/redemption and initiate new account or
process to existing account).
H. Make miscellaneous changes to records.
I. Prepare and mail a confirmation to shareholders as
each transaction is recorded in a shareholder
account. Duplicate confirmations to be available on
request within current year.
J. Handle phone calls and correspondence in reply to
shareholder requests except those items set forth in
Referrals to Corporation, below.
K. Prepare Reports for the Funds:
i. Monthly analysis of transactions and accounts
by types.
ii. Quarterly state sales analysis; sales by
size; analysis of systematic withdrawals,
Keogh, IRA and 403(b)(7) plans; print-out of
shareholder balances.
L. Perform daily control and reconciliation of Fund
Shares with Strong's records and the Corporation's
office records.
M. Prepare address labels or confirmations for four
reports to shareholders per year.
2
<PAGE> 3
N. Mail and tabulate proxies for one Annual Meeting of
Shareholders, including preparation of certified
shareholder list and daily report to Corporation
management, if required.
O. Prepare and mail required Federal income taxation
information to shareholders to whom dividends or
distributions are paid, with a copy for the IRS and a
copy for the Corporation if required.
P. Provide readily obtainable data which may from time
to time be requested for audit purposes.
Q. Replace lost or destroyed checks.
R. Continuously maintain all records for active and
closed accounts.
S. Furnish shareholder data information for a current
calendar year in connection with IRA and Keogh Plans
in a format suitable for mailing to shareholders.
4. Referrals to Corporation. Strong hereby agrees to refer to the
Corporation for reply the following:
A. Requests for investment information, including
performance and outlook.
B. Requests for information about specific plans (i.e.,
IRA, Keogh, Systematic Withdrawal).
C. Requests for information about exchanges between
Funds.
D. Requests for historical Fund prices.
E. Requests for information about the value and timing
of dividend payments.
F. Questions regarding correspondence from the
Corporation and newspaper articles.
G. Any requests for information from non-shareholders.
H. Any other types of shareholder requests as the
Corporation may request from Strong in writing.
5. Compensation to Strong. Strong shall be compensated for its
services hereunder in accordance with the Shareholder Servicing Fee Schedule
(the "Fee Schedule") attached hereto as Schedule B and as such Fee Schedule may
from time to time be amended in writing between the two parties. The
Corporation will reimburse Strong for all out-of-pocket expenses, including,
but not
3
<PAGE> 4
necessarily limited to, postage, confirmation forms, etc. Special projects,
not included in the Fee Schedule and requested by proper instructions from the
Corporation with respect to the relevant Funds, shall be completed by Strong and
invoiced to the Corporation and the relevant Funds as mutually agreed upon.
6. Rights and Powers of Strong. Strong's rights and powers with
respect to acting for and on behalf of the Corporation, including rights and
powers of Strong's officers and directors, shall be as follows:
A. No order, direction, approval, contract or obligation
on behalf of the Corporation with or in any way affecting Strong shall
be deemed binding unless made in writing and signed on behalf of the
Corporation by an officer or officers of the Corporation who have been
duly authorized to so act on behalf of the Corporation by its Board of
Directors.
B. Directors, officers, agents and shareholders of the
Corporation are or may at any time or times be interested in Strong as
officers, directors, agents, shareholders, or otherwise.
Correspondingly, directors, officers, agents and shareholders of
Strong are or may at any time or times be interested in the
Corporation as directors, officers, agents, shareholders or otherwise.
Strong shall, if it so elects, also have the right to be a shareholder
of the Corporation.
C. The services of Strong to the Corporation are not to
be deemed exclusive and Strong shall be free to render similar services
to others as long as its services for others do not in any manner or
way hinder, preclude or prevent Strong from performing its duties and
obligations under this Agreement.
D. The Corporation will indemnify Strong and hold it
harmless from and against all costs, losses, and expenses which may be
incurred by it and all claims or liabilities which may be asserted or
assessed against it as a result of any action taken by it without
negligence and in good faith, and for any act, omission, delay or
refusal made by Strong in connection with this agency in reliance upon
or in accordance with any instruction or advice of any duly authorized
officer of the Corporation.
7. Effective Date. This Agreement shall become effective as of
the date hereof.
8. Termination of Agreement. This Agreement shall continue in
force and effect until terminated or amended to such an extent that a new
Agreement is deemed advisable by either party. Notwithstanding anything herein
to the contrary, this Agreement may be terminated at any time, without payment
of any penalty, by the Corporation or Strong upon ninety (90) days' written
notice to the other party.
9. Amendment. This Agreement may be amended by the mutual
written consent of the parties. If, at any time during the existence of this
Agreement, the Corporation deems it necessary or advisable in the best
interests of Corporation that any amendment of this Agreement be made in
order to
4
<PAGE> 5
comply with the recommendations or requirements of the Securities and Exchange
Commission or state regulatory agencies or other governmental authority, or to
obtain any advantage under state or federal laws, the Corporation shall notify
Strong of the form of amendment which it deems necessary or advisable and the
reasons therefor, and if Strong declines to assent to such amendment, the
Corporation may terminate this Agreement forthwith.
10. Notice. Any notice that is required to be given by the
parties to each other under the terms of this Agreement shall be in writing,
addressed and delivered, or mailed postpaid to the other party at the principal
place of business of such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed as of the day and year first stated above.
Attest: Strong Capital Management, Inc.
______________________________________ ___________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong [ ], Inc.
______________________________________ ___________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
5
<PAGE> 6
SCHEDULE A
The Fund(s) of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
Fund(s) to this Agreement
------- -----------------
Strong [ ] Fund ___________, 1995
Attest: Strong Capital Management, Inc.
______________________________________ ____________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong [ ], Inc.
______________________________________ ____________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
6
<PAGE> 7
SCHEDULE B
SHAREHOLDER SERVICING FEE SCHEDULE
Until such time that this schedule is replaced or modified, Strong
[ ], Inc. (the "Corporation"), on behalf of each Fund set
forth on Schedule A to this Agreement, agrees to compensate Strong Capital
Management, Inc. ("Strong") for performing as shareholder servicing agent as
specified below per open Fund account, plus out-of-pocket expenses attributable
to the Corporation and the Fund(s).
Annual Rate per
Fund(s) Open Fund Account
------- -----------------
Strong [ ] Fund $_____
- - an equity fund $21.75
- - an income fund $31.50
- - a money market fund $32.50
Out-of-pocket expenses include, but are not limited to, the following:
1. All materials, paper and other costs associated with necessary
and ordinary shareholder correspondence.
2. Postage and printing of confirmations, statements, tax forms
and any other necessary shareholder correspondence. Printing
is to include the cost of printing account statements and
confirmations by third-party vendors as well as the cost of
printing the actual forms.
3. The cost of mailing (sorting, inserting, etc.) by third-party
vendors.
4. All banking charges of Corporation, including deposit slips and
stamps, checks and share drafts, wire fees not paid by
shareholders, and any other deposit account or checking
account fees.
5. The cost of storage media for Corporation records, including
phone recorder tapes, microfilm and microfiche, forms and
paper.
6. Offsite storage costs for older Corporation records.
7. Charges incurred in the delivery of Corporation materials and
mail.
8. Any costs for outside contractors used in providing necessary
and ordinary services to the Corporation, a Fund or
shareholders, not contemplated to be performed by Strong.
7
<PAGE> 8
9. Any costs associated with enhancing, correcting or developing
the record keeping system currently used by the Corporation,
including the development of new statement or tax form
formats.
For purposes of calculating Strong's compensation pursuant to this
Agreement, all subaccounts which hold shares in a Fund through 401(k) plans,
401(k) alliances, and financial institutions, such as insurance companies,
broker/dealers, and investment advisors shall be treated as direct open
accounts of the Fund upon approval of such arrangement by the Corporation's
Board of Directors. Out-of-pocket expenses will be charged to the applicable
Fund, except for those out-of-pocket expenses attributable to the Corporation
in general, which shall be charged pro rata to each Fund.
In addition, a Fund will pay a fee for closed accounts at an annual
rate of $4.20 per account. All fees will be billed to the Corporation monthly
based upon the number of open and closed accounts existing on the last day of
the month plus any out-of-pocket expenses paid by Strong during the month.
These fees are in addition to any fees the Corporation may pay Strong for
providing investment management services or for underwriting the sale of
Corporation shares.
Attest: Strong Capital Management, Inc.
______________________________________ ____________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong [ ],Inc.
______________________________________ ____________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
8
<PAGE> 1
EXHIBIT 99.B10
[GODFREY & KAHN, S.C. LETTERHEAD]
February 21, 1996
Strong Total Return Fund, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051
Gentlemen:
We have acted as counsel for you in connection with the sale by you
of 1,455,107.638 shares of Strong Total Return Fund, Inc. (the "Fund") Common
Stock, in the manner set forth in Post-Effective Amendment No. 20 ("Amendment
No. 20") to the Fund's Registration Statement on Form N-1A. In connection with
this, we have reviewed: (i) Amendment No. 20 to the Fund's Registration
Statement on Form N-1A dated February 26, 1996; (ii) the Rule 24f-2 Notice
dated November 16, 1995 for the fiscal year ended October 31, 1995; (iii)
corporate proceedings relative to the authorization for issuance of shares of
Common Stock and (iv) such other proceedings, documents and records as we have
deemed necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of
Common Stock when sold as contemplated in Amendment No. 20 to the Fund's
Registration Statement will be legally issued, fully paid and nonassessable
except to the extent provided in Section 180.0622(2)(b) of the Wisconsin
Statutes, or any successor provision, which provides that shareholders of a
corporation organized under Chapter 180 of the Wisconsin Statutes may be
assessed up to the par value of their shares to satisfy the obligations of
such corporation to its employees for services rendered, but not exceeding six
months service in the case of any individual employee. Certain Wisconsin
courts have interpreted "par value" to mean the full amount paid by the
purchaser of shares upon the issuance thereof.
We hereby consent to the use of this opinion as an exhibit to
Amendment No. 20 to the Fund's Registration Statement on Form N-1A. In giving
this consent, we do not admit that we are experts within the meaning of Section
11 of the Securities
<PAGE> 2
Strong Total Return Fund, Inc.
February 21, 1996
Page Two
Act of 1933, as amended, or within the category of persons whose consent is
required by Section 7 of said Act.
Very truly yours,
/s/ Godfrey & Kahn, S.C.
GODFREY & KAHN, S.C.
<PAGE> 1
EXHIBIT 99B.11
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Strong Total Return Fund, Inc.
We consent to the incorporation by reference in Post-Effective Amendment No. 20
to the Registration Statement of Strong Total Return Fund, Inc. on Form N-1A of
our report dated December 8, 1995 on our audit of the financial statements and
financial highlights of Strong Total Return Fund, Inc., which report is
included in the Annual Report to Shareholders for the period from January 1,
1995 to October 31, 1995 which is also incorporated by reference in the
Registration Statement. We also consent to the reference to our Firm under the
caption "Independent Accountants" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 26, 1996
<PAGE> 1
EXHIBIT 99.B14.1
STRONG FUNDS
PROTOTYPE DEFINED CONTRIBUTION
RETIREMENT PLAN
PROFIT SHARING PLAN AA - PLAN NO. 01-001
PENSION PLAN AA - PLAN NO. 01-002
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I INTRODUCTION................................................................................ 8
ARTICLE II DEFINITIONS................................................................................. 8
ARTICLE III PARTICIPATION
3.1 Participation at Effective Date............................................................ 10
3.2 Participation After Effective Date......................................................... 10
3.3 Reentry.................................................................................... 10
3.4 Participation by an Owner-Employee of More Than One Trade or Business...................... 10
ARTICLE IV CONTRIBUTIONS
4.1 Employer Profit Sharing Contributions...................................................... 11
4.2 Employer Pension Contributions............................................................. 11
4.3 Participant Voluntary Contributions........................................................ 12
4.4 Time for Making Contributions.............................................................. 12
4.5 Leased Employees........................................................................... 12
4.6 Rollovers and Transfers.................................................................... 12
ARTICLE V CASH OR DEFERRED ARRANGEMENT
(CODE SECTION 401(k))
5.1 Cash or Deferred Arrangement (Code Section 401(k))......................................... 12
5.2 Elective Deferrals......................................................................... 12
5.3 Matching Contributions..................................................................... 14
5.4 Qualified Matching Contributions and Qualified Non-Elective Contributions ................. 16
5.5 Special Distribution Rules................................................................. 16
5.6 Definitions................................................................................ 16
ARTICLE VI SECTION 415 LIMITATIONS
6.1 Employers Maintaining Only this Plan....................................................... 18
6.2 Employers Maintaining Other Master or Prototype Defined Contribution Plans................. 18
6.3 Employers Maintaining Other Defined Contribution Plans .................................... 19
6.4 Employers Maintaining Defined Benefit Plans................................................ 19
6.5 Definitions................................................................................ 19
ARTICLE VII PARTICIPANTS' ACCOUNTS
7.1 Separate Accounts.......................................................................... 20
7.2 Vesting.................................................................................... 20
7.3 Computation of Vesting Service............................................................. 20
7.4 Allocation of Forfeitures.................................................................. 21
ARTICLE VIII PAYMENT OF BENEFITS
8.1 Benefits Payable Under the Plan............................................................ 21
8.2 Manner of Distributions.................................................................... 21
8.3 Commencement of Payments................................................................... 23
8.4 Payment of Small Amounts................................................................... 25
8.5 Persons under Legal or Other Disability.................................................... 25
8.6 Withdrawals from Profit Sharing Plan....................................................... 25
ARTICLE IX ESTABLISHMENT OF CUSTODIAL ACCOUNT; INVESTMENTS
9.1 Custodial Account.......................................................................... 26
9.2 Receipt of Contributions................................................................... 26
9.3 Investment of Account Assets............................................................... 26
9.4 Exclusive Benefit.......................................................................... 26
9.5 Expenses................................................................................... 26
9.6 Voting..................................................................................... 26
9.7 Reports of the Custodian and Administrator................................................. 26
9.8 Limitation of Custodian's Duties and Liability............................................. 27
ARTICLE X AMENDMENT AND TERMINATION
10.1 Amendment.................................................................................. 27
10.2 Termination................................................................................ 28
ARTICLE XI FIDUCIARY RESPONSIBILITIES
11.1 Administrator.............................................................................. 28
11.2 Powers of Administrator.................................................................... 28
11.3 Records and Reports........................................................................ 28
11.4 Other Administrative Provisions............................................................ 28
11.5 Claims Procedure........................................................................... 28
11.6 Claims Review Procedure.................................................................... 28
ARTICLE XII AMENDMENT AND CONTINUATION OF ORIGINAL PLAN................................................. 28
ARTICLE XIII TOP-HEAVY PROVISIONS
13.1 Effect of Top-Heavy Status................................................................. 29
13.2 Additional Definitions..................................................................... 29
13.3 Minimum Allocations........................................................................ 30
13.4 Benefit Limit Change....................................................................... 30
ARTICLE XIV MISCELLANEOUS
14.1 Rights of Employees and Participants....................................................... 30
14.2 Merger with Other Plans.................................................................... 30
14.3 Non-Alienation of Benefits................................................................. 31
14.4 Failure to Qualify......................................................................... 31
14.5 Mistake of Fact: Disallowance of Deduction................................................. 31
14.6 Participation under Prototype Plan......................................................... 31
14.7 Gender..................................................................................... 31
14.8 Headings................................................................................... 31
14.9 Governing Law.............................................................................. 31
</TABLE>
7
<PAGE> 2
STRONG FUNDS
PROTOTYPE DEFINED CONTRIBUTION
RETIREMENT PLAN
ARTICLE I
INTRODUCTION
This Plan, which is made available by Strong Capital Management, Inc.
has been adopted by the Employer named in the Adoption Agreement(s) as a
qualified money purchase pension and/or profit sharing plan for its eligible
employees which is intended to qualify under Code Section 401(a). The
Employer's Plan shall consist of the following provisions, together with the
Adoption Agreement(s).
ARTICLE II
Definitions
2.1 ACCOUNT means the account or accounts maintained by the Custodian for a
Participant, as described in Article VII.
2.2 ADMINISTRATOR means the plan administrator and fiduciary of the Plan with
authority and responsibility to control and manage the operation and
administration of the Plan in accordance with its terms and to comply with the
reporting, disclosure and other requirements of ERISA. Unless a different
Administrator is appointed by the Employer, the Administrator shall be the
Employer.
2.3 BENEFICIARY means the person or persons designated by a Participant or
otherwise entitled to receive benefits in the event of the Participant's
death as provided herein. Such designation shall be made in writing and in such
form as may be required by the Administrator, and shall be filed with the
Administrator. Any designation may include contingent or successive
Beneficiaries. Where such designation has been properly made, distribution of
benefits shall be made directly to such Beneficiary or Beneficiaries. The
Beneficiary or Beneficiaries designated by a Participant may be changed or
withdrawn at any time from time to time, by the Participant, but only by filing
with the Administrator a new designation, and revoking all prior designations.
The most recent valid designation on file with the Administrator at the time of
the Participant's death shall be the Beneficiary. Notwithstanding the
foregoing, in the event the Participant is married at the time of his death,
the Beneficiary shall be the Participant's surviving spouse unless such spouse
consented in writing to the designation of an alternative Beneficiary after
notice of the spouse's rights and such consent was witnessed by a Plan
representative appointed by the Administrator or a notary public as provided in
Section 8.2(a) hereof. In the event no valid designation of Beneficiary is on
file with the Administrator at the date of death or no designated Beneficiary
survives him, the Participant's spouse shall be deemed the Beneficiary; in the
further event the Participant is unmarried or his spouse does not survive him,
the Participant's estate shall be deemed to be his Beneficiary.
2.4 BREAK IN SERVICE means a Plan Year in which a Participant fails to complete
at least five hundred one (501) Hours of Service. Breaks in Service and Years of
Service will be measured on the same vesting computation period.
2.5 CODE means the Internal Revenue Code of 1986, as interpreted by applicable
regulations and rulings issued pursuant thereto, all as amended and in effect
from time to time. Reference to a Code Section shall include that Section, and
any comparable section or sections of any future legislation that amends,
supplements or supersedes that Section.
2.6 COMPENSATION means the wages actually paid by the Employer to an Employee
for the taxable year ending with or within the Plan Year as defined in Code
Section 3121(a) for purposes of calculating social security (FICA) taxes
without regard to the dollar limitation of Code Section 312(a)(1), the special
rules in Code Section 3121(v) (applicable to certain elective contributions and
nonqualified deferred compensation), any rules that limit covered employment
based on the type or location of the Employer, and any rules that limit
remuneration included in wages based on familial relationship or based on the
nature or location of the employment or the services performed (such as the
exceptions to the definition of employment in Code Section 3121 (b)(1) through
(20)), except as limited pursuant to item 5 of the Adoption Agreement. For any
Self-Employed Individual covered under the Plan, Compensation shall mean such
individual's Earned Income.
For Plan Years beginning after December 31, 1988, the maximum amount of
Compensation taken into account under the Plan for a Participant in any Plan
Year shall not exceed two hundred thousand dollars ($200,000) or such greater
amount as permitted by the Secretary of the Treasury, except that the dollar
increase in effect on January 1 of any calendar year is effective for years
beginning in such calendar year and the first adjustment to the $200,000
limitation is effective on January 1, 1990. If the Plan determines Compensation
on a period of time that contains fewer than 12 calendar months, then the
annual compensation limit is an amount equal to the annual compensation limit
for the calendar year in which the compensation period begins multiplied by the
ratio obtained by dividing the number of full months in the period by 12.
For purposes of this limitation, the family aggregation rules of Code Section
414(q)(6) shall apply, except that the term "family" shall include only the
spouse of the Participant and any lineal descendants of the Participant who
have not attained age nineteen (19) before the close of such year. If, as a
result of the application of such rules the adjusted two hundred thousand
dollars ($200,000) limitation is exceeded, then (except for purposes of
determining the portion of Compensation up to the integration level if the Plan
provides for permitted disparity), the limitation shall be prorated among the
affected individuals in proportion to each such individual's Compensation as
determined under this Section prior to the application of this limitation. If
Compensation for any prior Plan Year is taken into account in determining an
Employee's contributions or benefits for the current year, the Compensation for
such prior year is subject to the applicable annual compensation limit in
effect for that prior year. For this purpose, for years beginning before
January 1, 1990, the applicable annual compensation limit is $200,000.
2.7 CUSTODIAL ACCOUNT means the account established by the Custodian, in
accordance with Article IX, in the name of the Employer or for each Participant
as elected in the Adoption Agreement.
2.8 CUSTODIAN means Firstar Trust Company, or any successor thereto.
2.9 DISABILITY means a mental or physical condition of injury or sickness, as
determined by the Administrator based upon the report of a medical examiner
satisfactory to the Employer, which prevents a Participant from carrying out the
duties of his position and which is likely to be permanent. Any such
determination by the Administrator shall be made in a uniform and
nondiscriminatory manner.
2.10 EARNED INCOME means net earnings from self-employment in the trade or
business with respect to which the Plan is established for which the personal
services of the individual are a material income-producing factor. Net earnings
shall be determined without regard to items not included in gross income and
the deductions allocable to such items. Net earnings shall be reduced by
contributions by the Employer to a qualified plan to the extent deductible
under Code Section 404. Net earnings shall be determined with regard to the
deduction allowed to the Employer under Code Section 164(f) for taxable years
beginning after December 31, 1989.
2.11 EFFECTIVE DATE means the date as of which this Plan is initially effective
as indicated in item 3 of the Adoption Agreement.
8
<PAGE> 3
2.12 ELECTIVE DEFERRALS means any Employer contributions made to the Plan at
the election of a participating Employee, in lieu of payment of an equal amount
to the participating Employee in cash as Compensation pursuant to Section 5.2
hereof, and shall include contributions made pursuant to a salary reduction
agreement or other deferral method. With respect to any taxable year, a
participating Employee's Elective Deferrals are the sum of all employer
contributions made on behalf of such Employee pursuant to an election to defer
under any qualified CODA as described in Code Section 401(k), any simplified
employee pension cash or deferred arrangement as described in Code Section
402(h)(1)(B), any eligible deferred compensation plan under Code Section 457,
any plan as described under Code Section 501(c)(18), and any employer
contributions made on the behalf of a participating Employee for the purchase
of an annuity contract under Code Section 403(b) pursuant to a salary reduction
agreement.
2.13 EMPLOYEE means an individual employed by the Employer (including any
eligible Self-Employed Individual) or any Related Employer adopting this Plan
except as excluded pursuant to item 4 of the Adoption Agreement. The term
Employee shall also include any individual who is a Leased Employee, unless
excluded pursuant to item 4 of the Adoption Agreement.
2.14 EMPLOYER means any entity adopting the Plan.
2.15 EMPLOYER PENSION CONTRIBUTIONS means the contributions made by the
Employer pursuant to Section 4.2 hereof if elected in item 6 of the Adoption
Agreement (Pension Plan).
2.16 EMPLOYER PROFIT SHARING CONTRIBUTIONS means the contributions made by the
Employer pursuant to Section 4.1 hereof if elected in item 6 of the Adoption
Agreement (Profit Sharing Plan).
2.17 ERISA means the Employee Retirement Income Security Act of 1974, as
interpreted and applied under regulations and rulings issued pursuant thereto,
all as amended and in effect from time to time.
2.18 HOUR OF SERVICE means:
(a) Each hour for which an Employee is paid, or entitled to payment for the
performance of duties for the Employer. These hours shall be credited to
the Employee for the compensation period in which the duties are
performed; and
(b) Each hour for which an Employee is paid, or entitled to payment, by the
Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. No
more than five hundred one (501) Hours of service shall be credited under
this paragraph for any single continuous period (whether or not such
period occurs in a single computation period). Hours of Service under
this paragraph shall be calculated and credited pursuant to Section 2530.
200b-2 of the Department of Labor and Regulations which are incorporated
herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Employer. The same Hours of Service
shall not be credited both under subsection (a) or subsection (b), as
the case may be, and under this subsection (c). These hours shall be
credited to the Employee for the computation period or periods to which
the award or agreement pertains rather than the computation period in
which the award, agreement or payment is made.
(d) Solely for purposes of determining whether a Break in Service, as defined
in Section 2.4, for participation and vesting purposes has occurred in a
computation period, an individual who is absent from work for maternity
or paternity reasons shall receive credit for the Hours of Service which
would otherwise have been credited to such individual but for such
absence, or in any case in which such hours cannot be determined, eight
(8) hours of service per normal workday of such absence. For purposes of
this paragraph, an absence from work for maternity or paternity reasons
means an absence:
(i) by reason of the pregnancy of the individual;
(ii) by reason of a birth of a child of the individual;
(iii) by reason of the placement of a child with the individual in
connection with the adoption of such child by such individual; or
(iv) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
The Hours of Service credited under this Section 2.18 shall be credited
(i) in the computation period in which the absence begins if the crediting
is necessary to prevent a Break in Service in that period, or (ii) in all
other cases the following computation period.
(e) Hours of Service shall be determined on the basis of actual hours for
which an Employee is paid or entitled to payment unless a different
method of determining Hours of Service is selected in item 4(A) of the
Adoption Agreement.
(f) In the event the Employer maintains the plan of a predecessor employer,
service for such predecessor employer shall be treated as service for the
Employer. Hours of Service will be credited for employment with
members of an affiliated service group under Code Section 414(m), a
controlled group of corporations under Code Section 414(b), or a group
of trades or businesses under common control under Code Section 414(c) of
which the Employer is a member and any other entity required to be
aggregated with the Employer pursuant to Code Section 414(o) and the
Regulations thereunder. Hours of Service will also be credited for any
Leased Employee for purposes of this Plan under Code Sections 414(n) or
(o) and the Regulations thereunder, unless excluded under item 4 of the
Adoption Agreement.
2.19 INVESTMENT ADVISOR means Strong Capital Management, Inc.
2.20 INVESTMENT COMPANY means Strong Asset Allocation Fund, Inc.,
Strong Total Return Fund, Inc., Strong Corporate Bond Fund, Inc., Strong Money
Market Fund, Inc., and any other regulated investment company(ies) designated
by the Investment Advisor.
2.21 INVESTMENT COMPANY SHARES means the shares of each Investment Company.
2.22 LEASED EMPLOYEE means any individual who is considered a leased employee
within the meaning of Code Sections 414(n) or (o). For purposes of this
Section, a Leased Employee means any person who, pursuant to an agreement
between the Employer and any other person (which may include the Leased
Employee), has performed services for the Employer (or for the Employer and any
Related Employer) in a capacity other than as a common law employee on a
substantially full-time basis for a period of at least one year, and such
services are of a type historically performed by employees in the business
field of the Employer. Notwithstanding the foregoing, no individual shall be
considered to be a Leased Employee if (a) such individual is covered by a money
purchase pension plan providing: (i) a non-integrated employer contribution
rate of at least ten percent (10%) of compensation, as defined in Code Section
415(c)(3), but including amounts contributed pursuant to a salary reduction
agreement which are excludable from the individual's gross income under Code
Sections 125, 402(a)(8), 402(h) or 403(b), (ii) immediate participation, and
(iii) full and immediate vesting and (b) Leased Employees do not constitute
more than twenty percent (20%) of the Employer's nonhighly compensated work
force. Contributions or benefits provided to a Leased Employee by the leasing
organization which are attributable to services performed for the Employer
shall be treated as provided by the Employer.
9
<PAGE> 4
2.23 MATCHING CONTRIBUTION means an Employer contribution made to the Plan or
any other defined contribution plan on behalf of a participating Employee on
account of a participating Employee's Elective Deferrals pursuant to Section
5.3 hereof or on account of any employee contributions or elective deferrals
made to any other plan.
2.24 NET PROFITS means the current or accumulated earnings of the Employer
before federal and state taxes and contributions to this or any other
qualified plan.
2.25 NORMAL RETIREMENT AGE means age 65 or such other age as selected in item
11 of the Adoption Agreement (Profit Sharing Plan) and item 9 of the Adoption
Agreement (Pension Plan). If the Employer enforces a mandatory retirement age,
the Normal Retirement Age shall be the lesser of such mandatory retirement age
or the age specified in the Adoption Agreement.
2.26 ORIGINAL PLAN means any defined contribution plan which meets the
requirements of Code Section 401 and referred to in Article XII of the Plan.
2.27 OWNER-EMPLOYEE means an individual who is a sole proprietor, or who is a
partner owning more than ten percent (10%) of either the capital or profits
interest of the partnership.
2.28 PARTICIPANT means each Employee (including any eligible Self-Employed
Individual) who has completed the requirements for eligibility specified in
Section 3.1 hereof. Each such Employee shall become a Participant as of the
earlier of: (i) the first day of the Plan Year or (ii) the first day of the
seventh month of the Plan Year beginning after he completes such requirements.
2.29 PARTICIPANT VOLUNTARY CONTRIBUTIONS means contributions by a Participant
under the Plan pursuant to Section 4.3, if elected in item 9 of the Adoption
Agreement (Profit Sharing Plan) and item 8 of the Adoption Agreement (Pension
Plan).
2.30 PENSION PLAN means the feature of the Plan pursuant to which the Employer
makes Employer Pension Contributions. Such feature applies only to the extent
elected in item 6 of the Adoption Agreement (Pension Plan).
2.31 PLAN means this prototype profit sharing plan and/or money purchase
pension plan, together with the appropriate Adoption Agreement(s), as set forth
herein and as may be amended from time to time. As used herein, the term Plan
shall mean either or both the money purchase pension plan and the
profit-sharing plan depending on whether the Employer has adopted one or both
plans.
2.32 PLAN YEAR means the twelve (12) consecutive month period designated in
item 2 of the Adoption Agreement. The first Plan Year shall commence on the
Effective Date.
2.33 PROFIT SHARING PLAN means the feaures of the Plan pursuant to which all
contributions, other than Employer Pension Contributions, are made to the Plan,
including any contributions pursuant to the cash or deferred arrangement
(Section 401(k)) described in Article V hereof. Such features apply only to
the extent elected in items 6 and/or 8 of the Adoption Agreement (Profit Sharing
Plan).
2.34 RELATED EMPLOYER means an organization which, together with the Employer,
constitutes (i) a controlled group of corporations as defined in Code Section
414(b); (ii) trades or businesses under common control as defined in Code
Section 414(c); (iii) an affiliated service group as defined in Code Section
414(m); or (iv) a group of employers required to be aggregated under Code
Section 414(o).
2.35 SELF-EMPLOYED INDIVIDUAL means an individual who has Earned Income for
the taxable year from the trade or business for which the Plan was established
or who would have had Earned Income but for the fact that the trade or business
had no Net Profits for the taxable year.
2.36 VALUATION DATE means the last day of each Plan Year and such other times
as shall be determined by the Administrator.
2.37 YEAR OF EMPLOYMENT means the twelve (12) consecutive month period,
beginning on the date the Employee first performs an Hour of Service or any
anniversary thereof, in which the Employee completes at least one thousand
(1,000) Hours of Service or such lesser number of Hours of Service as
selected in item 4 of the Adoption Agreement.
2.38 YEAR OF SERVICE means a Plan Year in which the Employee completes at
least one thousand (1,000) Hours of Service or such lesser number of Hours of
Service as selected in item 7 of the Adoption Agreement.
ARTICLE III
PARTICIPATION
3.1 PARTICIPATION AT EFFECTIVE DATE Each Employee shall become a Participant
on the Effective Date, if on the Effective Date such Employee has completed the
number of Years of Employment and has attained age 21 or such lesser age as
elected in item 4 of the Adoption Agreement.
3.2 PARTICIPATION AFTER EFFECTIVE DATE Each Employee who did not become a
Participant as of the Effective Date, including future Employees, shall be
entitled to become a Participant in accordance with Section 2.28 after such
Employee has completed the number of Years of Employment and has attained age
21 or such lesser age as elected in item 4 of the Adoption Agreement.
3.3 REENTRY A former Participant shall become a Participant immediately upon
his return to employment with the Employer or his return to an eligible class
of Employees, whichever is applicable. In the event an Employee who is not a
member of the eligible class of Employees becomes a member of the eligible
class, such Employee will become a Participant in accordance with Section 3.2
above; provided that if the Employee has previously satisfied the eligibility
requirements of Section 3.2, the Employee shall become a Participant
immediately upon becoming a member of the eligible class of Employees.
3.4 PARTICIPATION BY AN OWNER-EMPLOYEE OF MORE THAN ONE TRADE OR BUSINESS
(a) If this Plan provides contributions or benefits for one or more Owner-
Employees who control both the business with respect to which this Plan is
established, and one or more other trades or businesses, this Plan and the
plan established with respect to such other trades or businesses must,
when looked at as a single plan, satisfy Code Sections 401(a) and (d) with
respect to the employees of this and all such other trades or businesses.
(b) If this Plan provides contributions or benefits for one or more Owner-
Employees who control one or more other trades or businesses, the
employees of each such other trade or business must be included in a plan
which satisfies Code Section 401(a) and (d) and which provides
contributions and benefits not less favorable than provided for such
Owner-Employees under this Plan.
(c) If an individual is covered as an Owner-Employee under the plans of two
or more trades or businesses which he does not control, and such
individual controls a trade or business, then the contributions or
benefits of the employees under the plan of the trade or business which he
or she does control must be as favorable as those provided for him or her
under the most favorable plan of the trade or business which he or she
does not control.
(d) For purposes of the preceding subparagraphs, an Owner-Employee, or two or
more Owner-Employees, shall be considered to control a trade or business
if such Owner-Employee, or such two or more Owner-Employees together, own
the entire interest in an unincorporated trade or
10
<PAGE> 5
business, or, in the case of a partnership, own more than fifty percent
(50%) of either the capital interest or the profits interest in such
partnership. For purposes of the preceding sentence, an Owner-Employee, or
two or more Owner-Employees, shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership which
such Owner-Employee, or such two or more Owner-Employees, are considered to
control within the meaning of the preceding sentence.
(e) Employees and Owner-Employees of trades or businesses which are under common
control (within the meaning of Code Section 414(c)) and Employees and
Owner-Employees of the members of an affiliated service group (within the
meaning of Code Section 414(m)) or of a group of aggregated employers (under
Code Section 414(o)) will be treated as employed by a single Employer for
purposes of employee benefit requirements of Code Section 414(m)(4).
ARTICLE IV
CONTRIBUTIONS
4.1 EMPLOYER PROFIT SHARING CONTRIBUTIONS
(a) If elected in item 6 of the Adoption Agreement (Profit Sharing Plan), the
Employer shall make an Employer Profit Sharing Contribution for each
Plan Year ending on or after the Effective Date in the amount determined
under such Adoption Agreement.
(b) The total amount of such Employer Profit Sharing Contribution for a Plan
Year shall be allocated to the Account of each eligible Participant as
follows:
(i) Unless otherwise elected in item 6(C) of the Adoption
Agreement, the total amount of such Employer Profit Sharing
Contribution shall be allocated based on the ratio that such eligible
Participant's Compensation and/or Earned Income for the Plan Year bears
to the total Compensation and Earned Income of all eligible Participants
for the Plan Year.
(ii) If the Integration Formula is selected in item 6(C) of the Adoption
Agreement, the total amount of such Employer Profit Sharing
Contribution shall be allocated based on the ratio that such
eligible Participant's Compensation and/or Earned Income for the
Plan Year in excess of the integration level for the Plan Year
bears to the total Compensation and Earned Income for all eligible
Participants in excess of the integration level for the Plan Year;
provided, however, that contributions allocated to a Participant with
respect to Compensation and/or Earned Income in excess of the
integration level shall not represent a greater percentage of such
excess Compensation and/or Earned Income than the lesser
of (A) 200% of the base contribution percentage, or
(B) the base contribution percentage plus the greater of:
(I) 5.7%, or
(II) the rate of tax under Code Section 3111(a) which
is attributable to old-age insurance in effect
at the beginning of the Plan Year.
Any Employer Profit Sharing Contribution remaining after the allocation
in this subsection (ii) shall be allocated in accordance with
subsection (i) above. The "integration level" shall be the taxable
wage base or such lesser level of Compensation and/or Earned
Income selected in item 6(C) of the Adoption Agreement. The "base
contribution percentage" shall mean the percentage of Compensation
and/or Earned Income which is contributed under the Plan with respect to
each Participant's Compensation and/or Earned Income not in excess
of the integration level.
If the integration level exceeds the greater of ten thousand dollars
($10,000) or one-fifth (1/5) of the taxable wage base but is not
more than eighty percent (80%) of the taxable wage base, the
percentage referred to in (I) above shall be reduced to 4.3% and a
proportionate reduction shall be made to the rate described in (II)
above. If the integration level is more than eighty percent (80%) but
less than one hundred percent (100%) of the taxable wage base, the
percentage referred to in (I) above shall be reduced to 5.4% and a
proportionate reduction shall be made to the rate described in (II)
above. The "taxable wage base" shall be the maximum amount of earnings
which may be considered wages for a year under Code Section 3121(a)(1)
in effect as of the beginning of the applicable Plan Year.
Notwithstanding the above, for any Plan Year in which the Plan is
top-heavy (as defined in Section 13.1 hereof) the Employer Profit
Sharing Contribution shall be allocated
(A) first, to each eligible Participant based on the ratio that
such Participant's Compensation and/or Earned Income for the
Plan Year bears to the total Compensation and Earned Income of all
eligible Participants for the Plan Year, but not more than three
percent (3%) of such Participant's Compensation and/or Earned Income.
(B) second, to each eligible Participant based on the ratio that
such Participant's Compensation and/or Earned Income in excess
of the integration level for the Plan Year bears to the total
Compensation and Earned Income of all eligible Participants in
excess of the integration level for the Plan Year, but not
more than three percent (3%) of such Participant's excess
Compensation and/or Earned Income, and
(C) any remaining Employer Profit Sharing Contribution shall be allocated
pursuant to the provisions of this subsection (ii) above.
(c) A Participant will be considered eligible for an allocation of the
Employer Profit Sharing Contribution if the Participant (i) is employed
by the Employer on the last day of the Plan Year or (ii) has completed at
least Five Hundred One (501) Hours of Service during the Plan Year.
(d) If elected in item 6(B) of the Adoption Agreement, Employer Profit
Sharing Contributions for a Plan Year shall not exceed the Net
Profits of the Employer for such Plan Year.
4.2 EMPLOYER PENSION CONTRIBUTIONS
(a) If elected in item 6 of the Adoption Agreement (Pension Plan),
the Employer shall make an Employer Pension Contribution for each
eligible Participant for each Plan Year ending on or after the Effective
Date in an amount determined under such Adoption Agreement.
(b) The total amount of such Employer Pension Contribution for a Plan
Year shall be allocated to the Account of each eligible Participant
as follows:
(i) Unless otherwise elected in item 6(B) of the Adoption Agreement, each
eligible Participant shall be allocated an amount equal to the
percentage of such eligible Participant's Compensation and/or
Earned Income as specified in the Adoption Agreement.
(ii) If the Integration Formula is selected in item 6(B) of the
Adoption Agreement, the total amount of such Employer Pension
Contribution shall be allocated in accordance with the method
described in Section 4.1(b) (ii) above. Notwithstanding the
foregoing, if the Integration Formula is selected under the
Profit Sharing Plan, the Employer Pension Contribution shall
be allocated in accordance with subsection (b)(i) above.
11
<PAGE> 6
(c) A Participant will be considered eligible for an Employer
Pension contribution if the Participant (i) is employed by the
Employer on the last day of the Plan Year or (ii) has completed at
least Five Hundred One (501) Hours of Service during the Plan Year.
4.3 PARTICIPANT VOLUNTARY CONTRIBUTIONS
(a) If elected in item 9 of the Adoption Agreement (Profit Sharing
Plan) or item 8 of the Adoption Agreement (Pension Plan), a
Participant may voluntarily contribute to the Plan an amount up to ten
percent (10%) of his aggregate Compensation for all years since
becoming a Participant under this Plan and all other qualified plans of
the Employer. Any Participant Voluntary Contributions shall be limited
in accordance with the provisions of Section 5.3, even if the Employer
does not elect the Cash or Deferred Arrangement (Section 401(k)) under
item 8 of the Adoption Agreement (Profit Sharing Plan). If the Profit
Sharing Plan is elected, all Participant Voluntary Contributions shall
be deemed made to such plan. Participant Voluntary Contributions shall
be limited to Participants who are not highly compensated employees
(within the meaning of Code Section 414(q)) if elected in the Adoption
Agreement.
(b) A Participant shall be entitled to withdraw from his appropriate
Account at any time upon thirty (30) days' notice from the
Administrator to the Custodian (which notice shall specify the amount
of the withdrawal), a sum not in excess of the capital amount
contributed by him as Participant Voluntary Contributions under the
provisions of this Section 4.3, or the value of such Account, whichever
is less, provided that no ordinary income or capital gains attributable
to such contributions shall be subject to withdrawal. Notwithstanding
anything to the contrary herein, (i) all withdrawals are subject to the
provisions of Article VIII, and (ii) no forfeiture shall occur solely
as a result of a Participant's withdrawal of all or any portion of his
Participant Voluntary Contributions.
(c) No deductible voluntary employee contributions may be made for
taxable years beginning after December 31, 1986. Such contributions
made prior to that date will be maintained in a separate
Account which will be nonforfeitable at all times. The Account will
share in the gains or losses in the same manner as described in Section
9.3 of the Plan. Subject to Section 8.2, a Participant may withdraw
any part of the deductible voluntary contribution Account by making a
written application to the Administrator.
4.4 TIME FOR MAKING CONTRIBUTIONS Employer Pension Contributions and Employer
Profit Sharing Contributions must be made no later than the due date, including
extensions thereof, for filing the Employer's Federal income tax return for the
year coincident with or within which the Plan Year ends (or such later time as
authorized by Treasury Regulations). Participant Voluntary Contributions for
any Plan Year shall be made no later than thirty (30) days after the end of
such Plan Year. The Employer may establish a payroll deduction system or
other procedure to assist the making of Participant Voluntary Contributions and
shall transfer such contributions to the Custodian as soon as practicable
after collected.
4.5 LEASED EMPLOYEES Contributions or benefits provided to a Leased Employee
by the leasing organization (within the meaning of Code Section 414(n)) which
are attributable to services performed for the Employer shall be treated as
provided by the Employer for purposes of this Plan.
4.6 ROLLOVERS AND TRANSFERS In the discretion of the Administrator according
to such uniform and nondiscriminatory rules established by the Administrator,
and in accordance with Sections 402 and 408 of the Code, a Particpant may make
a rollover to the Plan or the Plan may accept a direct transfer (including
voluntary after-tax contributions) from another plan qualified under Section
401(a) of the Code or from an individual retirement account. If the Employer
has adopted the Profit Sharing Plan, any rollover or transfer shall be made to
such Plan.
ARTICLE V
CASH OR DEFERRED ARRANGEMENT
(CODE SECTION 401(k))
5.1 CASH OR DEFERRED ARRANGEMENT (CODE SECTION 401(k)) The provisions of this
Article shall be effective as of the first day of the Plan Year in which this
cash or deferred arrangement is elected in item 8 of the Adoption Agreement
(Profit Sharing Plan). Under no circumstances shall the provisions of this
Article apply prior to the time specified in the preceding sentence.
5.2 ELECTIVE DEFERRALS
(a) ELECTION
(i) An Employee who has satisfied the minimum age and
service requirements set forth in item 8(A) of the Adoption
Agreement (Profit Sharing Plan) may elect to have Elective Deferrals
made to the Plan pursuant to a salary reduction agreement to the
extent permitted in item 8(A) of the Adoption Agreement (Profit
Sharing Plan). Such an election shall be effective as of the time
specified in item 8(A) of the Adoption Agreement (Profit Sharing
Plan) and may not be made effective retroactively.
(ii) An eligible Employee may also base Elective Deferrals,
to the extent provided in item 8(A) of the Adoption Agreement
(Profit Sharing Plan), on cash bonuses that, at the Employee's
election, may be contributed to the Plan or received by the
Employee. Such an election shall be effective as of the time
specified in item 8(A) of the Adoption Agreement (Profit Sharing
Plan) and may not be made effective retroactively.
(b) CHANGE IN RATE The rate at which Elective Deferrals are made
shall remain in effect until modified in accordance with item 8(A) of the
Adoption Agreement (Profit Sharing Plan). Notwithstanding the foregoing,
Elective Deferrals may be suspended entirely by an Employee at any time by
written notice to the Administrator. Any such suspension shall be
effective as soon as administratively practicable following the
Administrator's receipt of such notice.
(c) VESTING A Participant shall at all times have a fully vested and
nonforfeitable interest in his Elective Deferrals.
(d) EXCESS ELECTIVE DEFERRALS
(i) No Participating Employee shall be permitted to have
Elective Deferrals made under this Plan or any other qualified
plan maintained by the Employer during any taxable year pursuant to
Code Sections 401(k), 408(k) or 403(b) in excess of the dollar
limitation contained in Code Section 402(g) in effect at the
beginning of such taxable year.
(ii) A Participating Employee may assign to the Plan any
Excess Elective Deferrals made during a taxable year of such
Employee by notifying the Administrator on or before the date
specified below of the Excess Elective Deferrals to be assigned to
the Plan. Notwithstanding any other provision of the Plan, Excess
Elective Deferrals, plus any income and minus any loss allocable
thereto, may be distributed no later than April 15 to any
Participating Employee to whose Accounts Excess Elective Deferrals
were assigned for the preceding year and who claims Excess Elective
Deferrals for such taxable year. A Participating Employee's claim
for Excess Elective Deferrals shall be made in writing and shall be
submitted to the Administrator not later than the March 1
immediately preceding the relevant April 15. Such claim shall
specify the amount of the Participating Employee's Excess Elective
Deferrals for the preceding taxable
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<PAGE> 7
year and shall be accompanied by the Participating Employee's written
statement that if such amounts are not distributed, such Excess Elective
Deferrals, when added to amounts deferred under other plans or
arrangements described in Code Sections 401(k), 408(k) or 403(b), exceed
the limit imposed on the Participating Employee by Code Section 402(g)
for the year of the deferral.
(iii) Excess Elective Deferrals shall be adjusted for any income or
loss up to the date of distribution. The income or loss allocable to
Excess Elective Deferrals is the sum of:
(A) income or loss allocable to the participating Employee's Elective
Deferrals Account for the taxable year for which the Excess Elective
Deferrals occurred multiplied by a fraction, the numerator of
which is such Participating Employee's Excess Elective Deferrals for
such taxable year and the denominator of which is such Participating
Employee's Elective Deferrals Account balance as of the end of the
taxable year without regard to any income or loss occurring during
such taxable year; and
(B) income or loss allocable to the Participating Employee's
Elective Deferrals Account for the period between the end of such
taxable year and the date of distribution under (A) above; or, at
the option of the Employer, ten percent (10%) of the amount
determined under (A) above multiplied by the number of whole calendar
months between the end of such taxable year and the date of
distribution, counting the month of distribution if distribution
occurs after the fifteenth (15th) of such month.
The amount of Excess Elective Deferrals that may be distributed with
respect to a Participating Employee shall be reduced by any Excess
Contributions previously distributed or recharacterized with respect to
such Participating Employee for the Plan Year beginning with or within such
taxable year. In no event may the amount distributed exceed the
Participating Employee's total Elective Deferrals for such taxable year.
(e) ACTUAL DEFERRAL PERCENTAGE
(i) The Actual Deferral Percentage for Participating Employees who
are Highly Compensated Employees for each Plan Year and the Actual
Deferral Percentage for Participating Employees who are not Highly
Compensated Employees for the same Plan Year must satisfy one of the
following tests:
(A) The Actual Deferral Percentage for Participating Employees
who are Highly Compensated Employees for the Plan Year shall not
exceed the Actual Deferral Percentage for Participating Employees
who are not Highly Compensated Employees for the same Plan Year
multiplied by 1.25; or
(B) The Actual Deferral Percentage for Participating Employees
who are Highly Compensated Employees for the Plan Year shall not
exceed the Actual Deferral Percentage for Participating Employees
who are not Highly Compensated Employees for the same Plan Year
multiplied by 2.0, provided that the Actual Deferral Percentage for
Participating Employees who are Highly Compensated Employees does
not exceed the Actual Deferral Percentage for Participating
Employees who are not Highly Compensated Employees by more than two
(2) percentage points.
(ii) The Actual Deferral Percentage for any Participating
Employee who is a Highly Compensated Employee for the Plan Year and
who is eligible to have Elective Deferrals (and Qualified
Non-Elective Contributions or Qualified Matching Contributions, or
both) allocated to his Accounts under two or more arrangements
described in Code Section 401(k), that are maintained by the
Employer, shall be determined as if such Elective Deferrals (and, if
applicable, such Qualified Non-Elective Contributions or Qualified
Matching Contributions, or both) were made under a single
arrangement. If a Highly Compensated Employee participates in two
or more cash or deferred arrangements that have different Plan
Years, contributions for such employee shall be aggregated for
purposes of this subsection (e). Contributions which are required
to be aggregated are any contributions made under all cash or
deferred arrangements ending with or within the same calendar year.
(iii) In the event that the Plan satisfies the requirements
of Code Sections 401(k), 401(a)(4) or 410(b) only if aggregated with
one or more other plans, or if one or more other plans satisfy the
requirements of such Code Sections only if aggregated with this Plan,
then this subsection shall be applied by determining the Actual
Deferral Percentage of Participating Employees as if all such plans
were a single plan. For Plan Years beginning after December 31, 1989,
plans may be aggregated in order to satisfy Code Section 401(k) only
if they have the same Plan Year.
(iv) For purposes of determining the Actual Deferral Percentage of a
Participating Employee who is a five (5) percent owner or one of the
ten (10) most highly-paid Highly Compensated Employees, the Elective
Deferrals (and Qualified Non-Elective Contributions and Qualified
Matching Contributions, or both) and Compensation of such
Participating Employee shall include the Elective Deferrals (and,
if applicable, Qualified Non-Elective Contributions and Qualified
Matching Contributions, or both) and Compensation for the Plan Year
of Family Members. Family Members, with respect to such Highly
Compensated Employees, shall be disregarded as separate employees in
determining the Actual Deferral Percentage both for Participating
Employees who are not Highly Compensated Employees and for
Participating Employees who are Highly Compensated Employees.
(v) For purposes of determining the Actual Deferral Percentage test,
Elective Deferrals, Qualified Non-Elective Contributions and
Qualified Matching Contributions must be made before the last day of
the twelve-month period immediately following the Plan Year to which
such contributions relate.
(vi) The Employer shall maintain records sufficient to
demonstrate satisfaction of the Actual Deferral Percentage test and
the amount of Qualified Non-Elective Contributions or Qualified
Matching Contributions, or both, used in such test.
(vii) The determination and treatment of the Actual Deferral
Percentage amounts of any Participating Employee shall satisfy such
other requirements as may be prescribed by the Secretary of the
Treasury.
(f) DISTRIBUTION OF EXCESS CONTRIBUTIONS
(i) Notwithstanding any other provision of this Plan,
Excess Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of each
Plan Year to Participating Employees to whose Accounts such Excess
Contributions were allocated for the preceding Plan Year. If
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<PAGE> 8
such excess amounts are distributed more than two and one-half
(2 1/2) months after the last day of the Plan Year in which such
excess amounts arose, a ten percent (10%) excise tax will be
imposed on the Employer with respect to such amounts. Such
distributions shall be made to Highly Compensated Employees on the
basis of the respective portions of the Excess Contributions
attributable to each of such Employees. Excess Contributions shall
be allocated to Participating Employees who are subject to the
family member aggregation rules of Code Section 414(q)(6) in the
manner prescribed by the regulations. Excess Contributions
(including any amounts recharacterized) shall be treated as Annual
Additions for purposes of Article VI of the Plan.
(ii) Excess Contributions shall be adjusted for any income or loss up to
the date of distribution. The income or loss allocable to Excess
Contributions is the sum of:
(A) income or loss allocable to the Participating Employee's
Elective Deferrals Account (and, if applicable, the Qualified
Non-Elective Contributions Account or the Qualified Matching
Contributions Account, or both) for the Plan Year for which
the Excess Contributions occurred multiplied by a fraction,
the numerator of which is such Participating Employee's Excess
Contributions for such Plan Year and the denominator of which
is such Participating Employee's Account balance(s)
attributable to Elective Deferrals (and Qualified Non-Elective
Contributions or Qualified Matching Contributions, or both) as
of the end of the Plan Year without regard to any income or
loss occurring during such Plan Year; and
(B) income or loss allocable to the Participant's Elective
Deferrals Account (and, if applicable, the Qualified
Non-Elective Contribution Account or the Qualified Matching
Contribution Account, or both) for the period between the end
of such Plan Year and the date of distribution multiplied by
the fraction determined under (A) above; or, at the option of
the Employer, ten percent (10%) of the amount determined under
(A) above multiplied by the number of whole calendar months
between the end of such Plan Year and the date of
distribution, counting the month of distribution if
distribution occurs after the fifteenth (15th) of such month.
(iii) Excess Contributions shall be distributed from the Participating
Employee's Elective Deferrals Account and Qualified Matching
Contributions Account (if applicable) in proportion to the
Participating Employee's Elective Deferrals and Qualified Matching
Contributions (to the extent used in the Actual Deferral Percentage
test) for the Plan Year. Excess Contributions shall be distributed
from the Participating Employee's Qualified Non-Elective
Contributions Account only to the extent that such Excess
Contributions exceed the balance in the Participating Employee's
Elective Deferrals Account and Matching Contributions Account.
(g) RECHARACTERIZATION
(i) A Participating Employee may treat his Excess Contributions
as an amount distributed to the Participating Employee and
then contributed by the Participating Employee to the Plan.
Recharacterized amounts will remain nonforfeitable and
subject to the same distribution requirements as Elective
Deferrals. Amounts may not be recharacterized by a Highly
Compensated Employee to the extent that such amount in
combination with other Participant Voluntary Contributions
would exceed any stated limit under the Plan on Participant
Voluntary Contributions. Recharacterizing Excess
Contributions shall be limited to Participants who are not
Highly Compensated Employees if elected in the Adoption
Agreement.
(ii) Recharacterization must occur no later than two and one-half
(2 1/2) months after the end of the Plan Year in which such
Excess Contributions arose and is deemed to occur no
earlier than the date the last Highly Compensated Employee is
informed in writing of the amount recharacterized and the
consequences thereof. Recharacterized amounts will be taxable
to the Participating Employee for such Participating
Employee's taxable year in which the Participating Employee
would have received them in cash.
5.3 MATCHING CONTRIBUTIONS
(a) The Employer shall make Employer Matching Contributions to the Plan to the
extent elected in item 8(B) of the Adoption Agreement (Profit Sharing
Plan).
(b) A Participant shall have a vested interest in his Matching Contributions
Account as determined under the vesting schedule elected in item 8(B) of
the Adoption Agreement (Profit Sharing Plan). Forfeitures derived from
Matching Contributions which become available because of the vesting
provisions above, shall be applied to reduce the Employer Matching
Contributions that would otherwise be due for the Plan Year, or
subsequent Plan Years.
(c) ACTUAL CONTRIBUTION PERCENTAGE
(i) The Actual Contribution Percentage for Participating Employees who
are Highly Compensated Employees for each Plan Year and the Actual
Contribution Percentage for Participating Employees who are not
Highly Compensated Employees for the same Plan Year must
satisfy one of the following tests:
(A) The Actual Contribution Percentage for Participating
Employees who are Highly Compensated Employees for the Plan
Year shall not exceed the Actual Contribution Percentage for
Participating Employees who are not Highly Compensated
Employees for the same Plan Year multiplied by 1.25; or
(B) The Actual Contribution Percentage for Participating
Employees who are Highly Compensated Employees for the Plan
Year shall not exceed the Actual Contribution Percentage for
Participating Employees who are not Highly Compensated
Employees for the same Plan Year multiplied by two (2),
provided that the Actual Contribution Percentage for
Participating Employees who are Highly Compensated Employees
does not exceed the Actual Contribution Percentage for
Participating Employees who are not Highly Compensated
Employees by more than two (2) percentage points.
(ii) If one or more Highly Compensated Employees participate in both a
cash or deferred arrangement and a plan subject to the Actual
Contribution Percentage test maintained by the Employer and the sum
of the Actual Deferral Percentage and the Actual Contribution
Percentage of those Highly Compensated Employees subject to either
or both tests exceeds the Aggregate Limit, then the Actual
Contribution Percentage of those Highly Compensated Employees who
also participate in a cash or deferred arrangement will be reduced
(beginning with such Highly Compensated Employee whose Actual
Contribution Percentage is the highest) so that the limit is not
exceeded. The amount by which each Highly Compensated
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<PAGE> 9
Employee's Contribution Percentage Amount is reduced shall be treated
as an Excess Aggregate Contribution. The Actual Deferral Percentage and
the Actual Contribution Percentage of the Highly Compensated Employees
are determined after any corrections required to meet the Actual
Deferral Percentage and the Actual Contribution Percentage tests.
Multiple use does not occur if both the Actual Deferral Percentage and
the Actual Contribution Percentage of the Highly Compensated Employees
does not exceed 1.25 multiplied by the Actual Deferral Percentage and
the Actual Contribution Percentage of the Participating Employees who
are not Highly Compensated Employees.
(iii) For purposes of this subsection, the Contribution Percentage for any
Participating Employee who is a Highly Compensated Employee and who is
eligible to have Contribution Percentage Amounts allocated to his
account under two or more plans described in Code Section 401(a), or
arrangements described in Code Section 401(k) that are maintained by
the Employer, shall be determined as if the total of such Contribution
Percentage Amounts was made under each plan. If a Highly Compensated
Employee participates in two or more cash or deferred arrangements that
have different plan years, all cash or deferred arrangements ending with
or within the same calendar year shall be treated as a single
arrangement.
(iv) In the event that this Plan satisfies the requirements of Code Sections
401(m), 401(a)(4) or 410(b) only if aggregated with one or more other
plans, or if one or more other plans satisfy the requirements of such
Code Sections only if aggregated with this Plan, then this subsection
shall be applied by determining the Contribution Percentage of employees
as if all such plans were a single plan. For plan years beginning after
December 31, 1989, plans may be aggregated in order to satisfy Code
Section 401(m) only if they have the same plan year.
(v) For purposes of determining the Contribution Percentage of a
Participating Employee who is a five percent owner or one of the ten
(10) most highly-paid Highly Compensated Employees, the Contribution
Percentage Amounts and Compensation of such Participating Employee shall
include the Contribution Percentage Amounts and Compensation for the
Plan Year of Family Members. Family Members, with respect to Highly
Compensated Employees, shall be disregarded as separate employees in
determining the Contribution Percentage both for Participating Employees
who are not Highly Compensated Employees and for Participating
Employees who are Highly Compensated Employees.
(vi) For purposes of determining the Contribution Percentage test, Employee
Contributions are considered to have been made in the Plan Year in which
contributed to the trust. Matching Contributions and Qualified
Non-Elective Contributions shall be considered made for a Plan Year if
made no later than the end of the twelve-month period beginning on the
day after the close of the Plan Year.
(vii) The Employer shall maintain records sufficient to demonstrate
satisfaction of the Actual Contribution Percentage test and the amount
of Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, used in such test.
(viii) The determination and treatment of the Contribution Percentage of any
Participating Employee shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
(d) DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
(i) Notwithstanding any other provision of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto,
shall be forfeited, if forfeitable, or if not forfeitable,
distributed no later than the last day of each Plan Year to
Participating Employees to whose Accounts such Excess Aggregate
Contributions were allocated for the preceding Plan Year. Excess
Aggregate Contributions shall be allocated to Participating
Employees who are subject to the family member aggregation rules of
Code Section 414(q)(6) in the manner prescribed by the regulations.
If such Excess Aggregate Contributions are distributed more than two
and one-half (2 1/2) months after the last day of the Plan Year in
which such excess amounts arose, a ten percent (10%) excise tax will
be imposed on the Employer with respect to those amounts. Excess
Aggregate Contributions shall be treated as Annual Additions for
purposes of Article VI of the Plan.
(ii) Excess Aggregate Contributions shall be adjusted for any income or
loss up to the date of distribution. The income or loss allocable to
Excess Aggregate Contributions is the sum of:
(A) income or loss allocable to the Participating Employee's
Participant Voluntary Contributions Account, Matching
Contributions Account, Qualified Matching Contribution Account
(if any, and if all amounts therein are not used in the Actual
Deferral Percentage test) and, if applicable, Qualified
Non-Elective Contributions Account and Elective Deferrals
Account for the Plan Year for which the Excess Aggregate
Contributions occurred multiplied by a fraction, the numerator
of which is such Participating Employee's Excess Aggregate
Contributions for such Plan Year and the denominator of which is
the Participating Employee's Account balance(s) attributable to
Contribution Percentage Amounts as of the end of the Plan Year
without regard to any income or loss occurring during such Plan
Year: and
(B) income or loss allocable to the Participating Employee's
Participant Voluntary Contribution Account; Matching
Contributions Account, Qualified Matching Contribution Account
(if any, and if all amounts therein are not used in the Actual
Deferral Percentage test) and, if applicable, Qualified
Non-Elective Contributions Account and Elective Deferrals
Account for the period between the end of such Plan Year and
the date of distribution multiplied by the fraction determined
under (A) above; or, at the election of the Employer, ten
percent (10%) of the amount determined under (A) above
multiplied by the number of whole calendar months between the
end of such Plan Year and the date of distribution, counting the
month of distribution if distribution occurs after the fifteenth
(15th) of such month.
(iii) Forfeitures of Excess Aggregate Contributions shall be applied to
reduce Employer contributions for subsequent Plan Years.
(iv) Excess Aggregate Contributions shall be forfeited, if forfeitable,
or distributed on a prorata basis from the Participating Employee's
Participant Voluntary Contributions Account, Matching Contributions
Account and Qualified Matching Contribution Account (and, if
applicable, the Participating Employee's Qualified Non-Elective
Contributions Account or Elective Deferrals Account, or both).
15
<PAGE> 10
5.4 QUALIFIED MATCHING CONTRIBUTIONS AND QUALIFIED NON-ELECTIVE CONTRIBUTIONS
(a) Qualified Matching Contributions. The Employer may elect to make
Qualified Matching Contributions under the Plan in item 8(C) of the
Adoption Agreement. Qualified Matching Contributions may be made in lieu
of distributing Excess Contributions as provided in Section 5.2(f) hereof.
Qualified Matching Contributions may be either (i) additional amounts
contributed to the Plan by the Employer and allocated to the Accounts of
Participating Employees who are not Highly Compensated Employees based on
such Employees' Elective Deferrals or (ii) Matching Contributions
otherwise made to the Plan pursuant to Section 5.3(a) hereof which the
Employer designates as Qualified Matching Contributions. The amount of
Qualified Matching Contributions (if any) shall be determined by the
Employer for each year. All Qualifying Matching Contributions shall be
used to satisfy the Actual Deferral Percentage test pursuant to regulations
under the Code.
(b) The Employer may elect to make Qualified Non-Elective Contributions under
the Plan in item 8(C) of the Adoption Agreement. Qualified Non-Elective
Contributions may be made in lieu of distributing Excess Contributions as
provided in Section 5.2(f) or Excess Aggregate Contributions as provided
in Section 5.3(d) hereof. Qualified Non-Elective Contributions may be
either (i) additional amounts contributed to the Plan by the Employer and
allocated to the Accounts of Participating Employees who are not Highly
Compensated Employees based on such Employees' Compensation or (ii)
Profit Sharing Contributions otherwise made to the Plan pursuant to Section
4.1(a) hereof which the Employer designates as Qualified Non-Elective
Contributions. The amount of Qualified Non-Elective Contributions (if
any) shall be determined by the Employer for each year. All Qualified
Non-Elective Contributions shall be used to satisfy either the Actual
Deferral Percentage test or the Average Contribution Percentage test, or
both, pursuant to regulations under the Code.
(c) Separate accounts for Qualified Non-Elective Contributions and Qualified
Matching Contributions will be maintained for each Participant consistent
with Section 7.1 hereof. Each account will be credited with the
applicable contributions and earnings thereon.
(d) For purposes of the special distribution rules in Section 5.5, Qualified
Matching Contributions and Qualified Non-Elective Contributions shall be
treated as Elective Deferrals.
(e) Qualified Matching Contributions and Qualified Non-Elective Contributions
shall be appropriately designated when contributed.
5.5 SPECIAL DISTRIBUTION RULES Except as provided below, Elective Deferrals,
Qualified Non-Elective Contributions and Qualified Matching Contributions, and
income allocable to each, are not distributable to a Participant or a
Beneficiary, in accordance with such Participant's or Beneficiary's election,
earlier than upon separation from service, death, or disability.
(a) FINANCIAL HARDSHIP
(i) If elected by the Employer in item 8(D) of the Adoption Agreement
(Profit Sharing Plan), a Participant may elect to withdraw all or
any portion of his Elective Deferrals (excluding net earnings
credited thereto after December 31, 1988) on account of financial
hardship. For purposes of this Section 5.5, a financial hardship
shall mean an immediate and heavy financial need of the Participant
which cannot be satisfied from other resources reasonably
available to such Participant. Hardship withdrawals are subject to
the spousal consent requirements of Code Sections 401(a)(11) and
417.
(ii) A withdrawal is made on account of an immediate and heavy financial
need of a Participant only if it is made on account of: (A)
unreimbursed medical expenses described in Code Section 213(d) of
the Participant or the Participant's spouse or dependents (as
defined in Code Section 152); (B) the purchase (excluding mortgage
payments) of a principal residence for the Participant; (C) payment
of tuition for the next term of post-secondary education for the
Participant or the Participant's spouse, children or dependents; or
(D) the need to prevent the Particpant's eviction from, or
foreclosure on the mortgage of, the Particpant's principal
residence or such other events as may be approved by the
Commissioner of Internal Revenue in rulings, notices or other
published documents.
(iii) A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Participant only if: (A)
the Participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans under all plans maintained
by the Employer; (B) all plans maintained by the Employer provide
that the Participant's Elective Deferrals and any other elective
contributions or employee contributions under this Plan and any
other plan maintained by the Employer (both qualified and
nonqualified) will be automatically suspended for twelve (12)
months after the receipt of the hardship distribution; (C) the
distribution is not in excess of the amount of an immediate and
heavy financial need; and (D) all plans maintained by the Employer
provide that the Participant may not make Elective Deferrals for
the Participant's taxable year immediately following the taxable
year of the hardship distribution in excess of the applicable limit
under Code Section 402(g) for such taxable year less the amount of
such Participant's Elective Deferrals for the taxable year of the
hardship distribution.
(iv) A request for a hardship distribution shall be made in writing and
in such form as may be prescribed by the Administrator. Processing
of applications and distributions of amounts under this Section, on
account of a bona fide financial hardship, shall be made as soon as
administratively feasible.
(b) ELECTIVE DEFERRALS AT AGE 59 1/2 Upon attaining age fifty-nine and
one-half (59 1/2), a Participant may elect to withdraw all or any portion
of his Elective Deferrals Account and/or Employer Matching Contributions
Account, as of the last day of any month, even if he is still employed.
5.6 DEFINITIONS For purposes of this Article, the following words and phrases
shall have the following meanings:
(a) ACTUAL DEFERRAL PERCENTAGE means, for a specified group of Participating
Employees for a Plan Year, the average of the ratios (calculated
separately for each Participating Employee in such group) of (i) the
amount of Employer contributions actually paid over to the trust on behalf
of such Participating Employee for the Plan Year to (ii) the Participating
Employee's Compensation for such Plan Year (whether or not the Employee was
a Participating Employee for the entire Plan Year). Employer
contributions on behalf of any Participating Employee shall include: (i)
any Elective Deferrals made pursuant to the Participating Employee's
deferral election, including Excess Elective Deferrals of Highly
Compensated Employees, but excluding Elective Deferrals that are taken
into account in the Contribution Percentage test (provided the Actual
Deferral Percentage test is satisfied both with and without exclusion of
these Elective Deferrals); and (ii) at the election of the Employer,
Qualified Non-Elective Contributions and Qualified Matching
Contributions. For purposes of computing Actual Deferral Percentages, an
employee who would be a Participating Employee but for
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<PAGE> 11
the failure to make Elective Deferrals shall be treated as a Participating
Employee on whose behalf no Elective Deferrals are made.
(b) AGGREGATE LIMIT means the sum of (i) one hundred twenty-five percent
(125%) of the greater of the Actual Deferral Percentage of the
Participating Employees who are not Highly Compensated Employees for the
Plan Year or the Actual Contribution Percentage of Participating Employees
who are not Highly Compensated Employees under the Plan subject to Code
Section 401(m) for the Plan Year beginning with or within the Plan Year of
the cash or deferred arrangement and (ii) the lesser of two hundred
percent (200%) or two (2) plus the lesser of such Actual Deferral
Percentage or Actual Contribution Percentage. "Lesser" is substituted for
"greater" in (i) above and "greater" is substituted for "lesser" after
"two plus the" in (ii) above if it would result in a larger Aggregate
Limit.
(c) AVERAGE CONTRIBUTION PERCENTAGE means the average of the Contribution
Percentages of the Employees in a group who are eligible to make
Participant Voluntary Contributions, or Elective Deferrals (if the
Employer takes such contributions into account in the calculation of the
Contribution Percentage), or to receive Matching Contributions (including
forfeitures) or Qualified Matching Contributions.
(d) CONTRIBUTION PERCENTAGE means the ratio (expressed as a percentage) of the
Participating Employee's Contribution Percentage Amounts to the
Participating Employee's Compensation for the Plan Year (whether or not
the Employee was a Participating Employee for the entire Plan Year).
(e) CONTRIBUTION PERCENTAGE AMOUNTS means the sum of the Participant Voluntary
Contributions, Matching Contributions, and Qualified Matching
Contributions (to the extent not taken into account for purposes of the
Actual Deferral Percentage test) made under the Plan on behalf of the
Participating Employee for the Plan Year. Such Contribution Percentage
Amounts shall include forfeitures of Excess Aggregate Contributions or
Matching Contributions allocated to the Participating Employee's Accounts
which shall be taken into account in the year in which such forfeiture
is allocated. The Employer may elect to include Qualified Non-Elective
Contributions in the Contribution Percentage Amounts. The Employer
also may elect to use all or part of the Elective Deferrals for
the Plan Year in the Contribution Percentage Amounts so long as the Actual
Deferral Percentage test is satisfied both including and excluding the
Elective Deferrals that are included in the Contribution Percentage
Amounts.
(f) EXCESS AGGREGATE CONTRIBUTIONS means, with respect to any Plan Year, the
excess of:
(i) the aggregate Contribution Percentage Amounts taken into account in
computing the numerator of the Contribution Percentage actually
made on behalf of Highly Compensated Employees for such Plan
Year, over
(ii) the maximum Contribution Percentage Amounts permitted by the Actual
Contribution Percentage test (determined by reducing contributions
made on behalf of Highly Compensated Employees in order of their
Contribution Percentages beginning with the highest of such
percentages).
Such determination shall be made after first determining Excess Elective
Deferrals pursuant to Section 5.2(d) hereof and then determining Excess
Contributions pursuant to Section 5.2(f) hereof.
(g) EXCESS CONTRIBUTIONS means, with respect to any Plan Year, the excess of:
(i) the aggregate amount of Employer contributions actually taken into
account in computing the Actual Deferral Percentage of Highly
Compensated Employees for such Plan Year, over
(ii) the maximum amount of such contributions permitted by the Actual
Deferral Percentage test (determined by reducing contributions made
on behalf of Highly Compensated Employees in order of the Actual
Deferral Percentages, beginning with the highest of such
percentages).
(h) EXCESS ELECTIVE DEFERRALS means those Elective Deferrals that are
includible in a Participating Employee's gross income for a taxable year
under Code Section 402(g) because they exceed the limitation specified in
Section 5.2(d)(i) hereof. Excess Elective Deferrals shall be treated as
Annual Additions under the Plan.
(i) FAMILY MEMBER means the spouse, lineal ascendants and descendants of
the employee or former employee and the spouses of such lineal ascendants
and descendants, all within the meaning of Code Section 414(q)(6).
(j) HIGHLY COMPENSATED EMPLOYEE means both highly compensated active employees
and highly compensated former employees.
(i) A highly compensated active employee includes any Employee who
performs service for the Employer during the determination year and
who, during the look-back year; (i) received compensation from the
Employer in excess of $75,000 (as adjusted pursuant to Code Section
415(d)); (ii) received compensation from the Employer in excess of
$50,000 (as adjusted pursuant to Code Section 415(d)) and was a
member of the top-paid group for such year; or (iii) was an officer
of the Employer and received compensaton during such year that is
greater than 50 percent of the dollar limitation in effect under
Code Section 415(b)(1)(A). The term Highly Compensated Employee
also includes: (i) employees who are both described in the
preceding sentence if the term "determination year" is substituted
for the term "look-back year" and the employee is one of the 100
employees who received the most compensation from the Employer
during the determination year; and (ii) employees who are 5 percent
owners at any time during the look-back year or determination year.
If no officer has satisfied the compensation requirement of (iii)
above during either a determination year or look-back year, the
highest paid officer for such year shall be treated as a Highly
Compensated Employee. For this purpose, the determination year
shall be the Plan Year. The look-back year shall be the
twelve-month period immediately preceding the determination year.
(ii) A highly compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior to
the determination year, performs no service for the Employer during
the determination year, and was a highly compensated active
employee for either the separation year or any determination year
ending on or after the employee's fifty-fifth (55th) birthday.
(iii) If an employee is, during a determination year or look-back year, a
Family Member of either a five percent owner who is an active or
former employee or a Highly Compensated Employee who is one of the
ten (10) most highly compensated employees ranked on the basis of
Compensation paid by the Employer during such year, then the Family
Member and the five percent owner or top-ten Highly
Compensated Employee shall be aggregated. In such case, the Family
Member and five percent owner or top-ten Highly Compensated
Employee shall be treated as a single employee receiv-
17
<PAGE> 12
ing Compensation and Plan contributions or benefits equal to
the sum of such Compensation and contributions or benefits of the
Family Member and five percent owner or top-ten Highly Compensated
Employee.
(iv) The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of employees
in the top-paid group, the top 100 employees, the number of employees
treated as officers and the Compensation that is considered, will be
made in accordance with Code Section 414(q).
(k) PARTICIPATING EMPLOYEE means an Employee who is eligible to make
Elective Deferrals or Participant Voluntary Contributions (if the Employer
takes such contributions into account in the calculation of the
Contribution Percentage), or to receive Matching Contributions (including
forfeitures) or Qualified Matching Contributions. If an Employee
contribution is required as a condition of participation in the Plan, any
Employee who would be a Participant in the Plan if such Employee made such
a contribution shall be treated as a Participating Employee on behalf of
whom no Employee contributions are made.
(l) QUALIFIED MATCHING CONTRIBUTIONS means Matching Contributions which
are one hundred percent (100%) vested and nonforfeitable at all times and
which are distributable only in accordance with the distribution provisions
applicable to Elective Deferrals.
(m) QUALIFIED NON-ELECTIVE CONTRIBUTIONS means contributions (other
than Matching Contributions or Qualified Matching Contributions) made by
the Employer and allocated to Participating Employees' Accounts that the
Participating Employees may not elect to receive in cash until distributed
from the Plan, are one hundred percent (100%) vested and nonforfeitable
when made, and are distributable only in accordance with the distribution
provisions applicable to Elective Deferrals.
ARTICLE VI
SECTION 415 LIMITATIONS
6.1 EMPLOYERS MAINTAINING ONLY THIS PLAN
(a) If the Participant does not participate in, and has never
participated in another qualified plan, a welfare benefit fund (as defined
in Code Section 419(e)) or an individual medical account (as defined in
Code Section 415(1)(2)) maintained by the Employer, the amount of Annual
Additions which may be credited to a Participant's Account, under this Plan
for a Limitation Year shall not exceed the lesser of the Maximum
Permissible Amount or any other limitation contained in this Plan. If the
Employer's contribution that would otherwise be contributed or allocated to
the Participant's Account would cause the Annual Additions for the
Limitation Year to exceed the Maximum Permissible Amount, the amount
contributed or allocated will be reduced so that the Annual Additions for
the Limitation Year will equal the Maximum Permissible Amount.
(b) Prior to the determination of the Participant's actual compensation
for a Limitation Year, the Maximum Permissible Amount may be determined on
the basis of the Participant's estimated annual compensation for such
Limitation Year. Such estimated annual compensation shall be determined on
a reasonable basis and shall be uniformly determined for all Participants
similarly situated. Any Employer contributions based on estimated annual
compensation shall be reduced by any Excess Amounts carried over from prior
years.
(c) As soon as it is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such Limitation Year
shall be determined on the basis of the Participant's actual Compensation
for such Limitation Year.
(d) If, pursuant to Section 6.1(c) and notwithstanding the provisions
of Section 6.1(a) hereof which require a reduction of contributions so as
not to exceed the limitations of this Article VI, there is an Excess Amount
with respect to a Participant for a Limitation Year, such Excess Amount
shall be disposed of as follows:
(i) Any Participant Voluntary Contributions, to the extent that
the return would reduce the Excess Amount, shall be returned to the
Participant.
(ii) In the event that the Participant is covered by this Plan
at the end of the Limitation Year, remaining Excess Amounts after the
application of clause (i) shall be applied to reduce future Employer
contributions (including any allocation of forfeitures) for such
Participant under this Plan in the next Limitation Year (and each
succeeding year, as necessary).
(iii) In the event that the Participant is not covered by this
Plan at the end of the Limitation Year, remaining Excess Amounts after
the application of clause (i) shall not be distributed to the
Participant, but shall be held unallocated in a suspense account and
shall be applied to reduce future Employer contributions (including
any allocation of forfeitures) for all remaining Participants in the
next Limitation Year (and each succeeding year, as necessary).
(iv) If a suspense account is in existence at any time during
the Limitation Year pursuant to this Section, it will not participate
in the allocation of any investment gains and losses, and all amounts
in the suspense account must be allocated and reallocated to
Participants' Accounts before any Employer or Employee contributions
may be made to the Plan for such Limitation Year. Excess amounts may
not be distributed to Participants or former Participants.
6.2 EMPLOYERS MAINTAINING OTHER MASTER OR PROTOTYPE DEFINED CONTRIBUTION PLANS.
(a) If, in addition to this Plan, the Participant is covered under
another qualified defined contribution plan which qualifies as a Master or
Prototype Plan or a welfare benefit fund (as defined in Code Section
419(e)) or an individual medical account (as defined in Code Section
415(1)(2)) maintained by the Employer during any Limitation Year, the
amount of Annual Additions which may be allocated under this Plan on the
Participant's behalf for such Limitation Year, shall not exceed the Maximum
Permissible Amount reduced by the Annual Additions credited to a
Participant's account under such other plans, welfare benefit funds or
individual medical accounts for the same Limitation Year. If the Annual
Additions with respect to the Participant under other defined contribution
plans and welfare benefit funds maintained by the Employer are less than
the Maximum Permissible Amount and the Employer contribution that would
otherwise be contributed or allocated to the Participant's Account under
this Plan would cause the Annual Additions for the Limitation Year to
exceed this limitation, the amount contributed or allocated will be reduced
so that the Annual Additions under all such plans and funds for the
Limitation Year will equal the Maximum Permissible Amount. If the Annual
Additions with respect to the Participant under such other defined
contribution plans and welfare benefit funds in the aggregate are equal to
or greater than the Maximum Permissible Amount, no amount will be
contributed or allocated to the Participant's Account under this Plan for
the Limitation Year.
(b) Prior to the determination of the Participant's actual Compensation
for the Limitation Year, the amounts referred to in subsection (a) above
may be determined on the Participant's estimated annual compensation for
such Limitation Year. Such estimated annual compensation shall be
determined on
18
<PAGE> 13
a reasonable basis and shall be uniformly determined for all
Participants similarly situated. Any Employer contribution based on
estimated annual compensation shall be reduced by any Excess Amounts
carried over from prior years.
(c) As soon as it is administratively feasible after the end of the
Limitation Year, the amounts referred to in subsection (a) above shall be
determined on the basis of the Participant's actual Compensation for such
Limitation Year.
(d) If a Participant's Annual Additions under this Plan and all such
other plans result in an Excess Amount for a Limitation Year, such Excess
Amount shall be deemed to consist of the Annual Additions last allocated,
except that Annual Additions attributable to a welfare benefit fund or
individual medical account will be deemed to have been allocated first
regardless of the actual allocation date.
(e) If an Excess Amount was allocated to a Participant on an allocation
date of this Plan which coincides with an allocation date of another plan,
the Excess Amount attributed to this Plan will be the product of:
(i) the total Excess Amount allocated as of such date (including any
amount which would have been allocated but for the limitations of Code
Section 415), times
(ii) the ratio of (A) the amount allocated to the Participant as of
such date under this Plan, divided by (B) the total amount allocated
as of such date under all qualified master or prototype defined
contribution plans (determined without regard to the limitations of
Code Section 415).
(f) Any Excess Amount attributed to this Plan shall be disposed of as
provided in Section 6.1(d).
6.3 EMPLOYERS MAINTAINING OTHER DEFINED CONTRIBUTION PLANS. If the Participant
is covered under another plan which is a qualified defined contribution plan
which is not a Master or Prototype Plan maintained by the Employer, Annual
Additions allocated under this Plan on behalf of any Participant shall be
limited in accordance with the provisions of Section 6.2, as though the other
plan were a Master or Prototype Plan, unless the Employer provides other
limitations in the Adoption Agreement.
6.4 EMPLOYERS MAINTAINING DEFINED BENEFIT PLANS If the Participant is covered
or was covered at any time under a qualified defined benefit plan maintained by
the Employer, the projected annual benefit thereunder and the Annual Additions
credited to any such Participant's Account under this Plan and any other
qualified defined contribution plan in any Limitation Year will be limited so
that the sum of the Defined Contribution Fraction and the Defined Benefit
Fraction with respect to such Participant will not exceed 1.0 in any Limitation
Year. The Annual Additions which may be credited to the Participant's Account
under this Plan for any Limitation Year will be limited in accordance with the
Adoption Agreement.
6.5 DEFINITIONS For purposes of this Article VI, the following terms shall be
defined as follows:
(a) Annual Additions -- The sum of the following amounts allocated to a
Participant's Account for a Limitation Year: (i) all Employer
contributions; (ii) all Participant contributions (other than a qualified
rollover contribution as described in Code Section 402(a)(5); (iii) all
forfeitures; (iv) all amounts allocated, after March 31, 1984, to an
individual medical account (as defined in Code Section 415(1)(2)) which is
part of a defined benefit or annuity plan maintained by the Employer are
treated as Annual Additions to a defined contribution plan; and (v)
amounts derived from contributions paid or accrued after December 31,
1985, in taxable years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate account of a
"key employee" (as defined in Code Section 419A(d)(3) under a welfare
benefit fund (as defined in Code Section 419(e)) maintained by the
Employer, are treated as Annual Additions to a defined contribution plan.
For the purposes of this Article VI, amounts reapplied under Sections
6.1(d) and 6.2(f) of the Plan to reduce Employer contributions shall also
be included as Annual Additions.
(b) Compensation -- A Participant's wages as defined in Code Section
3121(a), for purposes of calculating social security taxes, but determined
without regard to the wage base limitation in Code Section 3121(a)(1), the
limitations on the exclusions from wages in Code Section 3121(a)(5)(C) and
(D) for elective contributions and payments by reason of salary reduction
agreements, the special rules in Code Section 3121(v), any rules that
limit covered employment based on the type or location of an employee's
employer, and any rules that limit the remuneration included in wages
based on familial relationship or based on the nature or location of the
employment or the services performed (such as the exceptions to the
definition of employment in Code Section 3121(b)(1) through (20)). For any
Self-Employed Individual Compensation means Earned Income.
For Limitation Years beginning after December 31, 1991, for purposes of
applying the limitations of this Article. Compensation for a Limitation
Year is the Compensation actually paid or includible in gross income
during such Limitation Year. Notwithstanding the preceding sentence,
Compensation for a participant in a defined contribution plan who is
permanently and totally disabled (as defined in Code Section 22(e)(3)) is
the Compensation such participant would have received for the Limitation
Year if the participant had been paid at the rate of Compensation paid
immediately before becoming permanently and totally disabled. Such imputed
Compensation for a disabled participant may be taken into account only if
the participant is not a highly compensated employee (as defined in Code
Section 414(q)) and contributions made on behalf of such participant are
nonforfeitable when made.
(c) Defined Benefit Fraction -- A fraction, the numerator of which is
the sum of a Participant's Projected Annual Benefits under all the
qualified defined benefit plans (whether or not terminated) maintained by
the Employer determined at the end of the Limitation Year, and the
denominator of which is the lesser of (i) one hundred and twenty-five
percent (125%) of the dollar limitation for such Limitation Year under
Code Sections 415(b) and (d) (or such higher amount determined by the
Commissioner of Internal Revenue applicable to the calendar year with
which or within which the Limitation Year ends) or (ii) one hundred and
forty percent (140%) of the Participant's average Compensation (or Earned
Income) for the three highest consecutive calendar years of service during
which the Participant was in the Plan including any adjustments under Code
Section 415(b). Notwithstanding the above, if the Participant was a
Participant as of the first limitation year beginning after December 31,
1986 in one or more defined benefit plans maintained by the Employer which
were in existence on May 6, 1986, the denominator of this fraction will
not be less than the product of 1.25 times the sum of the annual benefits
under such plans which the Participant had accrued as of the close of the
last Limitation Year beginning after January 1, 1987, disregarding any
changes in the terms and conditions of the Plan after May 5, 1986. The
preceding sentence applies only if the defined benefit plans individually
and in the aggregate satisfied the requirements of Code Section 415 for
all Limitation Years beginning before January 1, 1987.
(d) Employer -- The Employer that adopts this Plan and in the case of a
group of employers which constitutes (i) a
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<PAGE> 14
controlled group of corporations (as defined in Code Section 414(b) as
modified by Code Section 415(h)); (ii) trades or businesses (whether or not
incorporated) which are under common control (as defined in Section 414(c)
as modified by Code Section 415(h)); (iii) an affiliated service group (as
defined in Code Section 414(m)); or (iv) a group of entities required to
be aggregated (pursuant to Code Section 414(o)) all such employers shall
be considered a single employer for purposes of applying the limitations
of this Articles VI.
(e) Excess Amount -- The excess of the Participant's Annual Additions for
the Limitation Year over the Maximum Permissible Amount.
(f) Limitation Year -- A calendar year or any other twelve (12)
consecutive month period adopted by the Employer in item 12 of the
Adoption Agreement (Profit Sharing Plan) or item 10 of the Adoption
Agreement (Pension Plan). All qualified plans maintained by the Employer
shall use the same Limitation Year. If the Limitation Year is amended to a
different twelve (12) consecutive month period, the new Limitation Year
shall begin on the date within the Limitation Year in which the amendment
is made.
(g) Master or Prototype Plan -- A plan the form of which is the subject of
a favorable opinion letter from the Internal Revenue Service.
(h) Maximum Permissible Amount -- For a Limitation Year, the Maximum
Permissible Amount with respect to any Participant shall be the lesser of
(i) the Defined Contribution Dollar Limitation or (ii) twenty-five percent
(25%) of the Participant's Compensation for the Limitation Year. The
Compensation limitation described in (ii) shall not apply to any
contribution for medical benefits (within the meaning of Code Sections
401(h) or 419A(f)(2)) which is otherwise treated as an Annual Addition
under Code Sections 415(l)(1) or 419A(d)(2). If a short Limitation Year is
created because of an amendment changing the Limitation Year to a
different twelve (12) consecutive month period, the Maximum Permissible
Amount shall not exceed the defined contribution dollar limitation in Code
Section 415(c)(1)(A) multiplied by a fraction, the numerator of which is
the number of months in the short Limitation Year and the denominator of
which is twelve (12).
(i) Projected Annual Benefit -- A Participant's annual retirement benefit
(adjusted to the actuarial equivalent of a straight life annuity if
expressed in a form other than a straight life or qualified joint and
survivor annuity) under the Plan, assuming that the Participant will
continue employment until the later of current age or Normal Retirement
Age, and that the Participant's Compensation for the Limitation Year and
all other relevant factors used to determine benefits under the Plan will
remain constant for all future Limitation Years.
(j) Defined Contribution Fraction -- A fraction, the numerator of which
is the sum of the Annual Additions credited to the Participant's account
under this and all other qualified defined contribution plans (whether or
not terminated) maintained by the Employer for the current and all prior
Limitation Years (including the Annual Additions attributable to the
Participant's non-deductible employee contributions to all qualified
defined benefit plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years and the Annual
Additions attributable to all welfare benefit funds (as defined in Code
Section 419(e)) and individual medical accounts (as defined in Code
Section 415(l)(2) maintained by the Employer), and the denominator of
which is the sum of the maximum aggregate amounts for the current and all
prior Limitation Years of service with the Employer (regardless of whether
a defined contribution plan was maintained by the Employer). The maximum
aggregate amount in any Limitation Year is the lesser of (i) one hundred
and twenty-five percent (125%) of the dollar limitation determined under
Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or
(ii) thirty-five percent (35%) of the Participant's Compensation for such
Limitation Year.
If the Employee was a participant as of the end of the first day of the
first Limitation Year beginning after December 31, 1986, in one or more
defined contribution plans maintained by the Employer which were in
existence on May 5, 1986, the numerator of this fraction will be adjusted
if the sum of this fraction and the defined benefit fraction would
otherwise exceed 1.0 under the terms of this Plan. Under the adjustment,
an amount equal to the product of: (i) the excess of the sum of the
fractions over 1.0 times (ii) the denominator of this fraction, will be
permanently subtracted from the numerator of this fraction. The adjustment
is calculated using the fractions as they would be computed as of the end
of the last Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the Plan made
after May 5, 1986, but using the Code Section 415 limitation applicable to
the first Limitation Year beginning on or after January 1, 1987. The
annual addition for any Limitation Year beginning before January 1, 1987,
shall not be computed to treat all Employee contributions as Annual
Additions.
(k) Defined Contribution Dollar Limitation -- For a Limitation Year,
thirty thousand dollars ($30,000) or, if greater, one-fourth of the
defined benefit dollar limitation set forth in Code Section 415(b)(1) as
in effect for such Limitation Year.
(l) Highest Average Compensation -- The average compensation for the
three consecutive Years of Service with the Employer which produces
the highest average.
ARTICLE VII
PARTICIPANTS' ACCOUNTS
7.1 SEPARATE ACCOUNTS Separate Accounts will be maintained for each
Participant for each of the following types of contributions, and the income,
expenses, gains and losses attributable thereto:
(a) Employer Profit Sharing Contributions pursuant to Section 4.1 hereof;
(b) Employer Pension Contributions pursuant to Section 4.2 hereof;
(c) Participant Voluntary Contributions pursuant to Section 4.3 hereof;
(d) Elective Deferrals pursuant to Section 5.2 hereof;
(e) Matching Contributions pursuant to Section 5.3 hereof;
(f) Rollover Contributions pursuant to Section 4.6 hereof.
The Custodian shall establish such other separate Accounts as may be
necessary under the Plan. These Accounts shall be for accounting purposes
only and the Custodian shall not be required to establish separate
Custodial Accounts for these contributions.
7.2 VESTING
(a) A Participant shall at all times have a fully vested and nonforfeitable
interest in all his Accounts except his Employer Profit Sharing
Contributions Account and/or his Employer Pension Contributions Account.
(b) A Participant shall have a vested interest in his Employer Profit
Sharing Contributions Account and/or his Employer Pension Contributions
Account as determined under the vesting schedule elected in item 7 of the
Adoption Agreement.
7.3 COMPUTATION OF VESTING SERVICE All of a Participant's Years of Service
with the Employer shall be counted to determine the
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<PAGE> 15
nonforfeitable percentage of his Employer Profit Sharing Contributions Account
and/or his Employer Pension Contributions Account except those Years of Service
excluded under item 7 of the Adoption Agreement. A former Participant who had a
nonforfeitable right to all or a portion of his Account balance derived from
Employer contributions at the time of his termination shall receive credit for
Years of Service prior to his Break in Service upon completing a Year of
Service after his return to the employ of the Employer. A former Participant
who did not have a nonforfeitable right to any portion of his Account balance
derived from Employer contributions at the time of termination from service
will be considered a new employee for vesting purposes, if the number of
consecutive one year Breaks in Service equals or exceeds the greater of (i)
five (5) years or (ii) the aggregate number of Years of Service before such
Breaks in Service. If such a former Participant's Years of Service before
termination from service may not be disregarded pursuant to the preceding
sentence, such former Participant's prior Years of Service shall not be
cancelled hereunder.
7.4 ALLOCATION OF FORFEITURES
(a) As of the end of the Plan Year, forfeitures derived from Employer
Profit Sharing Contributions Accounts which become available for
reallocation during such Plan Year because of the operation of the vesting
provisions of Section 7.2(b), shall be allocated to the Employer Profit
Sharing Contribution Accounts of the Participants who are eligible to
share in an Employer Profit Sharing Contributions for the Plan Year. Such
amounts shall be allocated according to the ratio that each such
Participant's Compensation or Earned Income for the Plan Year bears to the
total Compensation and Earned Income of all such Participants for the Plan
Year. Forfeitures under this subsection (a) will be allocated only for the
benefit of Participants of the Employer adopting this Plan.
(b) Forfeitures derived from Employer Pension Contributions which become
available for reallocation during a Plan Year shall be applied to reduce
the Employer Pension Contributions that would otherwise be due for such
Plan Year under Section 4.2. Forfeitures under this subsection (b) will
only be used to reduce the Employer Pension Contributions of the Employer
adopting this Plan.
(c) If a benefit is forfeited because a Participant or Beneficiary
cannot be found, such benefit will be reinstated if a claim is made by
the Participant or Beneficiary.
(d) No forfeiture will occur solely as a result of a Participant's
withdrawal of any Employee contributions.
ARTICLE VIII
PAYMENT OF BENEFITS
8.1 BENEFITS PAYABLE UNDER THE PLAN
(a) NORMAL RETIREMENT A Participant's interest in all Employer
contributions allocated to his Accounts shall be fully vested and
nonforfeitable on and after his Normal Retirement Age. Such Participant
may retire at any time on or after that date and shall be entitled to
receive, in accordance with the provisions of Sections 8.2 and 8.3 hereof,
the total amount credited to his Accounts. Any Participant who is employed
beyond his Normal Retirement Age shall continue to share in Employer
contributions until his actual retirement.
(b) DEATH BENEFITS Upon the death of a Participant while employed by
the Employer, the total amount credited to such Participant's Accounts
(plus such Participant's share of the Employer contributions for the year
of his death), shall be payable to such Participant's Beneficiary in
accordance with Sections 8.2 and 8.3 hereof. Upon the death of a
Participant following his termination of employment with the Employer, the
vested portion of his Accounts which has not been distributed shall be
payable to such Participant's Beneficiary in accordance with Sections 8.2
and 8.3 hereof.
(c) OTHER TERMINATION OF EMPLOYMENT A Participant who terminates
employment with the Employer on account of Disability shall be entitled to
receive, in accordance with Sections 8.2 and 8.3 hereof, the total amount
credited to his Account. A Participant whose employment with the Employer
is terminated prior to his Normal Retirement Date for any reason other
than death or Disability shall be entitled to receive, in accordance with
the provisions of Sections 8.2 and 8.3 hereof, the portions of his
Accounts that have vested pursuant to Section 7.2 hereof.
(d) FORFEITURES Any amounts in a Participant's Accounts which are not
payable under subsection (c) above when his employment with the Employer
is terminated shall remain in such Accounts and shall continue to share in
profits or losses on investments under Section 9.3 hereof until such
former Participant incurs five (5) consecutive Breaks in Service,
whereupon they shall be forfeited and administered in accordance with
Section 7.4 hereof. In the event a former Participant is reemployed by the
Employer before incurring five (5) consecutive Breaks in Service his
Accounts shall continue to vest in accordance with the vesting schedule
specified in the applicable Adoption Agreement. Notwithstanding the
foregoing, if a terminated Participant receives a distribution on account
of termination of his participation in the Plan of his entire vested
interest in the Pension Plan or the Profit Sharing Plan, such
Participant's nonvested interest in the relevant plan shall be treated as
a forfeiture and administered in accordance with Section 7.4 hereof. If
the Participant elects to have distributed less than the entire vested
portion of his Account balance derived from Employer contributions, the
part of the nonvested portion that will be treated as a forfeiture is the
total nonvested portion multiplied by a fraction, the numerator of which
is the amount of the distribution attributable to Employer contributions
and the denominator of which is the total value of the vested Employer
derived Account balance. For purposes of this Section, if the value of an
employee's vested account balance is zero, the Employee shall be deemed to
have received a distribution of such vested account balance. A
Participant's vested account balance shall not include accumulated
deductible employee contributions within the meaning of Code Section
72(o)(5)(B) for plan years beginning prior to January 1, 1989. If a
Participant receives or is deemed to receive a distribution pursuant to
this subsection (d) and such Participant subsequently resumes employment
covered under the Plan, the forfeited amounts shall be restored from
current forfeitures, or if those are insufficient by a special Employer
contribution, provided that the Participant repays to the Plan the full
amount of the distribution attributable to Employer contributions prior to
the earlier of (i) five (5) years after the Participant is reemployed, or
(ii) the time the Participant incurs five (5) consecutive Breaks in
Service. In the event a former Participant is reemployed after incurring
five (5) consecutive Breaks in Service, separate Accounts will be
maintained for Employer contributions allocated before and after the Break
in Service, and Years of Service earned after his return to employment
shall be disregarded in determining the Participant's vested percentage in
his prebreak Employer contributions.
8.2 MANNER OF DISTRIBUTIONS
(a) DISTRIBUTIONS FROM PENSION PLAN Distributions from the Pension
Plan shall be made as follows:
(i) A Participant's vested interest in the Plan shall be paid by
purchasing an annuity contract from a licensed insurance company,
unless the Participant elects to receive his interest in one of the
alternate forms of benefit described in subsection (c) below. If a
Partici-
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<PAGE> 16
pant is not married at his annuity starting date, the annuity contract
shall provide a monthly benefit for his life. If a Participant is married
at his annuity starting date, the annuity shall be in the form of a
qualified joint and survivor annuity. A "qualified joint and survivor
annuity" is an immediate annuity for the life of the Participant with a
survivor annuity for the life of the spouse which is equal to fifty
percent (50%) of the amount of the annuity which is payable during the
joint lives of the Participant and the spouse and which is the amount of
benefit which can be purchased with the Participant's vested Account
balance. The Participant may elect to have such annuity distributed upon
attainment of the earliest retirement age under the Plan. Any annuity
contract purchased hereunder and distributed in accordance with this
Section 8.2 shall be nontransferable and shall comply with the terms of
this Plan. For purposes of this Section, the earliest retirement age
shall be the Participant's age on the earliest date on which the
Participant could elect to receive retirement benefits.
(ii) Unless an optional form of benefit is selected in accordance with
subsection (c) below, if a Participant has a spouse and dies prior to his
annuity starting date (the date annuity payments commence), the
Participant's vested Account balance in the Plan shall be applied toward
the purchase of a life only annuity contract from a licensed insurance
company providing a benefit for the life of the surviving spouse. The
surviving spouse may elect to have such annuity distributed within a
reasonable period after the Participant's death.
(iii) For any distribution subject to the annuity requirements in
subsection (i) above, a Participant or Beneficiary may elect in
writing, within the ninety (90) day period ending on the annuity starting
date (the date annuity or any other form of benefit payments commence),
to receive his vested interest in the Plan in one of the alternate forms
of benefit set forth in subsection (c) below in lieu of the form of
benefit otherwise payable hereunder. Any waiver of the joint and survivor
annuity by a married Participant shall not be effective unless: (A) the
Participant's spouse consents in writing to the election; (B) the election
designates a specific Beneficiary, including any class of beneficiaries
or any contingent beneficiaries, which may not be changed without spousal
consent (or the spouse expressly permits designations by the Participant
without any further spousal consent); (C) the spouse's consent
acknowledges the effect of the election; and (D) the spouse's consent is
witnessed by a Plan representative or notary public. Additionally, a
Participant's waiver of the joint and survivor annuity shall not be
effective unless the election designates a form of benefit payment which
may not be changed without spousal consent (or the spouse expressly
permits designations by the Participant without any further spousal
consent). If it is established to the satisfaction of a Plan
representative that there is no spouse or that the spouse cannot be
located, a waiver will be deemed a qualified election. Any consent by a
spouse obtained under this provision (or establishment that the consent
of a spouse may not be obtained) shall be effective only with respect to
such spouse. A consent that permits designations by the Participant
without any requirement of further consent by such spouse must
acknowledge that the spouse has the right to limit consent to a specific
Beneficiary, and a specific form of benefit where applicable, and that
the spouse voluntarily elects to relinquish either or both of such
rights. A revocation of a prior election may be made by a Participant
without the consent of the spouse at any time before the commencement of
benefits. The number of revocations shall not be limited. No consent
obtained under this provision shall be valid unless the Participant and
the spouse have received notice as provided in subsection (v) below.
(iv) A Participant may elect in writing to waive the surviving spouse
benefit otherwise payable under subsection (ii) above. The benefit may be
waived at any time during the period which begins on the first day of the
Plan Year in which the Participant attains age 35 and ends on the date of
the Participant's death. A Participant and the spouse may waive the
pre-retirement survivor death benefit prior to age 35, provided that such
early waiver becomes invalid in the Plan Year the Participant attains age
35 and a new waiver must be made pursuant to this subsection (iv). If the
Participant separates from service prior to the first day of the Plan
Year in which he attains age 35, the surviving spouse benefit may be
waived, with respect to the Participant's account balance as of the date
of separation, at any time during the period which begins on the date of
such separation and ends on the date of the Participant's death.
Notwithstanding the foregoing, any election by a Participant to waive the
surviving spouse benefit payable under subsection (ii) above shall not be
effective unless: (A) the Participant's spouse consents in writing to the
election; (B) the spouse's consent acknowledges the effect of the
election; and (C) the spouse's consent is witnessed by a Plan
representative or notary public. If it is established to the satisfaction
of a Plan representative that there is no spouse or that the spouse
cannot be located, a waiver will be deemed a qualified election. Any
consent by a spouse obtained under this provision (or establishment that
the consent of a spouse may not be obtained) shall be effective only with
respect to such spouse. A revocation of a prior election may be made by a
Participant without the consent of the spouse at any time before the
commencement of benefits. The number of revocations shall not be limited.
No consent obtained under this provision shall be valid unless the
Participant and the spouse have received notice as provided in subsection
(v) below.
(v) The Administrator shall provide the Participant and the Spouse, as
applicable, with a written explanation of: (A) the terms and conditions
of the annuity described in subsections (i) or (ii), as applicable; (B)
the Participant's or Spouse's, as applicable, right to waive the payment
of benefits in the form of an annuity; (C) the rights of the
Participant's spouse; and (D) the right to make, and the effect of, the
revocation of a previous election to waive the payment of benefits in the
form of an annuity described in subsections (i) or (ii) hereof. In the
case of the annuity described in subsection (i), such explanation shall
be provided no less than thirty (30) days and no more than ninety (90)
days prior to the annuity starting date. In the case of the annuity
described in subsection (ii), such explanation shall be provided within
the applicable period for such Participant. The applicable period for a
Participant is whichever of the following periods ends last: (A) the
period beginning with the first day of the Plan Year in which the
Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age 35; (B) a
reasonable period ending after the individual becomes a Participant; (C)
a reasonable period ending after this Article first applies to the
Participant. Notwithstanding the foregoing, notice must be provided
within a reasonable period ending after separation from service in
22
<PAGE> 17
the case of a Participant who separates from service before attaining
age 35. For purposes of applying the preceding paragraph, a reasonable
period ending after the enumerated events described in (B) and (C) is
the end of the two-year period beginning one year prior to the date
the applicable event occurs, and ending one year after that date. In
the case of a Participant who separates from service before the Plan
Year in which age 35 is attained, notice shall be provided within the
two-year period beginning one year prior to separation and ending one
year after separation. If such a Participant thereafter returns to
employment with the Employer, the applicable period for such
Participant shall be redetermined. A written explanation comparable
to the notices described above shall be provided to a Participant who
is waiving the surviving spouse benefit prior to attaining age 35.
(vi) The Administrator shall be responsible for the purchase of any
annuity contracts required to be purchased in accordance with the
terms of this Plan.
(b) DISTRIBUTIONS FROM PROFIT SHARING PLAN Distributions from the Profit
Sharing Plan shall be made in the form elected by the Participant (or
Beneficiary) as described in subsection (c) below. Notwithstanding the
foregoing, if the Profit Sharing Plan is a direct or indirect transferee of
a defined benefit plan, a money purchase pension plan (including a target
benefit plan), or a stock bonus or profit sharing plan or is an amendment
of an original Plan which is (or was) subject to the survivor annuity
requirements of Code Sections 401(a)(11) or 417 then distributions shall be
made in accordance with the provisions of subsection (a) above.
(c) Optional Forms of Distribution. All distributions required under this
subsection shall be determined and made in accordance with the Income Tax
Regulations under Code Section 401(a)(9), including the minimum
distribution incidental benefit requirement of Section 1.401(a)(9)-2 of such
Regulations.
(i) Amounts payable to a Participant shall be distributed in one of the
following forms as elected by the Participant, with spousal consent,
as applicable:
(A) a lump sum; or
(B) installments over a period certain not to exceed the life
expectancy of the Participant or the joint life expectancy of the
Participant and his Beneficiary.
Such election shall be made in writing and in such form as shall be
acceptable to the Administrator. If the Participant fails to elect any
of the methods of distribution described above within the time
specified for such election, the Administrator shall distribute the
Participant's Account in the form of a single sum cash payment by the
April 1 following the calendar year in which the Participant attains
age seventy and one-half (70 1/2).
(ii) If a Participant's benefit is to be distributed in installment
payments under (B) above, the amount distributed for each calendar
year, beginning with distributions for the first distribution calendar
year, must at least equal the quotient obtained by dividing the
Participant's benefit by the applicable life expectancy. The life
expectancy (or joint and last survivor expectancy) is calculated
using the attained age of the Participant (or Beneficiary) as of the
Participant's (or Beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elasped since
the date life expectancy is being recalculated, the applicable life
expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first distribution calendar
year, and, if life expectancy is being recalculated, such succeeding
calendar year.
Unless otherwise elected by the Participant (or the Participant's
spouse) by the time distributions are required to begin, life
expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Participant (or spouse) and shall apply to all
subsequent years. The life expectancy of a nonspouse Beneficiary may
not be recalculated. Life expectancy and joint life expectancy are
computed by use of the expected return multiples in Tables V and VI of
Section 1.72-9 of the Income Tax Regulations.
Notwithstanding anything herein to the contrary, for calendar years
beginning before January 1, 1989, if the Participant's spouse is not
the designated Beneficiary, the method of distribution selected
must assure that at least fifty percent (50%) of the present value of
the amount available for distribution is paid within the life
expectancy of the Participant. For calendar years beginning after
December 31, 1988, the amount to be distributed each year shall not
be less than the quotient obtained by dividing the Participant's
benefit by the lesser of (A) the applicable life expectancy or (B) if
the Participant's spouse is not the designated Beneficiary, the
applicable divisor determined from the table set forth in Q&A-4 of
Section 1.401(a)(9)-2 of the Income Tax Regulations. Distributions
after the death of the Participant shall be distributed using the
applicable return multiple specified in Section 1.72-9 of the Income
Tax Regulations as the relevant divisor without regard to Section
1.401(a)(9)-2 of the Income Tax Regulations.
(iii) The minimum distribution required for the Participant's first
distribution calendar year must be made on or before the
Participant's required beginning date as described in Section 8.3(c)
hereof. The minimum distribution for other calendar years,
including the minimum distribution for the distribution calendar year
in which such required beginning date occurs, must be made on or
before December 31 of that distribution calendar year.
(e) In any case where the Participant or Beneficiary has determined payment to
be on an installment basis, such Participant or Beneficiary may by written
request directed to the Administrator, at any time following commencement
of such installment payments, accelerate all or any portion of the unpaid
balance.
(f) For purposes of this Section a "spouse" shall include the spouse or
surviving spouse of a Participant, provided that a former spouse shall be
treated as the spouse or surviving spouse and a current spouse will not be
treated as a spouse or surviving spouse to the extent provided under a
qualified domestic relations order as descibed in Code Section 414(p).
(g) The payment of benefits in either a lump sum or in installments under this
Section 8.2 may be made in cash or in Investment Company Shares.
8.3 COMMENCEMENT OF PAYMENTS
(a) Subject to the provisions of this Section 8.3, payment of benefits, under
whichever method is selected, shall be made or commence as soon as
administratively practicable after the Valuation Date immediately following
the Participant's retirement, death or other termination of employment.
(b) If the Participant's vested Account balance in the Pension Plan or the
Profit Sharing Plan exceeds (or at the time of any prior distribution
exceeded) three thousand five hundred dollars ($3,500), no distribution
of that interest shall be made prior to the Participant's Normal Retirement
Age without the written consent of the Participant and, in the case of the
Pension Plan, the Participant's spouse (or where either the Participant or
the spouse has died, the
23
<PAGE> 18
survivor). The consent of the Participant and the Participant's spouse
shall be obtained in writing within the ninety (90) day period ending on
the annuity starting date. The annuity starting date is the first day of
the first period for which an amount is paid as an annuity or any other
form. The Administrator shall notify the Participant and the Participant's
spouse of the right to defer any distribution until the Participant's
Account balance is no longer immediately distributable. Such notification
shall include a general description of the material features, and an
explanation of the relative values of the optional forms of benefit
available under the Plan in a manner that would satisfy the notice
requirements of Code Section 417(a)(3), and shall be provided no less than
thirty (30) days and no more than ninety (90) days prior to the annuity
starting date.
Notwithstanding the foregoing, only the Participant need consent to the
commencement of a distribution in the form of a qualified joint and
survivor annuity while the Account balance is immediately distributable.
(Furthermore, if payment in the form of a qualified joint and survivor
annuity is not required with respect to the Participant pursuant to Section
8.2(b) of the Plan, only the Participant need consent to the distribution
of an Account balance that is immediately distributable.) Neither the
consent of the Participant nor the Participant's spouse shall be required
to the extent that a distribution is required to satisfy Code Sections
401(a)(9) or 415. In addition, upon termination of this Plan if the Plan
does not offer an annuity option (purchased from a commercial insurance
company), the Participant's Account balance may, without the Participant's
consent, be distributed to the Participant or transferred to another
defined contribution plan (other than an employee stock ownership plan as
defined in Code Section 4975(e)(7)) within the same controlled group.
An Account balance is immediately distributable if any part of the
Account balance could be distributed to the Participant (or surviving
spouse) before the Participant attains (or would have attained if not
deceased) the later of his Normal Retirement Age or age sixty-two (62).
For purposes of determining the applicability of the foregoing consent
requirements to distributions made before the first day of the first Plan
Year beginning after December 31, 1988, a Participant's vested Account
balance shall not include amounts attributable to accumulated deductible
employee contributions within the meaning of Code Section 72(o)(5)(B).
(c) Unless the Participant (or the Participant's Beneficiary, if the
Participant is dead) elects to defer commencement under (b) above,
distribution of benefits shall begin no later than the sixtieth (60th) day
after the close of the Plan Year in which occurs the latest of (i) the
Participant's attainment of age 65 (or normal retirement age, if earlier);
(ii) the tenth (10th) anniversary of the year in which the Participant
commenced participation in the Plan; or (iii) the date the Participant
terminates service with the Employer. Notwithstanding the foregoing, the
failure of a Participant and the spouse to consent to a distribution while
a benefit is immediately distributable, within the meaning of Section 8.1
of the Plan, shall be deemed to be an election to defer commencement of
payment of any benefit sufficient to satisfy this Section.
(d) Notwithstanding anything herein to the contrary, payment of
benefits to a Participant shall commence by the Participant's required
beginning date, even if the Participant is still employed. A Participant's
required beginning date is the April 1 of the calendar year following the
calendar year in which the Participant attains age seventy and one-half (70
1/2): provided that the required beginning date of a Participant who
attains age 70 1/2 before January 1, 1988, shall be determined in
accordance with (i) or (ii) below:
(i) The required beginning date of a Participant who is not a
5-percent owner is the first day of April of the calendar year
following the calendar year in which the later of retirement or
attainment of age seventy and one-half (70 1/2) occurs.
(ii) The required beginning date of a Participant who is a
5-percent owner during any year beginning after December 31, 1979, is
the first day of April following the later of the calendar year in
which the Participant attains age seventy and one-half (70 1/2), or
the earlier of the calendar year with or within which ends the Plan
Year in which the Participant becomes a 5-percent owner, or the
calendar year in which the Participant retires.
The required beginning date of a Participant who is not a
5-percent owner who attains age seventy and one-half (70 1/2) during
1988 and who has not retired as of January 1, 1989, is April 1, 1990.
A Participant is treated as a 5-percent owner for purposes of
this subsection (d) if such Participant is a 5-percent owner as
defined in Code Section 416(i) (determined in accordance with Code
Section 416, but without regard to whether the Plan is top-heavy) at
any time during the Plan Year ending with or within the calendar year
in which such owner attains age sixty-six and one-half (66 1/2) or any
subsequent Plan Year. Once distributions have begun to a 5-percent
owner under this subsection (d), they must continue to be distributed,
even if the Participant ceases to be a 5-percent owner in a subsequent
year.
Distributions may be delayed pursuant to an election made prior
to January 1, 1984, under Section 242 of the Tax Equity and Fiscal
Responsibility Act of 1982; provided that the method of distribution
selected must be in accordance with the requirements of Code Section
401(a)(9) as in effect prior to amendment by the Deficit Reduction Act
of 1984. If such an election is revoked, any subsequent distribution
must satisfy the requirements of Code Section 401(a)(9). If a
designation is revoked subsequent to the date distributions are
required to begin, the Plan must distribute by the end of the calendar
year following the calendar year in which the revocation occurs the
total amount not yet distributed which would have been required to have
been distributed to satisfy Code Section 401(a)(9), but for such
Section 242(b)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the minimum
distribution incidental benefit requirements in Section 1.401(a)(9)-2
of the Income Tax Regulations. Any changes in the designation will be
considered to be a revocation of the designation. However, the mere
substitution or addition of another Beneficiary (one not named in the
designation) under the designation will not be considered to be a
revocation of the designation, so long as such substitution or
addition does not alter the period over which distributions are to be
made under the designation, directly or indirectly (for example, by
altering the relevant measuring life).
(e) (i) If a Participant dies after benefit payments have
begun, the Participant's remaining interest in the Plan shall be
distributed to his designated Beneficiary at least as rapidly as under
the method of distribution being used prior to the Participant's
death.
(ii) If the Participant dies before benefit payments have
commenced, distribution of the Participant's entire interest in the
Plan shall be completed by the December 31 of the calendar year
containing the fifth (5th)
24
<PAGE> 19
anniversary of the Participant's death, except to the extent that an
election is made to receive distributions in accordance with the
following: (A) if any portion of the Participant's interest is payable
to a designated Beneficiary, distributions may be made over the life or
over a period certain not greater than the life expectancy of the
designated Beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year in which the
Participant died; (B) if the designated Beneficiary is the Participant's
surviving spouse, the date distributions are required to begin in
accordance with (A) above shall not be earlier than the later of
December 31 of the calendar year immediately following the calendar year
in which the Participant died and December 31 of the calendar year in
which the Participant would have attained age seventy and one-half
(70-1/2).
If the Participant has not made an election pursuant to this subsection
(ii) by the time of his death, the designated Beneficiary must elect the
method of distribution no later than the earlier of December 31 of the
calendar year in which distributions would be required to begin under
this subsection (e) or December 31 of the calendar year which contains
the fifth anniversary of the date of death of the Participant. If the
Participant has no designated Beneficiary, or if the designated
Beneficiary does not elect a method of distribution, distribution of the
Participant's entire interest in the Plan must be completed by December
31 of the calendar year containing the fifth anniversary of the
Participant's death.
For purposes of this subsection (ii), if the surviving spouse dies
after the Participant, but before payments to such spouse begin, the
provisions of this subsection (ii), with the exception of paragraph (B)
above, shall be applied as if the surviving spouse were the Participant.
Any amount paid to a child of the Participant will be treated as if it
had been paid to the surviving spouse if the amount becomes payable to
the surviving spouse when the child reaches the age of majority.
For the purposes of this subsection (e), distribution of a
Participant's interest is considered to begin on the Participant's
required beginning date (or the date distribution is required to begin
to the surviving spouse). If a distribution in the form of an annuity
irrevocably commences to the Participant before the required beginning
date, the date the distribution is considered to begin is the date
distribution actually commences.
(iii) A Participant's interest in the Plan is his Account balance as
of the last valuation date in the calendar year immediately preceding
the distribution calendar year (the valuation calendar year) increased
by the amount of any contributions or forfeitures allocated to the
Account balance as of dates in the valuation calendar year after the
valuation date and decreased by distributions made in the valuation
calendar year after the valuation date. If any portion of the minimum
distribution for the first distribution calendar year is made in the
second distribution calendar year on or before the required beginning
date, the amount of the minimum distribution made in the second
distribution calendar year shall be treated as if it had been made in
the immediately preceding distribution calendar year.
The distribution calendar year is a calendar year for which a minimum
distribution is required. For distributions beginning before the
Participant's death, the first distribution calendar year is the
calendar year immediately preceding the calendar year which contains the
Participant's required beginning date. For distributions beginning after
the Participant's death, the first distribution calendar year is the
calendar year in which distributions are required to begin pursuant to
subsection (ii) above.
For purposes of this subsection (e), the designated Beneficiary is the
individual who is designated as the Beneficiary under the Plan in
accordance with Code Section 401(a)(9) and the proposed regulations
thereunder.
8.4 PAYMENT OF SMALL AMOUNTS Notwithstanding anything herein to the contrary,
if the present value of the Participant's vested interest in the Pension Plan
does not exceed (nor at the time of any prior distribution exceeded) three
thousand five hundred dollars ($3,500) as of the date the Participant's
employment with the Employer terminates, the Administrator shall distribute the
present value of such interest to the Participant in a lump sum as soon as
administratively practicable after the end of the Plan Year in which
termination occurs. Likewise, if the total present value of the Participant's
vested interest in the Profit Sharing Plan and Cash or Deferred Arrangement
does not exceed (nor at any time of any prior distribution exceeded) three
thousand five hundred dollars ($3,500) as of the date the Participant's
employment with the Employer terminates, the Administrator shall distribute the
present value of this interest to the Participant in a lump sum as soon as
administratively practicable after the end of the Plan Year in which
termination occurs. A Participant whose entire vested interest in the Pension
Plan and/or the Profit Sharing Plan has been distributed or who has no vested
interest in the Pension Plan and/or the Profit Sharing Plan shall be deemed
cashed out from the Pension Plan and/or the Profit Sharing Plan, as applicable.
8.5 PERSONS UNDER LEGAL OR OTHER DISABILITY In the event a Participant or
Beneficiary is declared incompetent and a guardian or other person legally
charged with the care of his person or of his property is appointed, any
benefits to which such Participant or Beneficiary is entitled shall be paid to
such guardian or other person legally charged with the care of his person or of
his property.
8.6 WITHDRAWALS FROM PROFIT SHARING PLAN
(a) If elected in item 10 of the Adoption Agreement (Profit Sharing
Plan), a Participant shall be permitted to withdraw the specified
percentage of his vested Employer Profit Sharing Account while he is still
employed after attainment of age fifty-nine and one-half (59-1/2) or
prior to attainment of such age on account of a financial hardship:
provided, that such Participant has been an active Participant in the Plan
for at least five (5) years. A Participant may not make another withdrawal
on account of financial hardship under this Section 8.6 until he has been
an active Participant for at least an additional five (5) years from the
date of his last hardship withdrawal. For purposes of this Section 8.6, a
financial hardship shall mean a financial need or emergency which requires
the distribution of a Participant's Plan account in order to meet such
need or emergency. The determination of the existence of a financial
hardship and the amount required to be distributed to meet the hardship
shall be made by the Administrator in accordance with such uniform and
nondiscriminatory rules as may be established by the Administrator. A
request for a withdrawal shall be made in writing in a form prescribed by
the Administrator and shall be made in accordance with procedures and
limitations established by the Administrator. Notwithstanding the above,
no withdrawal under this Section 8.6 shall be permitted if the Integration
Formula is selected in item 6 of the Adoption Agreement (Profit Sharing
Plan).
(b) If a distribution is made pursuant to this Section 8.6 at a time
when the Participant has a nonforfeitable right to less than one hundred
percent (100%) of his Account balance
25
<PAGE> 20
derived from Employer contributions and the Participant may increase
the nonforfeitable percentage in the Account:
(i) A separate Account will be established for the
Participant's interest in the Plan as of the time of the distribution;
and
(ii) At any relevant time the Participant's nonforfeitable
portion of the separate Account will be equal to an amount ("X")
determined by the formula:
X = P(AB + (R x D)) - (R x D)
For purposes of applying the formula above: P is the
nonforfeitable percentage at the relevant time, AB is the Account
balance at the relevant time, D is the amount of the distribution, and
R is the ratio of the Account balance at the relevant time to the
Account balance after distribution.
ARTICLE IX
ESTABLISHMENT OF CUSTODIAL ACCOUNT; INVESTMENTS
9.1 CUSTODIAL ACCOUNT
(a) Unless the Employer elects otherwise in the Adoption Agreement, the
Custodian shall open and maintain separate Custodial Accounts for each
individual that the Employer shall from time to time certify to the
Custodian as a Participant in the Plan. Such Custodial Accounts shall
reflect the various Participant Accounts described at Section 7.1 hereof.
(b) If the Employer so elects in the Adoption Agreement the Custodian
shall open and maintain a single Custodial Account in the name of the
Employer. If only a single Custodial Account is established, the Employer
shall be responsible for maintaining the records for the individual
Participant accounts.
(c) In the event that separate balances are not maintained for the
portion of a Participant's Account balance derived from Employer
contributions and Participant Voluntary Contributions, the Account balance
derived from Participant Voluntary Contributions shall be the Participant's
total account balance multiplied by a fraction, the numerator of which is
the total amount of Participant Voluntary Contributions (less any
withdrawals) and the denominator of which is the sum of the numerator and
the total Employer contributions (including Elective Deferrals) made on
behalf of such Participant.
9.2 RECEIPT OF CONTRIBUTIONS The Custodian shall accept such contributions of
money on behalf of Participants as it may receive from time to time from the
Employer. The Custodian may, in its sole discretion, also accept money or
Investment Company Shares held under a preceding plan of the Employer qualified
under Code Section 401(a) or which qualify as rollover contributions or
transfers under Section 4.6 of the Plan. All such contributions shall be
accompanied by written instructions, in a form acceptable to the Custodian,
from the Employer specifying the Participant Accounts to which they are to be
credited.
9.3 INVESTMENT OF ACCOUNT ASSETS
(a) Upon written instructions given by the Employer on a uniform and
nondiscriminatory basis as between Participants, the Custodian shall invest
and reinvest contributions credited to a Participant Account(s) in
Investment Company Shares. All Participant Accounts shall share in the
profits or losses of the investments on a pro rata basis (i.e., in the
ratio that the Participant's Account balance bears to all Account balances,
other than Accounts which are self-directed under subsection (b) below),
subject to adjustment by the Administrator on a fair and equitable basis
for contributions, distributions and/or withdrawals during the year. The
amount of each contribution credited to a Participant Account to be applied
to the purchase of Investment Company Shares shall be invested by the
Custodian at the applicable offering price. These purchases shall be
credited to such Account with notation as to cost. The Custodian shall have
no discretionary investment responsibility and in no event be liable to any
person for following investment instructions given by the Employer or the
Participant in the manner provided herein.
(b) Each Participant, through his separate Participant Account(s),
shall be the beneficial owner of all investments held in such Account(s).
The Employer however shall direct the Custodian (in a nondiscriminatory
manner) regarding the selection of specific Investment Company Shares to be
purchased for the Accounts of the Participants. The Employer may permit (in
a nondiscriminatory manner) the individual Participants to select and direct
the purchase of specific Investment Company Shares for their own
Account(s). In such a situation, the Employer shall transmit all such
directions to the Custodian. Notwithstanding the foregoing, unless
otherwise elected in the Adoption Agreement the individual Participant may
direct the investment of his Account(s) and select the specific Investment
Company Shares for purchase for his individual Account(s) by directly
communicating with the Custodian.
(c) All income, dividends and capital gain distributions received on
the Investment Company Shares held in each Participant Account shall be
reinvested in such shares which shall be credited to such Account. If any
distribution on Investment Company Shares may be received at the election
of the Participant in additional shares or in cash or other property, the
Custodian shall elect to receive it in additional shares. All investments
acquired by the Custodian shall be registered in the name of the Custodian
or its registered nominee.
9.4 EXCLUSIVE BENEFIT The Custodial Account or Accounts established hereby
shall not be used or diverted to purposes other than the exclusive benefit of
Participants or their Beneficiaries.
9.5 EXPENSES All expenses and charges in respect of the Plan and the Custodial
Account, including, without limitation, the Custodian's fees and commissions
and taxes of any kind upon or with respect to the Plan, shall be paid by the
Employer; provided, however, that the Custodian shall be authorized to pay such
charges and expenses from the Plan if the Employer shall fail to make payment
within thirty (30) days after it has been billed therefor by the Custodian or
such charges have otherwise become due.
9.6 VOTING The Custodian shall deliver, or cause to be executed and delivered,
to the Employer all notices, prospectuses, financial statements, proxies
and proxy soliciting materials received by the Custodian relating to investments
held in Participants' Accounts. The Custodian shall vote all proxies only in
accordance with instructions received from the Employer.
9.7 REPORTS OF THE CUSTODIAN AND ADMINISTRATOR
(a) The Custodian shall keep accurate and detailed records of all
receipts, investments, disbursements and other transactions required to be
performed hereunder. Not later than sixty (60) days after the close of each
calendar year (or after the Custodian's resignation or removal), the
Custodian shall file with the Employer a written report reflecting the
receipts, disbursements and other transactions effected by it during such
year (or period ending with such resignation or removal) and the assets of
this Plan at its close. Such report shall be open to inspection by any
Participant for a period of thirty (30) days immediately following the date
on which it is filed with the Employer. Upon the expiration of such thirty
(30) day period, the Custodian shall be forever released and discharged
from all liability and accountability to anyone with respect to its acts,
transactions, duties, obligations or responsibilities as shown in or
reflected by such report, except with respect to any such acts or
transactions as to which the Employer shall have
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<PAGE> 21
filed written objections with the Custodian within such thirty (30) day
period.
(b) Annual reports provided to the Employer by the Custodian shall be,
in the Custodian's discretion, on a calendar year basis unless otherwise
required by law. The Employer shall compute the valuation of all Plan assets
at least annually at the fair market value as of the last day of each
calendar year.
(c) The Custodian shall keep such records, make such identifications
and file such returns and other information concerning the Plan as may be
required of the Custodian under the Code or forms adopted thereunder.
(d) The Administrator shall be solely responsible for the filing of any
reports or information required under the Code or forms adopted thereunder.
9.8 LIMITATION OF CUSTODIAN'S DUTIES AND LIABILITY
(a) The Custodian's duties are limited to those set forth in this Plan,
and the Custodian shall have no other responsibility in the administration
of the Plan or for compliance by the Employer with any provision thereof.
The Custodian shall not be responsible for the collection of contributions
provided for under the Plan; the purpose or propriety of any distribution;
or any action or nonaction taken by the Employer or pursuant to the
Employer's request. The Custodian shall have no responsibility to determine
if instructions received by it from the Employer, or the Employer's
designated agent, comply with the provisions of the Plan. The Custodian
shall not have any obligation either to give advice to any Participant on
the taxability of any contributions or payments made in connection with the
Plan or to determine the amount of excess contribution and net income
attributable thereto. The Custodian may employ suitable agents and counsel
and pay their reasonable expenses and compensation, and such agents or
counsel may or may not be agent or counsel for the Employer, and may be the
Investment Advisor or an Investment Company.
(b) The Employer shall at all times fully indemnify and hold harmless
the Custodian, its agents, counsel, successors and assigns, from any
liability arising from distributions made or actions taken, and from any
and all other liability whatsoever which may arise in connection with this
Plan, except liability arising from the negligence or willful misconduct of
the Custodian. The Custodian shall be under no duty to take any action
other than as herein specified with respect to this Plan unless the
Employer shall furnish the Custodian with instructions in a form acceptable
to the Custodian; or to defend or engage in any suit with respect to this
Plan unless the Custodian shall have first agreed in writing to do so and
shall have been fully indemnified to the satisfaction of the Custodian. The
Custodian (and its agents) may conclusively rely upon and shall be
protected in acting upon any written order from the Employer or any other
notice, request, consent, certificate or other instrument or paper believed
by it to be genuine and to have been properly executed, and, so long as it
acts in good faith, in taking or omitting to take any other action. No
amendment to the Plan shall place any greater burden on the Custodian
without its written consent. The Custodian shall not be lible for interest
on any cash balances maintained in the Plan.
(c) The Employer shall have the sole authority to enforce the terms of
the Plan on behalf of any and all persons having or claiming any interest
therein by virtue of the Plan.
(d) The Custodian, its agents, counsel, successors and assigns, shall
not be liable to the Employer, or to any Participants or Beneficiary for
any depreciation or loss of assets, or for the failure of this Plan to
produce any or larger net earnings. The Custodian further shall not be
liable for any act or failure to act of itself, its agents, employees, or
attorneys, so long as it exercises good faith, is not guilty of negligence
or willful misconduct, and has selected such agents, employees, and
attorneys with reasonable diligence. The Custodian shall have no
responsibility for the determination or verification of the offering or
redemption prices or net asset values of Investment Company Shares, and
shall be entitled to rely for such prices and net asset values upon
statements issued by or on behalf of the Investment Company issuing the
Investment Company Shares. The Custodian shall have no duty to inquire into
the investment practices of such Investment Company; such Investment
Company shall have the exclusive right to control the investment of its
funds in accordance with its stated policies, and the investments shall not
be restricted to securities of the character now or hereafter authorized
for trustees by law or rules of court. The Custodian shall not be liable or
responsible for any omissions, mistakes, acts or failures to act of such
Investment Company, or its successors, assigns or agents. Notwithstanding
the foregoing, nothing in this Plan shall relieve the Custodian of any
responsibility or liability under ERISA.
ARTICLE X
AMENDMENT AND TERMINATION
10.1 AMENDMENT
(a) The Employer reserves the right at any time and from time to time
to amend or terminate the Plan. No part of the Plan shall by reason of any
amendment or termination be used for or diverted to purposes other than the
exclusive benefit of Participants and their Beneficiaries, and further that
no amendment or termination may retroactively change or deprive any
Participant or Beneficiary of rights already accrued under the Plan except
insofar as such amendment is necessary to preserve the qualification and
tax exemption of the Plan pursuant to Code Section 401. No amendment shall
increase the duties of the Custodian or otherwise adversely affect the
Custodian unless the Custodian expressly agrees thereto. However, if the
Employer amends any provision of this Plan (including a waiver of the
minimum funding requirements under Code Section 412(d) other than by
changing any election made in the Adoption Agreement, adopting an amendment
stated in the Adoption Agreement which allows the Plan to satisfy Code
Section 415, to avoid duplication of minimum benefits under Code Section
416 or to add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the
Plan to be treated as an individually designed plan, such Employer shall no
longer participate under this prototype plan and the Employer's Plan shall
be deemed to be an individually designed plan. The Employer hereby
irrevocably delegates (retaining, however, the right and power to change
any election made in the Adoption Agreement) to the Investment Advisor the
right and power to amend the Plan at any time, and from time to time, and
the Employer by adopting the Plan shall be deemed to have consented
thereto. The Investment Advisor shall notify the Employer of any amendment
to the Plan. For purposes of any Investment Advisor amendments, the mass
submitter shall be recognized as the agent of the Investment Advisor. If
the Investment Advisor does not adopt the amendments made by the mass
submitter, it will no longer be identical to or a minor modifier of the
mass submitter plan.
(b) No amendment to the Plan shall be effective to the extent that it
has the effect of decreasing a Participant's accrued benefit except to the
extent permitted by Code Sections 412(c)(8) and 411(d)(6). For purposes of
this subsection, a Plan amendment which has the effect of decreasing a
Participant's Account balance or eliminating an optional form of benefit,
with respect to benefits attributable to service before the amendment shall
be treated as reducing an accrued benefit. Furthermore, if the vesting
schedule of a
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<PAGE> 22
Plan is amended, in the case of an Employee who is a Participant as of
the later of the date such amendment is adopted or the date it becomes
effective, the nonforfeitable percentage (determined as of such date) of
such Employee's right to his Employer-derived accrued benefit will not be
less than his percentage computed under the Plan without regard to such
amendment.
(c) Notwithstanding subsection (a) above, an Employer may amend the Plan
by adding overriding plan language to the Adoption Agreement where such
language is necessary to satisfy Code Sections 415 or 416 because of the
required aggregation of multiple plans under such Code Sections.
10.2 TERMINATION Upon complete discontinuance of the Employer's Profit Sharing
Contributions (if the Employer has adopted a Profit Sharing Plan by completing
the appropriate Adoption Agreement) or termination or partial termination of
the Plan, each affected Participant's Account shall become nonforfeitable. Upon
termination or partial termination of the Plan, the Employer shall instruct the
Custodian whether currently to distribute to each Participant the entire amount
of the Participant's Account, in such one or more of the methods described in
Article VIII, or whether to continue the Plan and to make distributions
therefrom as if the Plan had continued; provided that, in the event the Plan is
continued, the Plan must continue to satisfy the requirements of Code Section
401(a). The Employer shall in all events exercise such discretion in a
nondiscriminatory manner. The Plan shall continue in effect until the Custodian
shall have completed the distribution of all of the Plan asset and the accounts
of the Custodian have been settled.
ARTICLE XI
FIDUCIARY RESPONSIBILITIES
11.1 ADMINISTRATOR The Administrator shall have the power to allocate
fiduciary responsibilities and to designate other persons to carry out such
fiduciary responsibilities; provided such allocation is in writing and filed
with the Plan records. The Administrator may employ one or more persons to
render advice to the Administrator with regard to its responsibilities under
the Plan, and consult with counsel, who may be counsel to the Employer.
11.2 POWERS OF ADMINISTRATOR The Administrator shall administer the Plan in
accordance with its terms and shall have all powers necessary to carry out its
terms. The Administrator shall have discretionary authority to determine
eligibility for benefits and to interpret and construe the terms of the Plan,
and any such determination, interpretation or construction shall be final and
binding on all parties unless arbitrary and capricious. Any such discretionary
authority shall be carried out in a uniform and nondiscriminatory manner.
11.3 RECORDS AND REPORTS The Administrator, or those to whom it has delegated
fiduciary duties, shall keep a record of all proceedings and actions, and shall
maintain all such books of account, records and other data as shall be
necessary for the proper administration of the Plan. The Administrator, or
those to whom it has delegated fiduciary duties, shall have responsibility for
compliance with the provisions of ERISA relating to such office, including
filing with the Secretary of Labor and Internal Revenue Service of all reports
required by the Code and/or ERISA and furnishing Participants and Beneficiaries
with descriptions of the Plan and reports required by ERISA.
11.4 OTHER ADMINISTRATIVE PROVISIONS
(a) No bond or other security shall be required of the Administrator,
and/or any officer or Employee of the Employer to whom fiduciary
responsibilities are allocated, except as may be required by ERISA.
(b) The Administrator or the Employer may shorten, extend or waive the
time (but not beyond sixty days) required by the Plan for filing any
notice or other form with the Administrator or the Employer, or taking any
other action under the Plan, except a response to an appeal under Section
11.6, from a decision of the Administrator.
(c) The Administrator or the Employer may direct that such reasonable
expenses as may be incurred in the administration of the Plan shall be
paid out of the funds of the Plan, unless the Employer shall pay them.
(d) The Administrator, the Custodian, and any other persons performing
fiduciary duties under the Plan shall act with the care, skill, prudence
and diligence under the circumstances then prevailing that a prudent man
acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of like character and with like aims, and no such
person shall be liable, to the maximum extent permitted by ERISA, for any
act of commission or omission in accordance with the foregoing standard.
11.5 CLAIMS PROCEDURE Any claim relating to benefits under the Plan shall be
filed with the Administrator on a form prescribed by the Administrator. If a
claim is denied in whole or in part, the Administrator shall give the claimant
written notice of such denial within ninety (90) days after the filing of such
claim, which notice shall specifically set forth:
(a) The reasons for the denial;
(b) The pertinent Plan provisions on which the denial was based;
(c) Any additional material or information necessary for the claimant to
perfect the claim and an explanation of why such material or information
is needed; and
(d) An explanation of the Plan's procedure for review of the denial of the
claim.
In the event that the claim is not granted and notice of denial of a claim is
not furnished by the ninetieth (90th) day after such claim was filed, the claim
shall be deemed to have been denied on that day for the purpose of permitting
the claimant to request review of the claim.
11.6 CLAIMS REVIEW PROCEDURE
(a) Any person whose claim filed pursuant to Section 11.5 has been denied
in whole or in part by the Administrator may request review of the claim by
the Employer, by filing a written request with the Administrator. The
claimant shall file such request (including a statement of his position)
with the Employer no later than sixty (60) days after the mailing or
delivery of the written notice of denial provided for in Section 11.5 or,
if such notice is not provided, within sixty (60) days after such be
in writing and shall specifically set forth:
(i) The reasons for the decision; and
(ii) The pertinent Plan provisions on which the decision is based.
Any such decision of the Employer shall bind the claimant and the
Employer, and the Administrator shall take appropriate action to carry out
such decision.
(b) Any person whose claim has been denied in whole or in part must
exhaust the administrative review procedures provided in subsection (a)
above prior to initiating any claim for judicial review.
ARTICLE XII
AMENDMENT AND CONTINUATION OF ORIGINAL PLAN
Notwithstanding any of the foregoing provisions of the Plan to the contrary, an
employer that has previously established an Original Plan may, in accordance
with the provisions of the Original Plan, amend and continue the Original Plan
in the form of this Plan and become an Employer hereunder, subject to the
following:
(a) subject to the conditions and limitations of the Plan, each person who is
a Participant under the Original Plan imme-
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<PAGE> 23
diately prior to the effective date of the amendment and continuation
thereof in the form of this Plan will continue as a Participant in this
Plan;
(b) no election may be made in the Adoption Agreement if such election
would reduce the benefits of a Participant under the Original Plan to less
than the benefits to which he would have been entitled if he had resigned
from the employ of the Employer on the date of the Amendment and
continuation of the Original Plan in the form of this Plan;
(c) the amounts, if any, of a Participant's or former Participant's
Accounts immediately prior to the effective date of the amendment and
continuation of the Original Plan in the form of this Plan shall be
reduced to cash, deposited with the Custodian and constitute the opening
balances in such Participant's Account under this Plan;
(d) amounts being paid to individuals in accordance with the provisions
of the Original Plan shall continue to be paid under this Plan, but in the
form that they were being paid under the Original Plan;
(e) any Beneficiary designation in effect under the Original Plan
immediately before its amendment and continuation in the form of this Plan
which effectively meets the requirements contained in Section 2.3 hereof
shall be deemed to be a valid Beneficiary designation pursuant to Section
2.3 of this Plan, unless and until the Participant or former Participant
revokes such Beneficiary designation or makes a new Beneficiary
designation under this Plan. If the Beneficiary designation form does not
meet the requirements of Section 2.3 hereunder, the Participant's spouse
shall be deemed to be his Beneficiary. If the Participant is unmarried, or
his spouse does not survive him, his estate shall be deemed his
Beneficiary.
(f) if the Original Plan's vesting schedule (or this Plan's vesting
schedule) or the Plan is amended or changed in any way that directly or
indirectly affects the computation of a Participant's nonforfeitable
interest in his Account derived from Employer contributions, each such
Participant with at least three (3) Years of Service with the Employer may
elect, within a reasonable period after the adoption of the amendment or
change, to have his nonforfeitable percentage computed under the Plan
without regard for the amendment or change. For any Participant who does
not have at least one (1) Hour of Service in any Plan Year beginning after
December 31, 1988, the preceding sentence shall be applied by substituting
"five (5) Years of Service" for "three (3) Years of Service" where such
language appears therein. Any such election must be made during the period
commencing on the date of the amendment or change and ending on the latest
of: (i) sixty (60) days after that date; (ii) sixty (60) days after the
effective date of the amendment or change; or (iii) sixty (60) days after
such Participant is issued written notice of the amendment or change by
the Plan Administrator or Employer.
ARTICLE XIII
TOP-HEAVY PROVISIONS
13.1 EFFECT OF TOP-HEAVY STATUS The Plan shall be a "Top-Heavy Plan" for any
Plan Year commencing after December 31, 1983, if any of the following conditions
exist:
(a) If the Top-Heavy Ratio for this Plan exceeds sixty percent (60%)
and this Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group.
(b) If this Plan is a part of a Required Aggregation Group but not part
of a Permissive Aggregation Group and the Top-Heavy Ratio for the group
of plans exceeds sixty percent (60%).
(c) If this Plan is a part of a Required Aggregation Group and part of
a Permissive Aggregation Group and the Top-Heavy Ratio for the Permissive
Aggregation Group exceeds sixty percent (60%).
If the Plan is a Top-Heavy Plan in any Plan Year beginning after December 31,
1983, the provisions of Sections 13.3 through 13.6 shall supersede any
conflicting provisions of the Plan or the Adoption Agreement.
13.2 ADDITIONAL DEFINITIONS Solely for purposes of this Article, the following
terms shall have the meanings set forth below:
(a) Key Employee means any Employee or former Employee (and the
Beneficiaries of such Employee) who at any time during the Determination
Period was an officer of the Employer if such individual's annual
compensation exceeds 50 percent of the dollar limitation under Code
Section 415(b)(1)(A), an owner (or considered an owner under Code Section
318) of one of the ten largest interests in the Employer if such
individual's compensation exceeds 100 percent (100%) of the dollar
limitation under Code Section 415(c)(1)(A), a five percent (5%) owner of
the Employer, or one percent (1%) owner of the Employer who has an annual
compensation of more than $150,000. Annual compensation means compensation
as defined in Code Section 415(c)(3), of the Code, but including amounts
contributed by the Employer pursuant to a salary reduction agreement which
are excludible from the Employee's gross income under Code Sections 125,
402(a)(8), 402(h) or 403(b). The determination period is the plan year
containing the Determination Date and the four (4) preceding Plan Years.
The determination of who is a Key Employee will be made in accordance with
Code Section 416(i)(1) and the Regulations thereunder.
(b) Determination Date means the last day of the preceding Plan Year.
For the first Plan Year of the Plan Determination Date shall mean the last
day of that year.
(c) Top-Heavy Ratio means:
(i) If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the
Employer has not maintained any defined benefit plan which during the
five (5) year period ending on the Determination Date(s) has or has
had accrued benefits, the Top-Heavy Ratio for this plan alone or for
the Required or Permissive Aggregation Group as appropriate is a
fraction, the numerator of which is the sum of the account balances
of all Key Employees as of the determination date(s) (including any
part of any account balance distributed in the five (5) year period
ending on the Determination Date(s)), and the denominator of which is
the sum of all account balances (including any part of any account
balance distributed in the five (5) year period ending on the
Determination Date(s)), both computed in accordance with Code Section
416 and the Regulations thereunder. Both the numerator and
denominator of the Top-Heavy Ratio are increased to reflect any
contribution not actually made as of the Determination Date, but
which is required to be taken into account on that date under Code
Section 416 and the Regulations thereunder.
(ii) If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the
Employer maintains or has maintained one or more defined benefit
plans which during the five (5) year period ending on the
Determination Date(s) has or has had any accrued benefits, the
Top-Heavy Ratio for any Required or Permissive Aggregation Group as
appropriate is a fraction, the numerator of which is the sum of
account balances under the aggregated defined contribution plan or
plans for all Key Employees, determined in accordance with (i) above,
and the present value of accrued benefits under
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<PAGE> 24
the aggregated defined benefit plan or plans for all Key
Employees as of the Determination Date(s), and the denominator of
which is the sum of the account balances under the aggregated defined
contribution plan or plans for all participants, determined in
accordance with (i) above, and the present value of accrued benefits
under the defined benefit plan or plans for all participants as of
the Determination Date(s), all determined in accordance with Code
Section 416 and the Regulations thereunder. The accrued benefits
under a defined benefit plan in both the numerator and denominator of
the Top-Heavy Ratio are increased for any distribution of an accrued
benefit made in the five (5) year period ending on the Determination
Date.
(iii) For purposes of (i) and (ii) above the value of account balances and
the present value of accrued Valuation Date that falls within
or ends with the twelve (12) month period ending on the Determination
Date, except as provided in Code Section 416 and the Regulations
thereunder for the first and second plan years of a defined benefit
plan. The account balances and accrued benefits of a participant (A)
who is not a Key Employee but who was a Key Employee in a prior year,
or (B) who has not been credited with at least one (1) hour of
service with any employer maintaining the plan at any time during the
five (5) year period ending on the Determination Date will be
disregarded. The calculation of the Top-Heavy Ratio, and the extent
to which distributions, rollovers, and transfers are taken into
account will be made in accordance with Code Section 416 and the
Regulations thereunder. Deductible employee contributions will not
be taken into account for purposes of computing the Top-Heavy Ratio.
When aggregating plans the value of account balances and accrued
benefits will be calculated with reference to the determination dates
that fall within the same calendar year.
(iv) The accrued benefit of a participant other than a Key Employee shall
be determined under (i) the method, if any, that uniformly
applies for accrual purposes under all defined benefit plans
maintained by the employer, or (ii) if there is no such method, as if
such benefit accrued not more rapidly than the slowest accrual rate
permitted under the fractional rule of Code Section 411(b)(1)(C).
(d) Permissive Aggregation Group means the Required Aggregation Group of plans
plus any other plan or plans of the Employer which, when considered as
a group with the Required Aggregation Group, would continue to satisfy the
requirements of Code Sections 401(a)(4) and 410.
(e) Required Aggregation Group means (i) each qualified plan of the Employer in
which at least one Key Employee participates or participated at any
time during the five (5) year period ending on the Determination Date
(regardless of whether the plan has terminated), and (ii) any other
qualified plan of the Employer which enables a plan described in (i) to
meet the requirements of Code Sections 401(a)(4) or 410.
(f) Valuation Date means (i) in the case of a defined contribution plan, the
Determination Date, and (ii) in the case of a defined benefit plan, the
date as of which funding calculations are generally made within the twelve
(12) month period ending on the Determination Date.
(g) Employer means the employer or employers whose employees are covered by
this Plan and any other employer which must be aggregated with any such
employer under Code Sections 414(b), (c), (m) and (o).
(h) Present Value means the value based on an interest rate of five percent
(5%) and mortality assumptions based on the 1971 GAM Mortality Table or
such other interest rate or mortality assumptions as may be specified in
the Adoption Agreement.
13.3 MINIMUM ALLOCATIONS
(a) For any year in which the Plan is a Top-Heavy Plan, each Participant who is
not a Key Employee and who is not separated from service at the end of
the Plan Year shall receive allocations of Employer contributions and
forfeitures under this Plan at least equal to three percent (3%) of
Compensation (as defined in Section 2.6) for such year or, if less, the
largest percentage of the first two hundred thousand dollars ($200,000) of
compensation allocated on behalf of the Key Employee for the Plan Year
where the Employer has no defined benefit plan which designates this Plan
to satisfy Code Section 401. This minimum allocation shall be determined
without regard for any Social Security contribution and shall be provided
even though under other provisions the Participant would not otherwise be
entitled to receive an allocation or would have received a lesser
allocation because of (i) the Participant's failure to complete One
Thousand (1,000) Hours of Service (or any equivalent provided in the Plan),
or (ii) the Participant's failure to make mandatory Employee contributions
to the Plan, or (iii) Compensation less than a stated amount.
(b) The provision in (a) above shall not apply to any Participant to the extent
the Participant is covered under any other plan or plans of the
employer and the employer has provided in the Adoption Agreement that the
minimum allocation or benefit requirement applicable to top-heavy plans
will be met in the other plan or plans.
(c) The minimum allocation required (to the extent required to be nonforfeitable
under Section 416(b)) may not be forfeited under Code Sections
411(a)(3)(B) or 411(a)(3)(D).
(d) For purposes of subsection (a) above, neither Elective Deferrals nor
Employer Matching Contributions shall be taken into account for the
purposes of satisfying the minimum top-heavy benefits requirement.
13.4 BENEFIT LIMIT CHANGE If the Employer maintains both the Plan and a defined
benefit plan which cover one or more of the same Key Employees and the plans
are Top-Heavy in a Plan Year, then Section 6.5(c) and (j) hereof shall be
amended to substitute "one hundred percent (100%)" for the number "one hundred
and twenty-five percent (125%)" where the latter appears therein.
ARTICLE XIV
MISCELLANEOUS
14.1 RIGHTS OF EMPLOYEES AND PARTICIPANTS No Employee or Participant shall have
any right or claim to any benefit under the Plan except in accordance with the
provisions of the Plan, and then only to the extent that there are funds
available therefor in the hands of the Custodian. The establishment of the Plan
shall not be construed as creating any contract of employment between the
Employer and any Employee or otherwise conferring upon any Employee or other
person any legal right to continuation of employment, nor as limiting or
qualifying the right of the Employer to discharge any Employee without regard
to the effect that such discharge might have upon his rights under the Plan.
14.2 MERGER WITH OTHER PLANS The Plan shall not be merged or consolidated with,
nor transfer its assets or liabilities to, any other plan unless each
Participant, Beneficiary and other person entitled to benefits, would (if the
Plan then terminated) receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the benefit he
would have been entitled to receive if the Plan had terminated immediately prior
to the merger, consolidation or transfer.
30
<PAGE> 25
14.3 NON-ALIENATION OF BENEFITS The right to receive a benefit under the Plan
shall not be subject in any manner to anticipation, alienation, or assignment,
nor shall such right be liable for or subject to debts, contracts, liabilities
or torts, either voluntarily or involuntarily. Any attempt by the Participant,
Beneficiary or other person to anticipate, alienate or assign his interest in
or right to a benefit or any claim against him seeking to subject such interest
or right to legal or equitable process shall be null and void for all purposes
hereunder to the extent permitted by ERISA and the Code. Notwithstanding the
foregoing or any other provision of the Plan, the Administrator shall recognize
and give effect to a qualified domestic relations order with respect to child
support, alimony payments or marital property rights if such order is
determined by the Administrator to meet the applicable requirements of Code
Section 414(p). If any such order so directs, distribution of benefits to the
alternate payee may be made at any time, even if the Participant is not then
entitled to a distribution. The Administrator shall establish reasonable
procedures relating to notice to the Participant and determinations respecting
the qualified status of any domestic relations order.
14.4 FAILURE TO QUALIFY Notwithstanding anything in this Plan to the contrary,
all contributions under the Plan made prior to the receipt by the Employer of a
determination by the Internal Revenue Service to the effect that the Plan is
qualified under Code Section 401 shall be made on the express condition that
such a determination will be received, and in the event that the Internal
Revenue Service determines upon initial application for a determination that
the Plan is not so qualified or tax exempt, all contributions made by the
Employer or Participants prior to the date of determination must be returned
within one (1) year from the date of such determination, but only if the
application for qualification is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the Plan is adopted or such
later date as the Secretary of the Treasury may prescribe.
14.5 MISTAKE OF FACT; DISALLOWANCE OF DEDUCTION Notwithstanding anything in
this Plan to the contrary, any contributions made by the Employer which are
conditioned on the deductibility of such amount under Code Section 404, to the
extent of the amount disallowed, or which are made because of a mistake of fact
must be returned to the Employer within one year after such disallowance or
such mistaken contribution.
14.6 PARTICIPATION UNDER PROTOTYPE PLAN If the Plan as adopted by the Employer
either fails to attain or maintain qualification under the Code, such Plan will
no longer participate in this prototype plan and will be considered an
individually designed plan.
14.7 GENDER Where the context admits, words used in the singular include the
plural, words used in the plural include the singular, and the masculine gender
shall include the feminine and neuter genders.
14.8 HEADINGS The headings of Sections are included solely for convenience of
reference, and if there is any conflict between such headings and the text of
the Plan, the text shall control.
14.9 GOVERNING LAW Except to the extent governed by ERISA and any other
applicable federal law, the Plan shall be construed, administered and enforced
according to the laws of the state in which the Employer has its principal
place of business.
31
<PAGE> 26
IRS OPINION LETTER
INTERNAL REVENUE SERVICE Department of the Treasury
Plan Description: Prototype Standardized Washington, D.C. 20224
Profit Sharing Plan
with CODA
FFN: 5025414AL01-001 Person to Contact: Ms. Arrington
Case: 9006833 EIN: 39-1213042 Telephone Number: (202)566-4576
BPD: 01 Plan: 001 Refer Reply to: E:EP:Q:ICU
Letter Serial No: D255803a Date: 11/29/90
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable under
section 401 of the Internal Revenue Code for use by employers for the benefit
of their employees. This opinion relates only to the acceptability of the form
of the plan under the Internal Revenue Code. It is not an opinion of the effect
of other Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). An employer who adopts this plan will be considered to have a plan
qualified under Code section 401(a) provided all the terms of the plan are
followed, and the eligibility requirements and contribution or benefit
provisions are not more favorable for officers, owners, or highly compensated
employees than for other employees. Except as stated below, the Key District
Director will not issue a determination letter with regard to this plan.
Our opinion does not apply to the form of the plan for purposes of Code section
401(a)(16) if: (1) if an employer ever maintained another qualified plan for
one or more employees who are covered by this plan, other than a specified
paired plan within the meaning of section 7 of Rev. Proc. 89-9, 1989-6 I.R.B.
14; or (2) after December 31, 1985, the employer maintains a welfare benefit
fund defined in Code section 419(e), which provides postretirement medical
benefits allocated to separate accounts for key employees as defined in Code
section 419A(d)(3). In such situations the employer should request a
determination as to whether the plan, considered with all related qualified
plans and, if appropriate, welfare benefit funds, satisfies the requirements of
Code section 401(a)(16) as to limitations on benefits and contributions in Code
section 415.
If you, the plan sponsor, have any questions concerning the IRS processing of
this case, please call the above telephone number. This number is only for use
of the plan sponsor. Individual participants and/or adopting employer with
questions concerning the plan should contact the plan sponsor. The plan's
adoption agreement must include the sponsor's address and telephone number for
inquiries by adopting employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial
Number and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely yours,
/s/ John Swica
Chief, Employee Plans Qualifications Branch
32
<PAGE> 27
IRS OPINION LETTER
INTERNAL REVENUE SERVICE Department of the Treasury
Plan Description: Prototype Standardized Washington, D.C. 20224
Profit Sharing Plan
with CODA
FFN: 5025414AL01-002 Case: 9006834 Person to Contact: Ms. Arrington
EIN: 39-1213042 Telephone Number: (202)566-4576
BPD: 01 Plan: 002 Letter Serial No: D255804a Refer Reply to: E:EP:Q:ICU
Date: 11/29/90
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable under
section 401 of the Internal Revenue Code for use by employers for the benefit
of their employees. This opinion relates only to the acceptability of the form
of the plan under the Internal Revenue Code. It is not an opinion of the effect
of other Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). An employer who adopts this plan will be considered to have a plan
qualified under Code section 401(a) provided all the terms of the plan are
followed, and the eligibility requirements and contribution or benefit
provisions are not more favorable for officers, owners, or highly compensated
employees than for other employees. Except as stated below, the Key District
Director will not issue a determination letter with regard to this plan.
Our opinion does not apply to the form of the plan for purposes of Code section
401(a)(16) if: (1) if an employer ever maintained another qualified plan for
one or more employees who are covered by this plan, other than a specified
paired plan within the meaning of section 7 of Rev. Proc. 89-9, 1989-6 I.R.B.
14; or (2) after December 31, 1985, the employer maintains a welfare benefit
fund defined in Code section 419(e), which provides postretirement medical
benefits allocated to separate accounts for key employees as defined in Code
section 419A(d)(3). In such situations the employer should request a
determination as to whether the plan, considered with all related qualified
plans and, if appropriate, welfare benefit funds, satisfies the requirements of
Code section 401(a)(16) as to limitations on benefits and contributions in Code
section 415.
If you, the plan sponsor, have any questions concerning the IRS processing of
this case, please call the above telephone number. This number is only for use
of the plan sponsor. Individual participants and/or adopting employer with
questions concerning the plan should contact the plan sponsor. The plan's
adoption agreement must include the sponsor's address and telephone number for
inquiries by adopting employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial
Number and File Folder Number shown in the heading of this letter.
Your should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerly yours,
/s/ John Swica
Chief, Employee Plans Qualifications Branch
33
<PAGE> 28
IRS OPINION LETTER
INTERNAL REVENUE SERVICE Department of the Treasury
Plan Description: Prototype Money Purchase Washington, D.C. 20224
Pension Plan
FFN: 5025414AL01-003 Case: 9006836 Person to Contact: Ms. Arrington
EIN: 39-1213042 Telephone Number: (202)566-4576
BPD: 01 Plan: 003 Letter Serial No: D255805a Refer Reply to: E:EP:Q:ICU
Date: 11/29/90
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable under
section 401 of the Internal Revenue Code for use by employers for the benefit
of their employees. This opinion relates only to the acceptability of the form
of the plan under the Internal Revenue Code. It is not an opinion of the effect
of other Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). An employer who adopts this plan will be considered to have a plan
qualified under Code section 401(a) provided all the terms of the plan are
followed, and the eligibility requirements and contribution or benefit
provisions are not more favorable for officers, owners, or highly compensated
employees than for other employees. Except as stated below, the Key District
Director will not issue a determination letter with regard to this plan.
Our opinion does not apply to the form of the plan for purposes of Code section
401(a)(16) if: (1) if an employer ever maintained another qualified plan for
one or more employees who are covered by this plan, other than a specified
paired plan within the meaning of section 7 of Rev. Proc. 89-9, 1989-6 I.R.B.
14; or (2) after December 31, 1985, the employer maintains a welfare benefit
fund defined in Code section 419(e), which provides postretirement medical
benefits allocated to separate accounts for key employees as defined in Code
section 419A(d)(3). In such situations the employer should request a
determination as to whether the plan, considered with all related qualified
plans and, if appropriate, welfare benefit funds, satisfies the requirements of
Code section 401(a)(16) as to limitations on benefits and contributions in Code
section 415.
If you, the plan sponsor, have any questions concerning the IRS processing of
this case, please call the above telephone number. This number is only for use
of the plan sponsor. Individual participants and/or adopting employer with
questions concerning the plan should contact the plan sponsor. The plan's
adoption agreement must include the sponsor's address and telephone number for
inquiries by adopting employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial
Number and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerly yours,
/s/ John Swica
Chief, Employee Plans Qualifications Branch
34
<PAGE> 29
IRS OPINION LETTER
INTERNAL REVENUE SERVICE Department of the Treasury
Plan Description: Prototype Standardized Washington, D.C. 20224
Profit Sharing Plan
with CODA
FFN: 5025414AL01-004 Case: 9006838 Person to Contact: Ms. Arrington
EIN: 39-1213042 Telephone Number: (202)566-4576
BPD: 01 Plan: 004 Letter Serial No: D255810a Refer Reply to: E:EP:Q:ICU
Date: 11/29/90
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable under
section 401 of the Internal Revenue Code for use by employers for the benefit
of their employees. This opinion relates only to the acceptability of the form
of the plan under the Internal Revenue Code. It is not an opinion of the effect
of other Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). An employer who adopts this plan will be considered to have a plan
qualified under Code section 401(a) provided all the terms of the plan are
followed, and the eligibility requirements and contribution or benefit
provisions are not more favorable for officers, owners, or highly compensated
employees than for other employees. Except as stated below, the Key District
Director will not issue a determination letter with regard to this plan.
Our opinion does not apply to the form of the plan for purposes of Code section
401(a)(16) if: (1) if an employer ever maintained another qualified plan for
one or more employees who are covered by this plan, other than a specified
paired plan within the meaning of section 7 of Rev. Proc. 89-9, 1989-6 I.R.B.
14; or (2) after December 31, 1985, the employer maintains a welfare benefit
fund defined in Code section 419(e), which provides postretirement medical
benefits allocated to separate accounts for key employees as defined in Code
section 419A(d)(3). In such situations the employer should request a
determination as to whether the plan, considered with all related qualified
plans and, if appropriate, welfare benefit funds, satisfies the requirements of
Code section 401(a)(16) as to limitations on benefits and contributions in Code
section 415.
If you, the plan sponsor, have any questions concerning the IRS processing of
this case, please call the above telephone number. This number is only for use
of the plan sponsor. Individual participants and/or adopting employer with
questions concerning the plan should contact the plan sponsor. The plan's
adoption agreement must include the sponsor's address and telephone number for
inquiries by adopting employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial
Number and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerly yours,
/s/ John Swica
Chief, Employee Plans Qualifications Branch
35
<PAGE> 30
Page 1
[STRONG LOGO]
AMENDMENTS TO THE
STRONG FUNDS PROTOTYPE DEFINED CONTRIBUTION PLAN ("PLAN")
The following amendments have been made to the Plan, effective on the
first day of the first plan year beginning on or after January 1, 1994:
1. Section 2.6 is amended by inserting into the conclusion of the current
provision the following:
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan
years beginning on or after January 1, 1994, the annual Compensation of
each employee taken into account under the plan shall not exceed the OBRA
'93 annual compensation limit. The OBRA '93 annual compensation limit is
$150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with section 401(a)(17)(B) of the Internal Revenue
Code. The cost-of-living adjustment in effect for a calendar year applies
to any period, not exceeding 12 months, over which compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93 annual
compensation limit will be multipled by a fraction, the numerator of which
is the number of months in the determination period, and the denominator
of which is 12.
For plan years beginning on or after January 1, 1994, any reference in
this plan to the limitation under section 401(a)(17) of the Code shall mean
the OBRA '93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current
plan year, the compensation for that prior determination period is
subject to OBRA '93 annual compensation limit in effect for that prior
determination period. For this purpose, for determination periods
beginning before the first day of the first plan year beginning on or
after January 1, 1994, the OBRA '93 annual compensation limit is $150,000.
2. The first paragraph of Section 8.3(b) is amended to read as follows:
(b) If the Participant's vested account balance in the Pension Plan or
the Profit Sharing Plan exceeds (or at the time of any prior distribution
exceeded) three thousand five hundred dollars ($3,500), no distribution of
that interest shall be made prior to the time the Participant's Account
becomes immediately distributable without the written consent of the
Participant and, in the case of the Pension Plan, the Participant's
spouse (or where either the Participant or the spouse has died, the
survivor). The consent of the Participant and the Participant's spouse
shall be obtained in writing within the ninety (90) day period ending on
the annuity starting date. The annuity starting date is the first day of
the first period for which an amount is paid as an annuity or any other
form. The Administrator shall notify the Participant and the Participant's
spouse of the right to defer any distribution until the Participant's
Account balance is no longer immediately distributable. Such notification
shall include a general description of the material features, and an
explanation of the relative values of the optional forms of benefit
available under the Plan in a manner that would satisfy the notice
requirements of Code Section 417(a)(3), and shall be provided no less than
thirty (30) days and no more than ninety (90) days prior to the annuity
starting date; provided that if a distribution is one to which Sections
401(a)(11) and 417 of the Internal Revenue Code do not apply, such
distribution may commence less than 30 days after the notice required under
Section 1.411 (a)-11(c) of the Income Tax Regulations is given, provided
that:
(1) The Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
<PAGE> 31
[STRONG LOGO]
STRONG FUNDS PROTOTYPE DEFINED CONTRIBUTION RETIREMENT PLAN
NOTICE TO PARTICIPANTS AND SUMMARY OF MATERIAL MODIFICATIONS
In order to comply with changes in government rules and regulations
affecting retirement plans, the Strong Funds Prototype Defined Contribution
Retirement Plan, which this business has adopted for the benefit of eligible
employees, has been amended. The following changes have been made to the plan:
- Reduced Compensation Limit. Congress has amended the pension laws to
provide that the maximum amount of compensation that the plan may consider
for any participant is $150,000, even if the participant's actual
compensation is higher. Thus, this amendment directly affects only those
participants, if any, earning in excess of this limitation.
- Participant Ability to Waive 30 Day Notice Period. Under the plan,
participants are entitiled to distribution of their account (or to make a
withdrawal from their account) only upon the occurrence of certain events.
Federal pension law further requires that even when one of these events has
occurred, distribution generally may not be made until at least 30 days
after the date on which the participant receives these required notices.
The IRS has amended its regulations, and the plan has been similarly
amended, to allow a participant to waive the 30 day waiting period if the
participant so chooses. Further information regarding your options will be
provided at the time you are eligible for a distribution from the plan.
In accordance with federal pension law, a participant may, should he or
she wish to do so, provide comments to the Internal Revenue Service, or
request the Department of Labor to comment, with respect to the amendments
described above. A government required Notice to Interested Parties is printed
on the reverse side.
This Notice contains important information regarding your plan. Please
retain this Notice along with your plan records.
<PAGE> 32
NOTICE TO INTERESTED PARTIES
STRONG FUNDS PROTOTYPE DEFINED
CONTRIBUTION RETIREMENT PLAN
1. All employees participating in the Strong Funds Prototype Defined
Contribution Retirement Plan, a prototype plan sponsored by
Strong/Corneliuson Capital Management, Inc.
2. The Internal Revenue Service has previously issued a favorable opinion
letter with respect to the form of the prototype plan.
3. You have the right to submit to the IRS Key District Director, either
individually or jointly with other interested parties, your comments as
to whether this plan meets the qualification requirements of the Internal
Revenue Code. If you would like to comment, please contact the Plan
Administrator for the mailing address of the Key District Director and
other information that you will need to provide to the Key District Director
to identify the Plan.
4. You may instead, individually or jointly with other interested parties,
request the Department of Labor to submit, on your behalf, comments to
the Key District Director regarding qualification of the plan. If the
Department declines to comment on all or some of the matters you raise, you
may, individually or jointly, submit your comments on these matters
directly to the Key District Director.
5. The Department of Labor may not comment on behalf of interested parties
unless requested to do so by the lesser of 10 employees or 10 percent
of the employees who qualify as interested parties. If you request the
Department to comment, your comment must be in writing and must specify the
matters upon which comments are requested, and must also include:
- The name of the Plan, the employer that has adopted the Plan, the
prototype Plan sponsor, the Plan number and the identity of the
Plan Administrator. If you wish to comment, the Plan Administrator can
supply you with this information.
- The number of persons needed for the Department to comment.
6. A request to the Department of Labor to comment should be addressed as
follows: Deputy Assistant Secretary, Pension and Welfare Benefits
Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W.,
Washington, D.C. 20210, Attention: 3001 Comment Request.
7. Comments submitted by you to the Key District Director must be in writing
and received by him within 75 days following the date that your
employer received notice of the Plan amendments from Strong/Corneliuson
Capital Management (the "Notice of Amendment Date"). However, if there are
matters that you request the Department of Labor to comment upon on your
behalf, and the Department declines, you may submit comments on these
matters to the Key District Director to be received by him by the earlier
of (i) the later of the 15th day from the time the Department notifies you
that it will not comment on a particular matter or 75 days following the
Notice of Amendment Date, or (ii) 90 days following the Notice of Amendment
Date. A request to the Department of Labor to comment on your behalf must
be received by it within 15 days following the Notice of Amendment Date if
you wish to preserve your right to comment on a matter upon which the
Department declines to comment, or within 25 days of the Notice of
Amendment Date if you wish to waive that right. Further information
regarding the Notice of Amendment Date may be obtained from the Plan
Administrator.
8. Additional information concerning the Plan and these amendments are
available from the Plan Administrator during normal business hours for
inspection and copying. A nominal charge for copying and/or mailing may be
imposed.
<PAGE> 1
99.B14.1.1
STRONG FUNDS
DEFINED CONTRIBUTION PLAN AND TRUST
(BASIC PLAN DOCUMENT #04)
Copyright 1996 Strong Capital Management, Inc.
<PAGE> 2
STRONG FUNDS
DEFINED CONTRIBUTION PLAN AND TRUST
(BASIC PLAN DOCUMENT #04)
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. DEFINITIONS
ARTICLE II. TOP HEAVY PROVISIONS AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.2 DETERMINATION OF TOP HEAVY STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.7 RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.8 APPOINTMENT OF ADVISERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.9 INFORMATION FROM EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.10 PAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.11 MAJORITY ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.12 CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.13 CLAIMS REVIEW PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE III. ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2 EFFECTIVE DATE OF PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.3 DETERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.4 TERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.5 OMISSION OF ELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.6 INCLUSION OF INELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.7 ELECTION NOT TO PARTICIPATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IV. CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS . . . . . . . . . . . . . . . . . . . . . . . 23
4.4 MAXIMUM ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.6 TRANSFERS FROM QUALIFIED PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.7 VOLUNTARY CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.8 DIRECTED INVESTMENT ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.9 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.10 ACTUAL CONTRIBUTION PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<TABLE>
<S> <C> <C>
4.11 INTEGRATION IN MORE THAN ONE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE V. VALUATIONS
5.1 VALUATION OF THE TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.2 METHOD OF VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VI. DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.2 DETERMINATION OF BENEFITS UPON DEATH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY . . . . . . . . . . . . . . . . . . . . . . . . 37
6.4 DETERMINATION OF BENEFITS UPON TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.5 DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.6 DISTRIBUTION OF BENEFITS UPON DEATH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.7 TIME OF SEGREGATION OR DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.8 DISTRIBUTION FOR MINOR BENEFICIARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.10 PRE-RETIREMENT DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE VII. TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.3 OTHER POWERS OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.4 LOANS TO PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.7 ANNUAL REPORT OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.8 AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.10 TRANSFER OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.11 TRUSTEE INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.12 EMPLOYER SECURITIES AND REAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE VIII. AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.2 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.3 MERGER OR CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
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<TABLE>
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ARTICLE IX. MISCELLANEOUS
9.1 EMPLOYER ADOPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.2 PARTICIPANT'S RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.3 ALIENATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.4 CONSTRUCTION OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.5 GENDER AND NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.6 LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.8 BONDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.9 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.10 INSURER'S PROTECTIVE CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.11 RECEIPT AND RELEASE FOR PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.12 ACTION BY THE EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.13 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY . . . . . . . . . . . . . . . . . . . . . . . 60
9.14 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.15 APPROVAL BY INTERNAL REVENUE SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.16 UNIFORMITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.17 PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE X. PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.3 DESIGNATION OF AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
10.4 EMPLOYEE TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES . . . . . . . . . . . . . . . . . . . . . 62
10.6 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
10.7 DISCONTINUANCE OF PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.8 ADMINISTRATOR'S AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE XI. CASH OR DEFERRED PROVISIONS
11.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . 63
11.2 PARTICIPANT'S SALARY REDUCTION ELECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
11.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS . . . . . . . . . . . . . . . . . . . . . . 67
11.4 ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.5 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . 70
11.6 ACTUAL CONTRIBUTION PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.7 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . 74
11.8 ADVANCE DISTRIBUTION FOR HARDSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
</TABLE>
<PAGE> 5
ARTICLE I. DEFINITIONS
As used in this Plan, the following words and phrases shall have the meanings
set forth herein unless a different meaning is clearly required by the context:
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
1.2 "Administrator" means the person(s) or entity designated by the
Employer pursuant to Section 2.4 to administer the Plan on behalf of
the Employer.
1.3 "Adoption Agreement" means the separate Agreement which is executed by
the Employer and accepted by the Trustee which sets forth the elective
provisions of this Plan and Trust as specified by the Employer.
1.4 "Affiliated Employer" means the Employer and any corporation which is
a member of a controlled group of corporations (as defined in Code
Section 414(b)) which includes the Employer; any trade or business
(whether or not incorporated) which is under common control (as
defined in Code Section 414(c)) with the Employer; any organization
(whether or not incorporated) which is a member of an affiliated
service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the
Employer pursuant to Regulations under Code Section 414(o).
1.5 "Aggregate Account" means with respect to each Participant, the value
of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the
provisions of Section 2.2.
1.6 "Anniversary Date" means the anniversary date specified in C3 of the
Adoption Agreement.
1.7 "Beneficiary" means the person to whom a share of a deceased
Participant's interest in the Plan is payable, subject to the
restrictions of Sections 6.2 and 6.6.
1.8 "Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.
1.9 "Compensation" with respect to any Participant means one of the
following as elected in the Adoption Agreement. However, Compensation
for any Self-Employed Individual shall be equal to his Earned Income.
(a) Information required to be reported under Sections 6041, 6051
and 6052 (wages, tips and Other Compensation Box on Form W-2).
Compensation is defined as wages, as defined in Code Section
3401(a), and all other payments of Compensation to an Employee
by the Employer (in the course of the Employer's trade or
business) for which the Employer is required to furnish the
Employee a written statement under Code Sections 6041(d) and
6051(a)(3). Compensation must be determined without regard to
any rules under Code Section 3401(a) that limit the
remuneration included in wages based on the nature or location
of the employment or the services performed (such as the
exception for agricultural labor in Section 3401(a)(2).
(b) Section 3401(a) wages. Compensation is defined as wages within
the meaning of Code Section 3401(a) for the purposes of income
tax withholding at the source but determined without regard to
any rules that limit the remuneration included in wages based
on the nature or location of the employment or the services
performed (such as the exception for agricultural labor in
Code Section 3401(a)(2)).
(c) 415 safe-harbor compensation. Compensation is defined as
wages, salaries, and fees for professional services and other
amounts received (without regard to whether or not an amount
is paid in cash) for personal services actually rendered in
the course of employment with the Employer maintaining the
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<PAGE> 6
Plan to the extent that the amounts are includible in gross
income (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
tips, bonuses, fringe benefits, and reimbursements, or other
expense allowances under a nonaccountable plan (as described
in Regulation Section 1.62-2(c)), and excluding the following:
(1) Employer contributions to a plan of deferred
compensation which are not includible in the
Employee's gross income for the taxable year in which
contributed, or Employer contributions under a
simplified employee pension plan to the extent such
contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
(2) Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by the Employee either becomes freely
transferable or is no longer subject to a substantial
risk of forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified
stock option; and
(4) Other amounts which received special tax benefits, or
contributions made by the Employer (whether or not
under a salary reduction agreement) towards the
purchase of an annuity contract described in section
403(b) of the Internal Revenue Code (whether or not
the contributions are actually excludable from the
gross income of the Employee).
If, in connection with the adoption of any amendment, the definition
of Compensation has been modified, then, for Plan Years prior to the
Plan Year which includes the adoption date of such amendment,
Compensation means compensation determined pursuant to the Plan then
in effect.
In addition, if specified in the Adoption Agreement, Compensation for
all Plan purposes shall also include compensation which is not
currently includible in the Participant's gross income by reason of
the application of Code Sections 125, 402(e)(3), 402(h)(1)(B), or
403(b).
Compensation in excess of $200,000 shall be disregarded. Such amount
shall be adjusted at the same time and in such manner as permitted
under Code Section 415(d). In applying this limitation, the family
group of a Highly Compensated Participant who is subject to the Family
Member aggregation rules of Code Section 414(q)(6) because such
Participant is either a "five percent owner" of the Employer or one of
the ten (10) Highly Compensated Employees paid the greatest "415
Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include
only the affected Participant's spouse and any lineal descendants who
have not attained age nineteen (19) before the close of the year. If,
as a result of the application of such rules, the adjusted $200,000
limitation is exceeded, then (except for purposes of determining the
portion of Compensation up to the integration level if this plan is
integrated), the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation as
determined under this Section prior to the application of this
limitation.
For Plan Years beginning prior to January 1, 1989, the $200,000 limit
(without regard to Family Member aggregation) shall apply only for Top
Heavy Plan Years and shall not be adjusted.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for
Plan Years beginning on or after January 1, 1994, the annual
Compensation for each Employee taken into account under the Plan shall
not exceed the OBRA '93 annual Compensation limit. The OBRA '93 annual
Compensation limit is $150,000, as adjusted by the Commissioner for
increases in the cost of living in accordance with Section
401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not
exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a
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determination period consists of fewer than 12 months, the OBRA '93
annual Compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination
period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Section 401(a)(17) of the Code shall
mean the OBRA '93 annual Compensation limit set forth in this
provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current
Plan Year, the Compensation for that prior determination period is
subject to the OBRA '93 Compensation limit in effect for that prior
determination period. For this purpose, for determination periods
beginning before the first day of the Plan Year beginning on or after
January 1, 1994, the OBRA '93 annual Compensation limit is $150,000.
1.10 "Contract" or "Policy" means any life insurance policy, retirement
income policy, or annuity contract (group or individual) issued by the
Insurer. In the event of any conflict between the terms of this Plan
and the terms of any insurance contract purchased hereunder, the Plan
provisions shall control.
1.11 "Deferred Compensation" means, with respect to any Participant, that
portion of the Participant's total Compensation which has been
contributed to the Plan in accordance with the Participant's deferral
election pursuant to Section 11.2.
1.12 "Early Retirement Date" means the date specified in the Adoption
Agreement on which a Participant or Former Participant has satisfied
the age and service requirements specified in the Adoption Agreement
(Early Retirement Age). A Participant shall become fully Vested upon
satisfying this requirement if still employed at his Early Retirement
Age.
A Former Participant who terminates employment after satisfying the
service requirement for Early Retirement and who thereafter reaches
the age requirement contained herein shall be entitled to receive his
benefits under this Plan.
1.13 "Earned Income" means with respect to a Self-Employed Individual, the
net earnings from self-employment in the trade or business with
respect to which the Plan is established, for which the personal
services of the individual are a material income-producing factor. Net
earnings will be determined without regard to items not included in
gross income and the deductions allocable to such items. Net earnings
are reduced by contributions by the Employer to a qualified Plan to
the extent deductible under Code Section 404. In addition, for Plan
Years beginning after December 31, 1989, net earnings shall be
determined with regard to the deduction allowed to the Employer by
Code Section 164(f).
1.14 "Elective Contribution" means the Employer's contributions to the Plan
that are made pursuant to the Participant's deferral election pursuant
to Section 11.2, excluding any such amounts distributed as "excess
annual additions" pursuant to Section 4.4. In addition, if selected in
E3 of the Adoption Agreement, the Employer's matching contribution
made pursuant to Section 11.1(b) shall or shall not be considered an
Elective Contribution for purposes of the Plan, as provided in Section
11.1(b). Elective Contributions shall be subject to the requirements
of Sections 11.2(b) and 11.2(c) and shall further be required to
satisfy the discrimination requirements of Regulation
1.401(k)-1(b)(3), the provisions of which are specifically
incorporated herein by reference.
1.15 "Eligible Employee" means any Employee specified in D1 of the Adoption
Agreement.
1.16 "Employee" means any person who is employed by the Employer, but
excludes any person who is employed as an independent contractor. The
term Employee shall also include Leased Employees as provided in Code
Section 414(n) or (o).
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<PAGE> 8
Except as provided in the Non-Standardized Adoption Agreement, all
Employees of all entities which are an Affiliated Employer will be
treated as employed by a single employer.
1.17 "Employer" means the entity specified in the Adoption Agreement, any
Participating Employer (as defined in Section 10.1) which shall adopt
this Plan, any successor which shall maintain this Plan and any
predecessor which has maintained this Plan.
1.18 "Excess Compensation" means, with respect to a Plan that is integrated
with Social Security, a Participant's Compensation which is in excess
of the amount set forth in the Adoption Agreement.
1.19 "Excess Contributions" means, with respect to a Plan Year, the excess
of Elective Contributions and Qualified Non-Elective Contributions
made on behalf of Highly Compensated Participants for the Plan Year
over the maximum amount of such contributions permitted under Section
11.4(a).
1.20 "Excess Deferred Compensation" means, with respect to any taxable year
of a Participant, the excess of the aggregate amount of such
Participant's Deferred Compensation and the elective deferrals
pursuant to Section 11.2(f) actually made on behalf of such
Participant for such taxable year, over the dollar limitation provided
for in Code Section 402(g), which is incorporated herein by reference.
Excess Deferred Compensation shall be treated as an "annual addition"
pursuant to Section 4.4 when contributed to the Plan unless
distributed to the affected Participant not later than the first April
15th following the close of the Participant's taxable year.
1.21 "Family Member" means, with respect to an affected Participant, such
Participant's spouse, and such Participant's lineal descendants and
ascendants and their spouses, all as described in Code Section
414(q)(6)(B).
1.22 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan
or exercises any authority or control respecting management or
disposition of its assets, (b) renders investment advice for a fee or
other compensation, direct or indirect, with respect to any monies or
other property of the Plan or has any authority or responsibility to
do so, or (c) has any discretionary authority or discretionary
responsibility in the administration of the Plan, including, but not
limited to, the Trustee, the Employer and its representative body, and
the Administrator.
1.23 "Fiscal Year" means the Employer's accounting year as specified in the
Adoption Agreement.
1.24 "Forfeiture" means that portion of a Participant's Account that is not
Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a
Participant's Account, or
(b) the last day of the Plan Year in which the Participant incurs
five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated
Participant shall be deemed to have received a distribution of his
Vested benefit upon his termination of employment. In addition, the
term Forfeiture shall also include amounts deemed to be Forfeitures
pursuant to any other provision of this Plan.
1.25 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
1.26 "414(s) Compensation" with respect to any Employee means his
Compensation as defined in Section 1.9. However, for purposes of this
Section, Compensation shall be Compensation paid and, if selected in
the Adoption Agreement, shall only be recognized as of an Employee's
effective date of participation. If, in
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connection with the adoption of any amendment, the definition of
"414(s) Compensation" has been modified, then for Plan Years prior to
the Plan Year which includes the adoption date of such amendment,
"414(s) Compensation" means compensation determined pursuant to the
Plan Year in effect.
1.27 "415 Compensation" means compensation as defined in Section 4.4(f)(2).
If, in connection with the adoption of any amendment, the definition
of "415 Compensation" has been modified, then, for Plan Years prior to
the Plan Year which includes the adoption date of such amendment,
"415 Compensation" means compensation determined pursuant to the Plan
then in effect.
1.28 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder and generally means an
Employee who performed services for the Employer during the
"determination year" and is in one or more of the following groups:
(a) Employees who at any time during the "determination year" or
"look-back year" were "five percent owners" as defined in
Section 1.35(c).
(b) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $50,000 and
were in the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of the
Employer (as that term is defined within the meaning of the
Regulations under Code Section 416) and received "415
Compensation" during the "look-back year" from the Employer
greater than 50 percent of the limit in effect under Code
Section 415(b)(1)(A) for any such Plan Year. The number of
officers shall be limited to the lesser of (i) 50 employees;
or (ii) the greater of 3 employees or 10 percent of all
employees. If the Employer does not have at least one officer
whose annual "415 Compensation" is in excess of 50 percent of
the Code Section 415(b)(1)(A) limit, then the highest paid
officer of the Employer will be treated as a Highly
Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees
paid the greatest "415 Compensation" during the "determination
year" and are also described in (b), (c) or (d) above when
these paragraphs are modified to substitute "determination
year" for "look-back year."
The "determination year" shall be the Plan Year for which testing is
being performed, and the "look-back year" shall be the immediately
preceding twelve-month period. However, if the Plan Year is a calendar
year, or if another Plan of the Employer so provides, then the
"look-back year" shall be the calendar year ending with or within the
Plan Year for which testing is being performed, and the "determination
year" (if applicable) shall be the period of time, if any, which
extends beyond the "look-back year" and ends on the last day of the
Plan Year for which testing is being performed (the "lag period").
With respect to this election, it shall be applied on a uniform and
consistent basis to all plans, entities, and arrangements of the
Employer.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts that would otherwise be excluded
from a Participant's gross income by reason of the application of Code
Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer
contributions made pursuant to a salary reduction agreement, Code
Section 403(b). Additionally, the dollar threshold amounts specified
in (b) and (c) above shall be adjusted at such time and in such manner
as is provided in Regulations. In the case of such an adjustment, the
dollar limits which shall be applied are those for the calendar year
in which the "determination year" or "look back year" begins.
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In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the
meaning of Code Section 911(d)) from the Employer constituting United
States source income within the meaning of Code Section 861(a)(3)
shall not be treated as Employees. Additionally, all Affiliated
Employers shall be taken into account as a single employer and Leased
Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2)
shall be considered Employees unless such Leased Employees are covered
by a plan described in Code Section 414(n)(5) and are not covered in
any qualified plan maintained by the Employer. The exclusion of Leased
Employees for this purpose shall be applied on a uniform and
consistent basis for all of the Employer's retirement plans. In
addition, Highly Compensated Former Employees shall be treated as
Highly Compensated Employees without regard to whether they performed
services during the "determination year."
1.29 "Highly Compensated Former Employee" means a former Employee who had a
separation year prior to the "determination year" and was a Highly
Compensated Employee in the year of separation from service or in any
"determination year" after attaining age 55. Notwithstanding the
foregoing, an Employee who separated from service prior to 1987 will
be treated as a Highly Compensated Former Employee only if during the
separation year (or year preceding the separation year) or any year
after the Employee attains age 55 (or the last year ending before the
Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner." For
purposes of this Section, "determination year," "415 Compensation" and
"five percent owner" shall be determined in accordance with Section
1.28. Highly Compensated Former Employees shall be treated as Highly
Compensated Employees. The method set forth in this Section for
determining who is a "Highly Compensated Former Employee" shall be
applied on a uniform and consistent basis for all purposes for which
the Code Section 414(q) definition is applicable.
1.30 "Highly Compensated Participant" means any Highly Compensated Employee
who is eligible to participate in the Plan.
1.31 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the
Employer for the performance of duties during the applicable
computation period; (2) each hour for which an Employee is directly or
indirectly compensated or entitled to compensation by the Employer
(irrespective of whether the employment relationship has terminated)
for reasons other than performance of duties (such as vacation,
holidays, sickness, jury duty, disability, lay-off, military duty or
leave of absence) during the applicable computation period; (3) each
hour for which back pay is awarded or agreed to by the Employer
without regard to mitigation of damages. The same Hours of Service
shall not be credited both under (1) or (2), as the case may be, and
under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single
continuous period during which the Employee performs no duties
(whether or not such period occurs in a single computation period);
(ii) an hour for which an Employee is directly or indirectly paid, or
entitled to payment, on account of a period during which no duties are
performed is not required to be credited to the Employee if such
payment is made or due under a plan maintained solely for the purpose
of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service
are not required to be credited for a payment which solely reimburses
an Employee for medical or medically related expenses incurred by the
Employee.
For purposes of this Section, a payment shall be deemed to be made by
or due from the Employer regardless of whether such payment is made by
or due from the Employer directly, or indirectly through, among
others, a trust fund, or insurer, to which the Employer contributes or
pays premiums and regardless of whether contributions made or due to
the trust fund, insurer, or other entity are for the benefit of
particular Employees or are on behalf of a group of Employees in the
aggregate.
An Hour of Service must be counted for the purpose of determining a
Year of Service, a year of participation for purposes of accrued
benefits, a 1-Year Break in Service, and employment commencement
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<PAGE> 11
date (or reemployment commencement date). The provisions of Department
of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by
reference.
Hours of Service will be credited for employment with all Affiliated
Employers and for any individual considered to be a Leased Employee
pursuant to Code Sections 414(n) or 414(o) and the Regulations
thereunder.
Hours of Service will be determined on the basis of the method
selected in the Adoption Agreement.
1.32 "Insurer" means any legal reserve insurance company which shall issue
one or more policies under the Plan.
1.33 "Investment Manager" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person,
firm, or corporation registered as an investment adviser under the
Investment Advisers Act of 1940, a bank, or an insurance company.
1.34 "Joint and Survivor Annuity" means an annuity for the life of a
Participant with a survivor annuity for the life of the Participant's
spouse which is not less than 1/2, nor greater than the amount of the
annuity payable during the joint lives of the Participant and the
Participant's spouse. The Joint and Survivor Annuity will be the
amount of benefit which can be purchased with the Participant's Vested
interest in the Plan.
1.35 "Key Employee" means an Employee as defined in Code Section 416(i) and
the Regulations thereunder. Generally, any Employee or former Employee
(as well as each of his Beneficiaries) is considered a Key Employee if
he, at any time during the Plan Year that contains the "Determination
Date" or any of the preceding four (4) Plan Years, has been included
in one of the following categories:
(a) an officer of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) having
annual "415 Compensation" greater than 50 percent of the
amount in effect under Code Section 415(b)(1)(A) for any such
Plan Year.
(b) one of the ten employees having annual "415 Compensation" from
the Employer for a Plan Year greater than the dollar
limitation in effect under Code Section 415(c)(1)(A) for the
calendar year in which such Plan Year ends and owning (or
considered as owning within the meaning of Code Section 318)
both more than one-half percent interest and the largest
interests in the Employer.
(c) a "five percent owner" of the Employer. "Five percent owner"
means any person who owns (or is considered as owning within
the meaning of Code Section 318) more than five percent (5%)
of the outstanding stock of the Employer or stock possessing
more than five percent (5%) of the total combined voting power
of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than five
percent (5%) of the capital or profits interest in the
Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as separate
employers.
(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $150,000. "One
percent owner" means any person who owns (or is considered as
owning within the meaning of Code Section 318) more than one
percent (1%) of the outstanding stock of the Employer or stock
possessing more than one percent (1%) of the total combined
voting power of all stock of the Employer or, in the case of
an unincorporated business, any person who owns more than one
percent (1%) of the capital or profits interest in the
Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as separate
employers. However, in determining whether an individual has
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"415 Compensation" of more than $150,000, "415 Compensation"
from each employer required to be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts that would otherwise be excluded
from a Participant's gross income by reason of the application of Code
Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer
contributions made pursuant to a salary reduction agreement, Code
Section 403(b).
1.36 "Late Retirement Date" means the date of, or the first day of the
month or the Anniversary Date coinciding with or next following,
whichever corresponds to the election made for the Normal Retirement
Date, a Participant's actual retirement after having reached his
Normal Retirement Date.
1.37 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any
other person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined in
accordance with Code Section 414(n)(6)) on a substantially full time
basis for a period of at least one year, and such services are of a
type historically performed by employees in the business field of the
recipient employer. Contributions or benefits provided a leased
employee by the leasing organization which are attributable to
services performed for the recipient employer shall be treated as
provided by the recipient employer.
A leased employee shall not be considered an Employee of the recipient
if: (i) such employee is covered by a money purchase pension plan
providing: (1) a nonintegrated employer contribution rate of at least
10 percent of compensation, as defined in Code Section 415(c)(3), but
including amounts contributed pursuant to a salary reduction agreement
which are excludable from the employee's gross income under Code
Sections 125, 402(e)(3), 402(h), or 403(b), (2) immediate
participation, and (3) full and immediate vesting; and (ii) leased
employees do not constitute more than 20 percent of the recipient's
nonhighly compensated workforce.
1.38 "Net Profit" means with respect to any Fiscal Year the Employer's net
income or profit for such Fiscal Year determined upon the basis of the
Employer's books of account in accordance with generally accepted
accounting principles, without any reduction for taxes based upon
income, or for contributions made by the Employer to this Plan and any
other qualified plan.
1.39 "Non-Elective Contribution" means the Employer's contributions to the
Plan other than those made pursuant to the Participant's deferral
election made pursuant to Section 11.2 and any Qualified Non-Elective
Contribution. In addition, if selected in E3 of the Adoption
Agreement, the Employer's Matching Contribution made pursuant to
Section 4.3(b) shall be considered a Non-Elective Contribution for
purposes of the Plan.
1.40 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.41 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.42 "Normal Retirement Age" means the age specified in the Adoption
Agreement at which time a Participant shall become fully Vested in his
Participant's Account.
1.43 "Normal Retirement Date" means the date specified in the Adoption
Agreement on which a Participant shall become eligible to have his
benefits distributed to him.
1.44 "1-Year Break in Service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of
Service with the Employer. Further, solely for the purpose of
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<PAGE> 13
determining whether a Participant has incurred a 1-Year Break in
Service, Hours of Service shall be recognized for "authorized leaves
of absence" and "maternity and paternity leaves of absence."
"Authorized leave of absence" means an unpaid, temporary cessation
from active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military
service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period
by reason of the Employee's pregnancy, birth of the Employee's child,
placement of a child with the Employee in connection with the adoption
of such child, or any absence for the purpose of caring for such child
for a period immediately following such birth or placement. For this
purpose, Hours of Service shall be credited for the computation period
in which the absence from work begins, only if credit therefore is
necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following
computation period. The Hours of Service credited for a "maternity or
paternity leave of absence" shall be those which would normally have
been credited but for such absence, or, in any case in which the
Administrator is unable to determine such hours normally credited,
eight (8) Hours of Service per day. The total Hours of Service
required to be credited for a "maternity or paternity leave of
absence" shall not exceed 501.
1.45 "Owner-Employee" means a sole proprietor who owns the entire interest
in the Employer or a partner who owns more than 10% of either the
capital interest or the profits interest in the Employer and who
receives income for personal services from the Employer.
1.46 "Participant" means any Eligible Employee who participates in the Plan
as provided in Section 3.2 and has not for any reason become
ineligible to participate further in the Plan.
1.47 "Participant's Account" means the account established and maintained
by the Administrator for each Participant with respect to his total
interest under the Plan resulting from (a) the Employer's
contributions in the case of a Profit Sharing Plan or Money Purchase
Plan, and (b) the Employer's Non-Elective Contributions in the case of
a 401(k) Profit Sharing Plan.
1.48 "Participant's Combined Account" means the account established and
maintained by the Administrator for each Participant with respect to
his total interest under the Plan resulting from the Employer's
contributions.
1.49 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to
his total interest in the Plan and Trust resulting from the Employer's
Elective Contributions and Qualified Non-Elective Contributions. A
separate accounting shall be maintained with respect to that portion
of the Participant's Elective Account attributable to Elective
Contributions made pursuant to Section 11.2, Employer matching
contributions if they are deemed to be Elective Contributions, and any
Qualified Non-Elective Contributions.
1.50 "Participant's Rollover Account" means the account established and
maintained by the Administrator for each Participant with respect to
his total interest in the Plan resulting from amounts transferred from
another qualified plan or "conduit" Individual Retirement Account in
accordance with Section 4.6.
1.51 "Plan" means this instrument (hereinafter referred to as Strong Funds
Defined Contribution Plan and Trust Basic Plan Document #04) including
all amendments thereto, and the Adoption Agreement as adopted by the
Employer.
1.52 "Plan Year" means the Plan's accounting year as specified in C2 of the
Adoption Agreement.
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1.53 "Pre-Retirement Survivor Annuity" means an immediate annuity for the
life of the Participant's spouse, the payments under which must be
equal to the actuarial equivalent of 50% of the Participant's Vested
interest in the Plan as of the date of death.
1.54 "Qualified Non-Elective Account" means the account established
hereunder to which Qualified Non-Elective Contributions are allocated.
1.55 "Qualified Non-Elective Contribution" means the Employer's
contributions to the Plan that are made pursuant to E5 of the Adoption
Agreement and Section 11.1(d) which are used to satisfy the "Actual
Deferral Percentage" tests. Qualified Non-Elective Contributions are
nonforfeitable when made and are distributable only as specified in
Sections 11.2(c) and 11.8. In addition, the Employer's contributions
to the Plan that are made pursuant to Section 11.7(h) and which are
used to satisfy the "Actual Contribution Percentage" tests shall be
considered Qualified Non-Elective Contributions.
1.56 "Qualified Voluntary Employee Contribution Account" means the account
established and maintained by the Administrator for each Participant
with respect to his total interest under the Plan resulting from the
Participant's tax deductible qualified voluntary employee
contributions made pursuant to Section 4.9.
1.57 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to
time.
1.58 "Retired Participant" means a person who has been a Participant, but
who has become entitled to retirement benefits under the Plan.
1.59 "Retirement Date" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such
retirement occurs on a Participant's Normal Retirement Date, Early or
Late Retirement Date (see Section 6.1).
1.60 "Self-Employed Individual" means an individual who has earned income
for the taxable year from the trade or business for which the Plan is
established, and, also, an individual who would have had earned
income but for the fact that the trade or business had no net profits
for the taxable year. A Self-Employed Individual shall be treated as
an Employee.
1.61 "Shareholder-Employee" means a Participant who owns more than five
percent (5%) of the Employer's outstanding capital stock during any
year in which the Employer elected to be taxed as a Small Business
Corporation under the applicable Code Section.
1.62 "Short Plan Year" means, if specified in the Adoption Agreement, that
the Plan Year shall be less than a 12 month period. If chosen, the
following rules shall apply in the administration of this Plan. In
determining whether an Employee has completed a Year of Service for
benefit accrual purposes in the Short Plan Year, the number of the
Hours of Service required shall be proportionately reduced based on
the number of days in the Short Plan Year. The determination of
whether an Employee has completed a Year of Service for vesting and
eligibility purposes shall be made in accordance with Department of
Labor Regulation 2530.203-2(c). In addition, if this Plan is
integrated with Social Security, the integration level shall also be
proportionately reduced based on the number of days in the Short Plan
Year.
1.63 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.64 "Taxable Wage Base" means, with respect to any year, the maximum
amount of earnings which may be considered wages for such year under
Code Section 3121(a)(1).
1.65 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total
and Permanent Disability or retirement.
1.66 "Top Heavy Plan" means a plan described in Section 2.2(a).
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1.67 "Top Heavy Plan Year" means a Plan Year commencing after December 31,
1983 during which the Plan is a Top Heavy Plan.
1.68 "Top Paid Group" shall be determined pursuant to Code Section 414(q)
and the Regulations thereunder and generally means the top 20 percent
of Employees who performed services for the Employer during the
applicable year, ranked according to the amount of "415 Compensation"
(as determined pursuant to Section 1.28) received from the Employer
during such year. All Affiliated Employers shall be taken into account
as a single employer, and Leased Employees shall be treated as
Employees pursuant to Code Section 414(n) or (o). Employees who are
non-resident aliens who received no earned income (within the meaning
of Code Section 911(d)(2)) from the Employer constituting United
States source income within the meaning of Code Section 861(a)(3)
shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year, the following
additional Employees shall also be excluded, however, such Employees
shall still be considered for the purpose of identifying the
particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours
per week;
(c) Employees who normally work less than six (6) months
during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer
are covered under agreements the Secretary of Labor finds to be
collective bargaining agreements between Employee representatives and
the Employer, and the Plan covers only Employees who are not covered
under such agreements, then Employees covered by such agreements shall
be excluded from both the total number of active Employees as well as
from the identification of particular Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on
a uniform and consistent basis for all purposes for which the Code
Section 414(q) definition is applicable.
1.69 "Total and Permanent Disability" means the inability to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death
or which has lasted or can be expected to last for a continuous period
of not less than 12 months. The disability of a Participant shall be
determined by a licensed physician chosen by the Administrator.
However, if the condition constitutes total disability under the
federal Social Security Acts, the Administrator may rely upon such
determination that the Participant is Totally and Permanently Disabled
for the purposes of this Plan. The determination shall be applied
uniformly to all Participants.
1.70 "Trustee" means the person or entity named in B6 of the Adoption
Agreement and any successors.
1.71 "Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.
1.72 "Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant.
1.73 "Voluntary Contribution Account" means the account established and
maintained by the Administrator for each Participant with respect to
his total interest in the Plan resulting from the Participant's
nondeductible voluntary contributions made pursuant to Section 4.7.
1.74 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, and during which an Employee has
completed at least 1000 Hours of Service.
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For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs
an Hour of Service (employment commencement date). The computation
period beginning after a 1-Year Break in Service shall be measured
from the date on which an Employee again performs an Hour of Service.
The succeeding computation periods shall begin with the first
anniversary of the Employee's employment commencement date. However,
if one (1) Year of Service or less is required as a condition of
eligibility, then after the initial eligibility computation period,
the eligibility computation period shall shift to the current Plan
Year which includes the anniversary of the date on which the Employee
first performed an Hour of Service. An Employee who is credited with
1,000 Hours of Service in both the initial eligibility computation
period and the first Plan Year which commences prior to the first
anniversary of the Employee's initial eligibility computation period
will be credited with two Years of Service for purposes of eligibility
to participate.
For vesting purposes, and all other purposes not specifically
addressed in this Section, the computation period shall be the Plan
Year, including periods prior to the Effective Date of the Plan unless
specifically excluded pursuant to the Adoption Agreement.
Years of Service and breaks in service will be measured on the same
computation period.
Years of Service with any predecessor Employer which maintained this
Plan shall be recognized. Years of Service with any other predecessor
Employer shall be recognized as specified in the Adoption Agreement.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II. TOP HEAVY PROVISIONS AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the
special minimum allocation requirements of Code Section 416(c) pursuant to
Section 4.3(i) of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year beginning after
December 31, 1983, in which, as of the Determination Date, (1) the
Present Value of Accrued Benefits of Key Employees and (2) the sum of
the Aggregate Accounts of Key Employees under this Plan and all plans
of an Aggregation Group, exceeds sixty percent (60%) of the Present
Value of Accrued Benefits and the Aggregate Accounts of all Key and
Non-Key Employees under this Plan and all plans of an Aggregation
Group.
If any Participant is a Non-Key Employee for any Plan Year, but such
Participant was a Key Employee for any prior Plan Year, such
Participant's Present Value of Accrued Benefit and/or Aggregate
Account balance shall not be taken into account for purposes of
determining whether this Plan is a Top Heavy or Super Top Heavy Plan
(or whether any Aggregation Group which includes this Plan is a Top
Heavy Group). In addition, if a Participant or Former Participant has
not performed any services for any Employer maintaining the Plan at
any time during the five year period ending on the Determination Date,
any accrued benefit for such Participant or Former Participant shall
not be taken into account for the purposes of determining whether this
Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year beginning
after December 31, 1983, in which, as of the Determination Date, (1)
the Present Value of Accrued Benefits of Key Employees and (2) the sum
of the Aggregate Accounts of Key Employees under this Plan and all
plans of an Aggregation
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<PAGE> 17
Group, exceeds ninety percent (90%) of the Present Value of Accrued
Benefits and the Aggregate Accounts of all Key and Non-Key Employees
under this Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of the
Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the most
recent valuation occurring within a twelve (12) month period
ending on the Determination Date;
(2) for a Profit Sharing Plan, an adjustment for any contributions
due as of the Determination Date. Such adjustment shall be the
amount of any contributions actually made after the valuation
date but before the Determination Date, except for the first
Plan Year when such adjustment shall also reflect the amount
of any contributions made after the Determination Date that
are allocated as of a date in that first Plan Year;
(3) for a Money Purchase Plan, contributions that would be
allocated as of a date not later than the Determination Date,
even though those amounts are not yet made or required to be
made.
(4) any Plan distributions made within the Plan Year that includes
the Determination Date or within the four (4) preceding Plan
Years. However, in the case of distributions made after the
valuation date and prior to the Determination Date, such
distributions are not included as distributions for top heavy
purposes to the extent that such distributions are already
included in the Participant's Aggregate Account balance as of
the valuation date. In the case of a distribution of an
annuity Contract, the amount of such distribution is deemed to
be the current actuarial value of the Contract, determined on
the date of the distribution. Notwithstanding anything herein
to the contrary, all distributions, including distributions
made prior to January 1, 1984, and distributions under a
terminated plan which if it had not been terminated would have
been required to be included in an Aggregation Group, will be
counted. Further, distributions from the Plan (including the
cash value of life insurance policies) of a Participant's
account balance because of death shall be treated as a
distribution for the purpose of this paragraph.
(5) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified
voluntary employee contributions shall not be considered to be
a part of the Participant's Aggregate Account balance.
(6) with respect to unrelated rollovers and plan-to-plan transfers
(ones which are both initiated by the Employee and made from a
plan maintained by one employer to a plan maintained by
another employer), if this Plan provides the rollovers or
plan-to-plan transfers, it shall always consider such
rollovers or plan-to-plan transfers as a distribution for the
purposes of this Section. If this Plan is the plan accepting
such rollovers or plan-to-plan transfers, it shall not
consider such rollovers or plan-to-plan transfers accepted
after December 31, 1983 as part of the Participant's Aggregate
Account balance. However, rollovers or plan-to-plan transfers
accepted prior to January 1, 1984 shall be considered as part
of the Participant's Aggregate Account balance.
(7) with respect to related rollovers and plan-to-plan transfers
(ones either not initiated by the Employee or made to a plan
maintained by the same employer), if this Plan provides the
rollover or plan-to-plan transfer, it shall not be counted as
a distribution for purposes of this Section. If this Plan is
the plan accepting such rollover or plan-to-plan transfer, it
shall consider such rollover or plan-to-plan transfer as part
of the Participant's Aggregate Account balance, irrespective
of the date on which such rollover or plan-to-plan transfer is
accepted.
(8) For the purposes of determining whether two employers are to
be treated as the same employer in 2.2(c)(6) and 2.2(c)(7)
above, all employers aggregated under Code Section 414(b),
(c), (m) and (o) are treated as the same employer.
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(d) "Aggregation Group" means either a Required Aggregation Group or a
Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each qualified plan of the
Employer, including any Simplified Employee Pension Plan, in
which a Key Employee is a participant in the Plan Year
containing the Determination Date or any of the four preceding
Plan Years, and each other qualified plan of the Employer
which enables any qualified plan in which a Key Employee
participates to meet the requirements of Code Sections
401(a)(4) or 410, will be required to be aggregated. Such
group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the
group will be considered a Top Heavy Plan if the Required
Aggregation Group is a Top Heavy Group. No plan in the
Required Aggregation Group will be considered a Top Heavy Plan
if the Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include
any other plan of the Employer, including any Simplified
Employee Pension Plan, not required to be included in the
Required Aggregation Group, provided the resulting group,
taken as a whole, would continue to satisfy the provisions of
Code Sections 401(a)(4) and 410. Such group shall be known as
a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan
that is part of the Required Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation
Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the Determination
Dates fall within the same calendar year shall be aggregated
in order to determine whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of the
Employer if it was maintained within the last five (5) years
ending on the Determination Date.
(e) "Determination Date" means (a) the last day of the preceding Plan
Year, or (b) in the case of the first Plan Year, the last day of such
Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined benefit
plan, the Present Value of Accrued Benefit for a Participant other
than a Key Employee shall be as determined using the single accrual
method used for all plans of the Employer and Affiliated Employers, or
if no such single method exists, using a method which results in
benefits accruing not more rapidly than the slowest accrual rate
permitted under Code Section 411(b)(1)(C). The determination of the
Present Value of Accrued Benefit shall be determined as of the most
recent valuation date that falls within or ends with the 12-month
period ending on the Determination Date, except as provided in Code
Section 416 and the Regulations thereunder for the first and second
plan years of a defined benefit plan.
However, any such determination must include present value of accrued
benefit attributable to any Plan distributions referred to in Section
2.2(c)(4) above, any Employee contributions referred to in Section
2.2(c)(5) above or any related or unrelated rollovers referred to in
Sections 2.2(c)(6) and 2.2(c)(7) above.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees under
all defined benefit plans included in the group, and
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(2) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group exceeds sixty percent
(60%) of a similar sum determined for all Participants.
(h) The Administrator shall determine whether this Plan is a Top Heavy
Plan on the Anniversary Date specified in the Adoption Agreement. Such
determination of the top heavy ratio shall be in accordance with Code
Section 416 and the Regulations thereunder.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the Trustee and
the Administrator from time to time as it deems necessary for the
proper administration of the Plan to assure that the Plan is being
operated for the exclusive benefit of the Participants and their
Beneficiaries in accordance with the terms of the Plan, the Code, and
the Act.
(b) The Employer shall designate one or more investment vehicles as
permissible investments for the Trust Fund. Each such investment
vehicle shall be either (i) an investment company registered under the
Investment Company Act of 1940, which may be an investment company to
which the sponsoring organization of this Plan, or an affiliate
thereof, provides investment advisory or other services, (ii) a
common, collective or pooled trust fund maintained by the Trustee, or
(iii) a separate investment fund maintained by the Trustee that is
invested primarily in stock issued by the Employer or an affiliate
thereof that is readily tradable on an established securities market
and that constitutes a "qualifying employer security" (as defined in
Section 407(d)(5) of the Act). If Participants are not authorized
pursuant to Section 4.8(b) to direct the Trustee as to the investment
of their individual accounts, the Employer shall direct the Trustee as
to the allocation of the assets of the Trust Fund and contributions
thereto among such designated investment vehicles. The Employer may
also direct that the Trustee hold in the Trust Fund insurance policies
or other property transferred to the Trust Fund from a prior trustee
of the Plan or a plan that has been merged with the Plan. The Plan's
funding policy and method shall be that the Trust Fund and all
contributions thereto shall be held and invested by the Trustee in the
investment vehicles designated by the Employer and in other property
the Trustee is directed to hold by the Employer or an Investment
Manager.
(c) The Employer may, in its discretion, appoint an Investment Manager to
manage all or a designated portion of the assets of the Plan. In such
event, the Trustee shall follow the directive of the Investment
Manager in investing the assets of the Plan managed by the Investment
Manager.
(d) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied by
formal periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day conduct
and evaluation, or through other appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person, including,
but not limited to, the Employees of the Employer, shall be eligible to serve
as an Administrator. Any person so appointed shall signify his acceptance by
filing written acceptance with the Employer. An Administrator may resign by
delivering his written resignation to the Employer or be removed by the
Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator, shall
promptly designate in writing a successor to this position. If the Employer
does not appoint an Administrator, the Employer will function as the
Administrator.
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2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the responsibilities of
each Administrator may be specified by the Employer and accepted in writing by
each Administrator. In the event that no such delegation is made by the
Employer, the Administrators may allocate the responsibilities among
themselves, in which event the Administrators shall notify the Employer and the
Trustee in writing of such action and specify the responsibilities of each
Administrator. The Trustee thereafter shall accept and rely upon any documents
executed by the appropriate Administrator until such time as the Employer or
the Administrators file with the Trustee a written revocation of such
designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the Plan for
the exclusive benefit of the Participants and their Beneficiaries, subject to
the specific terms of the Plan. The Administrator shall administer the Plan in
accordance with its terms and shall have the power and discretion to construe
the terms of the Plan and determine all questions arising in connection with
the administration, interpretation, and application of the Plan. Any such
determination by the Administrator shall be conclusive and binding upon all
persons. The Administrator may establish procedures, correct any defect, supply
any information, or reconcile any inconsistency in such manner and to such
extent as shall be deemed necessary or advisable to carry out the purpose of
the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner
based upon uniform principles consistently applied and shall be consistent with
the intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of the Act and
all regulations issued pursuant thereto. The Administrator shall have all
powers necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the eligibility
of Employees to participate or remain a Participant hereunder and to
receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect to the amount
and the kind of benefits to which any Participant shall be entitled
hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust
Fund;
(d) to maintain all necessary records for the administration of the Plan;
(e) to interpret the provisions of the Plan and to make and publish such
rules for regulation of the Plan as are consistent with the terms
hereof;
(f) to determine the size and type of any Contract to be purchased from
any Insurer, and to designate the Insurer from which such Contract
shall be purchased;
(g) to compute and certify to the Employer and to the Trustee from time to
time the sums of money necessary or desirable to be contributed to the
Trust Fund;
(h) to consult with the Employer and the Trustee regarding the short and
long-term liquidity needs of the Plan in order that the Trustee can
exercise any investment discretion in a manner designed to accomplish
specific objectives;
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(i) to prepare and distribute to Employees a procedure for notifying
Participants and Beneficiaries of their rights to elect Joint and
Survivor Annuities and Pre-Retirement Survivor Annuities if required
by the Code and Regulations thereunder;
(j) to assist any Participant regarding his rights, benefits, or elections
available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep all
other books of account, records, and other data that may be necessary for
proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator, may
appoint counsel, specialists, advisers, and other persons as the Administrator
or the Trustee deems necessary or desirable in connection with the
administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer shall supply
full and timely information to the Administrator on all matters relating to the
Compensation of all Participants, their Hours of Service, their Years of
Service, their retirement, death, disability, or termination of employment, and
such other pertinent facts as the Administrator may require; and the
Administrator shall advise the Trustee of such of the foregoing facts as may be
pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless paid by
the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs
of administering the Plan. Until paid, the expenses shall constitute a
liability of the Trust Fund. However, the Employer may reimburse the Trust Fund
for any administration expense incurred. Any administration expense paid to the
Trust Fund as a reimbursement shall not be considered an Employer contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of administrative
authority pursuant to Section 2.5, if there shall be more than one
Administrator, they shall act by a majority of their number, but may authorize
one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within 90 days after the application is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth in
the notice in language calculated to be understood by the claimant, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation
as to how the
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<PAGE> 22
claimant can perfect the claim will be provided. In addition, the claimant
shall be furnished with an explanation of the Plan's claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been denied a
benefit by a decision of the Administrator pursuant to Section 2.12 shall be
entitled to request the Administrator to give further consideration to his
claim by filing with the Administrator a written request for a hearing. Such
request, together with a written statement of the reasons why the claimant
believes his claim should be allowed, shall be filed with the Administrator no
later than 60 days after receipt of the written notification provided for in
Section 2.12. The Administrator shall then conduct a hearing within the next 60
days, at which the claimant may be represented by an attorney or any other
representative of his choosing and expense and at which the claimant shall have
an opportunity to submit written and oral evidence and arguments in support of
his claim. At the hearing (or prior thereto upon 5 business days written notice
to the Administrator) the claimant or his representative shall have an
opportunity to review all documents in the possession of the Administrator
which are pertinent to the claim at issue and its disallowance. Either the
claimant or the Administrator may cause a court reporter to attend the hearing
and record the proceedings. In such event, a complete written transcript of the
proceedings shall be furnished to both parties by the court reporter. The full
expense of any such court reporter and such transcripts shall be borne by the
party causing the court reporter to attend the hearing. A final decision as to
the allowance of the claim shall be made by the Administrator within 60 days of
receipt of the appeal (unless there has been an extension of 60 days due to
special circumstances, provided the delay and the special circumstances
occasioning it are communicated to the claimant within the original 60 day
period). Such communication shall be written in a manner calculated to be
understood by the claimant and shall include specific reasons for the decision
and specific references to the pertinent Plan provisions on which the decision
is based.
ARTICLE III. ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee shall be eligible to participate hereunder on the date he
has satisfied the requirements specified in the Adoption Agreement.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee who has become eligible to be a Participant shall become a
Participant effective as of the day specified in the Adoption Agreement.
In the event an Employee who has satisfied the Plan's eligibility requirements
and would otherwise have become a Participant shall go from a classification of
a noneligible Employee to an Eligible Employee, such Employee shall become a
Participant as of the date he becomes an Eligible Employee.
In the event an Employee who has satisfied the Plan's eligibility requirements
and would otherwise become a Participant shall go from a classification of an
Eligible Employee to a noneligible Employee and becomes ineligible to
participate and has not incurred a 1-Year Break in Service, such Employee shall
participate in the Plan as of the date he returns to an eligible class of
Employees. If such Employee does incur a 1-Year Break in Service, eligibility
will be determined under the Break in Service rules of the Plan.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer.
Such determination shall be conclusive and binding upon all persons, as
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long as the same is made pursuant to the Plan and the Act. Such determination
shall be subject to review per Section 2.13.
3.4 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an Eligible
Employee to an ineligible Employee, such Former Participant shall continue to
vest in his interest in the Plan for each Year of Service completed while a
noneligible Employee, until such time as his Participant's Account shall be
forfeited or distributed pursuant to the terms of the Plan. Additionally, his
interest in the Plan shall continue to share in the earnings of the Trust Fund.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a Participant in
the Plan is erroneously omitted and discovery of such omission is not made
until after a contribution by his Employer for the year has been made, the
Employer shall make a subsequent contribution, if necessary after the
application of Section 4.3(e), so that the omitted Employee receives a total
amount which the said Employee would have received had he not been omitted.
Such contribution shall be made regardless of whether or not it is deductible
in whole or in part in any taxable year under applicable provisions of the
Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made,
the Employer shall not be entitled to recover the contribution made with
respect to the ineligible person regardless of whether or not a deduction is
allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a Forfeiture
for the Plan Year in which the discovery is made.
3.7 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect voluntarily not
to participate in the Plan. The election not to participate must be
communicated to the Employer, in writing, at least thirty (30) days before the
beginning of a Plan Year. For Standardized Plans, a Participant or an Eligible
Employee may not elect not to participate. Furthermore, the foregoing election
not to participate shall not be available with respect to partners in a
partnership.
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE
(a) If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is
established and one or more other entities, this Plan and the plan
established for other trades or businesses must, when looked at as a
single Plan, satisfy Code Sections 401(a) and (d) for the Employees of
this and all other entities.
(b) If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses,
the employees of the other trades or businesses must be included in a
plan which satisfies Code Sections 401(a) and (d) and which provides
contributions and benefits not less favorable than provided for
Owner-Employees under this Plan.
(c) If an individual is covered as an Owner-Employee under the plans of
two or more trades or businesses which are not controlled and the
individual controls a trade or business, then the benefits or
contributions of the employees under the plan of the trades or
businesses which are controlled must be as favorable as those provided
for him under the most favorable plan of the trade or business which
is not controlled.
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(d) For purposes of the preceding paragraphs, an Owner-Employee, or two or
more Owner-Employees, will be considered to control an entity if the
Owner-Employee, or two or more Owner-Employees together:
(1) own the entire interest in an unincorporated entity, or
(2) in the case of a partnership, own more than 50 percent of
either the capital interest or the profits interest in the
partnership.
(e) For purposes of the preceding sentence, an Owner-Employee, or two or
more Owner-Employees shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership
which such Owner-Employee, or such two or more Owner-Employees, are
considered to control within the meaning of the preceding sentence.
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ARTICLE IV. CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
(a) For a Money Purchase Plan -
(1) The Employer shall make contributions over such period of
years as the Employer may determine on the following basis. On
behalf of each Participant eligible to share in allocations,
for each year of his participation in this Plan, the Employer
shall contribute the amount specified in the Adoption
Agreement. All contributions by the Employer shall be made in
cash or in such employer securities as is acceptable to the
Trustee. The Employer shall be required to obtain a waiver
from the Internal Revenue Service for any Plan Year in which
it is unable to make the full required contribution to the
Plan. In the event a waiver is obtained, this Plan shall be
deemed to be an individually designed plan.
(2) For any Plan Year beginning prior to January 1, 1990, and if
elected in the non-standardized Adoption Agreement for any
Plan Year beginning on or after January 1, 1990, the Employer
shall not contribute on behalf of a Participant who performs
less than a Year of Service during any Plan Year, unless there
is a Short Plan Year or a contribution is required pursuant to
4.3(h).
(3) Notwithstanding the foregoing, the Employer's contribution for
any Fiscal Year shall not exceed the maximum amount allowable
as a deduction to the Employer under the provisions of Code
Section 404. However, to the extent necessary to provide the
top heavy minimum allocations, the Employer shall make a
contribution even if it exceeds the amount which is deductible
under Code Section 404.
(b) For a Profit Sharing Plan -
(1) For each Plan Year, the Employer shall contribute to the Plan
such amount as specified by the Employer in the Adoption
Agreement. Notwithstanding the foregoing, however, the
Employer's contribution for any Fiscal Year shall not exceed
the maximum amount allowable as a deduction to the Employer
under the provisions of Code Section 404. All contributions by
the Employer shall be made in cash or in such employer
securities as is acceptable to the Trustee.
(2) Except, however, to the extent necessary to provide the top
heavy minimum allocations, the Employer shall make a
contribution even if it exceeds current or accumulated Net
Profit or the amount which is deductible under Code Section
404.
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to the Plan
for each Plan Year within the time prescribed by law, including extensions of
time, for the filing of the Employer's federal income tax return for the Fiscal
Year.
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in the name
of each Participant to which the Administrator shall credit as of each
Anniversary Date, or other valuation date, all amounts allocated to
each such Participant as set forth herein.
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(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of the
Employer's contributions for each Plan Year. Within a reasonable
period of time after the date of receipt by the Administrator of such
information, the Administrator shall allocate such contribution as
follows:
(1) For a Money Purchase Plan:
(i) The Employer's Contribution shall be allocated to
each Participant's Combined Account in the manner set
forth in Section 4.1 herein and as specified in
Section E2 of the Adoption Agreement.
(2) For an Integrated Profit Sharing Plan:
(i) The Employer's contribution shall be allocated to
each Participant's Account, except as provided in
Section 4.3(f), in a dollar amount equal to 5.7% of
the sum of each Participant's total Compensation plus
Excess Compensation. If the Employer does not
contribute such amount for all Participants, each
Participant will be allocated a share of the
contribution in the same proportion that his total
Compensation plus his total Excess Compensation for
the Plan Year bears to the total Compensation plus
the total Excess Compensation of all Participants for
that year.
Regardless of the preceding, 4.3% shall be
substituted for 5.7% above if Excess Compensation is
based on more than 20% and less than or equal to 80%
of the Taxable Wage Base. If Excess Compensation is
based on less than 100% and more than 80% of the
Taxable Wage Base, then 5.4% shall be substituted for
5.7% above.
(ii) The balance of the Employer's contribution over the
amount allocated above, if any, shall be allocated to
each Participant's Combined Account in the same
proportion that his total Compensation for the Year
bears to the total Compensation of all Participants
for such year.
(iii) Except, however, for any Plan Year beginning prior to
January 1, 1990, and if elected in the
non-standardized Adoption Agreement for any Plan Year
beginning on or after January 1, 1990, a Participant
who performs less than a Year of Service during any
Plan Year shall not share in the Employer's
contribution for that year, unless there is a Short
Plan Year or a contribution is required pursuant to
Section 4.3(h).
(3) For a Non-Integrated Profit Sharing Plan:
(i) The Employer's contribution shall be allocated to
each Participant's Account in the same proportion
that each such Participant's Compensation for the
year bears to the total Compensation of all
Participants for such year.
(ii) Except, however, for any Plan Year beginning prior to
January 1, 1990, and if elected in the
non-standardized Adoption Agreement for any Plan Year
beginning on or after January 1, 1990, a Participant
who performs less than a Year of Service during any
Plan Year shall not share in the Employer's
contribution for that year, unless there is a Short
Plan Year or a contribution is required pursuant to
Section 4.3(h).
(c) As of each Anniversary Date or other valuation date, before allocation
of Employer contributions and Forfeitures, any earnings or losses (net
appreciation or net depreciation) of the Trust Fund shall be allocated
in the same proportion that each Participant's and Former
Participant's nonsegregated accounts bear to the total of all
Participants' and Former Participants' nonsegregated accounts as of
such date. If any nonsegregated account of a Participant has been
distributed prior to the Anniversary Date or other valuation date
subsequent to a Participant's termination of employment, no earnings
or losses shall be credited to such account.
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Notwithstanding the above, with respect to contributions made to a
401(k) Plan after the previous Anniversary Date or allocation date,
the method specified in the Adoption Agreement shall be used.
(d) Participants' Accounts shall be debited for any insurance or annuity
premiums paid, if any, and credited with any dividends or interest
received on insurance contracts.
(e) As of each Anniversary Date any amounts which became Forfeitures since
the last Anniversary Date shall first be made available to reinstate
previously forfeited account balances of Former Participants, if any,
in accordance with Section 6.4(g)(2) or be used to satisfy any
contribution that may be required pursuant to Section 3.5 and/or 6.9.
The remaining Forfeitures, if any, shall be treated in accordance with
the Adoption Agreement. Provided, however, that in the event the
allocation of Forfeitures provided herein shall cause the "annual
addition" (as defined in Section 4.4) to any Participant's Account to
exceed the amount allowable by the Code, the excess shall be
reallocated in accordance with Section 4.5. Except, however, for any
Plan Year beginning prior to January 1, 1990, and if elected in the
non-standardized Adoption Agreement for any Plan Year beginning on or
after January 1, 1990, a Participant who performs less than a Year of
Service during any Plan Year shall not share in the Plan Forfeitures
for that year, unless there is a Short Plan Year or a contribution
required pursuant to Section 4.3(h).
(f) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding
the foregoing, for any Top Heavy Plan Year, the sum of the Employer's
contributions and Forfeitures allocated to the Participant's Combined
Account of each Non-Key Employee shall be equal to at least three
percent (3%) of such Non-Key Employee's "415 Compensation" (reduced by
contributions and forfeitures, if any, allocated to each Non-Key
Employee in any defined contribution plan included with this plan in a
Required Aggregation Group). However, if (i) the sum of the Employer's
contributions and Forfeitures allocated to the Participant's Combined
Account of each Key Employee for such Top Heavy Plan Year is less than
three percent (3%) of each Key Employee's "415 Compensation" and (ii)
this Plan is not required to be included in an Aggregation Group to
enable a defined benefit plan to meet the requirements of Code Section
401(a)(4) or 410, the sum of the Employer's contributions and
Forfeitures allocated to the Participant's Combined Account of each
Non-Key Employee shall be equal to the largest percentage allocated to
the Participant's Combined Account of any Key Employee.
However, for each Non-Key Employee who is a Participant in a paired
Profit Sharing Plan or 401(k) Profit Sharing Plan and a paired Money
Purchase Plan, the minimum 3% allocation specified above shall be
provided in the Money Purchase Plan.
If this is an integrated Plan, then for any Top Heavy Plan Year the
Employer's contribution shall be allocated as follows:
(1) An amount equal to 3% multiplied by each Participant's
Compensation for the Plan Year shall be allocated to each
Participant's Account. If the Employer does not contribute
such amount for all Participants, the amount shall be
allocated to each Participant's Account in the same proportion
that his total Compensation for the Plan Year bears to the
total Compensation of all Participants for such year.
(2) The balance of the Employer's contribution over the amount
allocated under subparagraph (1) hereof shall be allocated to
each Participant's Account in a dollar amount equal to 3%
multiplied by a Participant's Excess Compensation. If the
Employer does not contribute such amount for all Participants,
each Participant will be allocated a share of the contribution
in the same proportion that his Excess Compensation bears to
the total Excess Compensation of all Participants for that
year.
(3) The balance of the Employer's contribution over the amount
allocated under subparagraph (2) hereof shall be allocated to
each Participant's Account in a dollar amount equal to 2.7%
multiplied by the sum of each Participant's total Compensation
plus Excess Compensation. If the Employer does not contribute
such amount for all Participants, each Participant will be
allocated a share of the contribution in the same proportion
that his total Compensation plus his total Excess Compensation
for
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the Plan Year bears to the total Compensation plus the total
Excess Compensation of all Participants for that year.
Regardless of the preceding, 1.3% shall be substituted for
2.7% above if Excess Compensation is based on more than 20%
and less than or equal to 80% of the Taxable Wage Base. If
Excess Compensation is based on less than 100% and more than
80% of the Taxable Wage Base, then 2.4% shall be substituted
for 2.7% above.
(4) The balance of the Employer's contributions over the amount
allocated above, if any, shall be allocated to each
Participant's Account in the same proportion that his total
Compensation for the Plan Year bears to the total Compensation
of all Participants for such year.
For each Non-Key Employee who is a Participant in this Plan and
another non-paired defined contribution plan maintained by the
Employer, the minimum 3% allocation specified above shall be provided
as specified in F3 of the Adoption Agreement.
(g) For purposes of the minimum allocations set forth above, the
percentage allocated to the Participant's Combined Account of any Key
Employee shall be equal to the ratio of the sum of the Employer's
contributions and Forfeitures allocated on behalf of such Key Employee
divided by the "415 Compensation" for such Key Employee.
(h) For any Top Heavy Plan Year, the minimum allocations set forth in this
Section shall be allocated to the Participant's Combined Account of
all Non-Key Employees who are Participants and who are employed by the
Employer on the last day of the Plan Year, including Non-Key Employees
who have (1) failed to complete a Year of Service; or (2) declined to
make mandatory contributions (if required) or, in the case of a cash
or deferred arrangement, elective contributions to the Plan.
(i) Notwithstanding anything herein to the contrary, in any Plan Year in
which the Employer maintains both this Plan and a defined benefit
pension plan included in a Required Aggregation Group which is top
heavy, the Employer shall not be required to provide a Non-Key
Employee with both the full separate minimum defined benefit plan
benefit and the full separate defined contribution plan allocations.
Therefore, if the Employer maintains both a Defined Benefit and a
Defined Contribution Plan that are a Top Heavy Group, the top heavy
minimum benefits shall be provided as follows:
(1) Applies if F1b of the Adoption Agreement is Selected -
(i) The requirements of Section 2.1 shall apply except
that each Non-Key Employee who is a Participant in
the Profit Sharing Plan or Money Purchase Plan and
who is also a Participant in the Defined Benefit Plan
shall receive a minimum allocation of five percent
(5%) of such Participant's "415 Compensation" from
the applicable Defined Contribution Plan(s).
(ii) For each Non-Key Employee who is a Participant only
in the Defined Benefit Plan the Employer will provide
a minimum non-integrated benefit equal to 2% of his
highest five consecutive year average "415
Compensation" for each Year of Service while a
Participant in the Plan, in which the Plan is top
heavy, not to exceed ten.
(iii) For each Non-Key Employee who is a Participant only
in this Defined Contribution Plan, the Employer shall
provide a contribution equal to 3% of his "415
Compensation."
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<PAGE> 29
(2) Applies if F1c of the Adoption Agreement is Selected -
(i) The minimum allocation specified in Section
4.3(i)(1)(i) shall be 7 1/2% if the Employer elects
in the Adoption Agreement for years in which the Plan
is Top Heavy, but not Super Top Heavy.
(ii) The minimum benefit specified in Section
4.3(i)(1)(ii) shall be 3% if the Employer elects in
the Adoption Agreement for years in which the Plan is
Top Heavy, but not Super Top Heavy.
(iii) The minimum allocation specified in Section
4.3(i)(1)(iii) shall be 4% if the Employer elects in
the Adoption Agreement for years in which the Plan is
Top Heavy, but not Super Top Heavy.
(j) For the purposes of this Section, "415 Compensation" shall be limited
to $200,000 (unless adjusted in such manner as permitted under Code
Section 415(d)). However, for Plan Years beginning prior to January 1,
1989, the $200,000 limit shall apply only for Top Heavy Plan Years and
shall not be adjusted.
(k) Notwithstanding anything herein to the contrary, any Participant who
terminated employment during the Plan Year for reasons other than
death, Total and Permanent Disability, or retirement shall or shall
not share in the allocations of the Employer's Contributions and
Forfeitures as provided in the Adoption Agreement. Notwithstanding
the foregoing, for Plan Years beginning after 1989, if this is a
standardized Plan, any such terminated Participant shall share in the
allocations as provided in this Section provided such Participant
completed more than 500 Hours of Service.
(l) Notwithstanding anything herein to the contrary, Participants
terminating for reasons of death, Total and Permanent Disability, or
retirement shall share in the allocations as provided in this Section
regardless of whether they completed a Year of Service during the Plan
Year.
(m) If a Former Participant is reemployed after five (5) consecutive
1-Year Breaks in Service, then separate accounts shall be maintained
as follows:
(1) one account for nonforfeitable benefits attributable to
pre-break service; and
(2) one account representing his employer derived account balance
in the Plan attributable to post-break service.
(n) Notwithstanding any election in the Adoption Agreement to the
contrary, if this is a non-standardized Plan that would otherwise fail
to meet the requirements of Code Sections 401(a)(26), 410(b)(1), or
410(b)(2)(A)(i) and the Regulations thereunder because Employer
Contributions have not been allocated to a sufficient number or
percentage of Participants for a Plan Year, then the following rules
shall apply:
(1) The group of Participants eligible to share in the Employer's
contribution and Forfeitures for the Plan Year shall be
expanded to include the minimum number of Participants who
would not otherwise be eligible as are necessary to satisfy
the applicable test specified above. The specific participants
who shall become eligible under the terms of this paragraph
shall be those who are actively employed on the last day of
the Plan Year and, when compared to similarly situated
Participants, have completed the greatest number of Hours of
Service in the Plan Year.
(2) If after application of paragraph (1) above, the applicable
test is still not satisfied, then the group of Participants
eligible to share in the Employer's contribution and
Forfeitures for the Plan Year shall be further expanded to
include the minimum number of Participants who are not
actively employed on the last day of the Plan Year as are
necessary to satisfy the applicable test. The specific
Participants who shall become eligible to share shall be those
Participants, when compared to similarly situated
Participants, who have completed the greatest number of Hours
of Service in the Plan Year before terminating employment.
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<PAGE> 30
Nothing in this Section shall permit the reduction of a Participant's
accrued benefit. Therefore any amounts that have previously been
allocated to Participants may not be reallocated to satisfy these
requirements. In such event, the Employer shall make an additional
contribution equal to the amount such affected Participants would have
received had they been included in the allocations, even if it exceeds
the amount which would be deductible under Code Section 404. Any
adjustment to the allocations pursuant to this paragraph shall be
considered a retroactive amendment adopted by the last day of the Plan
Year.
4.4 MAXIMUM ANNUAL ADDITIONS
(a)(1) If the Participant does not participate in, and has never
participated in another qualified plan maintained by the
Employer, or a welfare benefit fund (as defined in Code
Section 419(e)), maintained by the Employer, or an individual
medical account (as defined in Code Section 415(l)(2))
maintained by the Employer, which provides Annual Additions,
the amount of Annual Additions which may be credited to the
Participant's accounts for any Limitation Year shall not
exceed the lesser of the Maximum Permissible Amount or any
other limitation contained in this Plan. If the Employer
contribution that would otherwise be contributed or allocated
to the Participant's accounts would cause the Annual Additions
for the Limitation Year to exceed the Maximum Permissible
Amount, the amount contributed or allocated will be reduced so
that the Annual Additions for the Limitation Year will equal
the Maximum Permissible Amount.
(2) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant on the basis of a
reasonable estimation of the Participant's Compensation for
the Limitation Year, uniformly determined for all Participants
similarly situated.
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such
Limitation Year shall be determined on the basis of the
Participant's actual compensation for such Limitation Year.
(4) If there is an excess amount pursuant to Section 4.4(a)(2) or
Section 4.5, the excess will be disposed of in one of the
following manners, as uniformly determined by the Plan
Administrator for all Participants similarly situated:
(i) Any Deferred Compensation or nondeductible Voluntary
Employee Contributions, to the extent they would
reduce the Excess Amount, will be distributed to the
Participant;
(ii) If, after the application of subparagraph (i), an
Excess Amount still exists, and the Participant is
covered by the Plan at the end of the Limitation
Year, the Excess Amount in the Participant's account
will be used to reduce Employer contributions
(including any allocation of Forfeitures) for such
Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(iii) If, after the application of subparagraph (i), an
Excess Amount still exists, and the Participant is
not covered by the Plan at the end of a Limitation
Year, the Excess Amount will be held unallocated in a
suspense account. The suspense account will be
applied to reduce future Employer contributions
(including allocation of any Forfeitures) for all
remaining Participants in the next Limitation Year,
and each succeeding Limitation Year if necessary;
(iv) If a suspense account is in existence at any time
during a Limitation Year pursuant to this Section, it
will not participate in the allocation of investment
gains and losses. If a suspense account is in
existence at any time during a particular limitation
year, all amounts in the suspense account must
29
<PAGE> 31
be allocated and reallocated to participants'
accounts before any employer contributions or any
employee contributions may be made to the plan for
that limitation year. Excess amounts may not be
distributed to participants or former participants.
(b)(1) This subsection applies if, in addition to this Plan, the
Participant is covered under another qualified Prototype
defined contribution plan maintained by the Employer, or a
welfare benefit fund (as defined in Code Section 419(e))
maintained by the Employer, or an individual medical account
(as defined in Code Section 415(l)(2)) maintained by the
Employer, which provides Annual Additions, during any
Limitation Year. The Annual Additions which may be credited to
a Participant's accounts under this Plan for any such
Limitation Year shall not exceed the Maximum Permissible
Amount reduced by the Annual Additions credited to a
Participant's accounts under the other plans and welfare
benefit funds for the same Limitation Year. If the Annual
Additions with respect to the Participant under other defined
contribution plans and welfare benefit funds maintained by the
Employer are less than the Maximum Permissible Amount and the
Employer contribution that would otherwise be contributed or
allocated to the Participant's accounts under this Plan would
cause the Annual Additions for the Limitation Year to exceed
this limitation, the amount contributed or allocated will be
reduced so that the Annual Additions under all such plans and
welfare benefit funds for the Limitation Year will equal the
Maximum Permissible Amount. If the Annual Additions with
respect to the Participant under such other defined
contribution plans and welfare benefit funds in the aggregate
are equal to or greater than the Maximum Permissible Amount,
no amount will be contributed or allocated to the
Participant's account under this Plan for the Limitation Year.
(2) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant in the manner described
in Section 4.4(a)(2).
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the
Limitation Year will be determined on the basis of the
Participant's actual Compensation for the Limitation Year.
(4) If, pursuant to Section 4.4(b)(2) or Section 4.5, a
Participant's Annual Additions under this Plan and such other
plans would result in an Excess Amount for a Limitation Year,
the Excess Amount will be deemed to consist of the Annual
Additions last allocated, except that Annual Additions
attributable to a welfare benefit fund or individual medical
account will be deemed to have been allocated first regardless
of the actual allocation date.
(5) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an
allocation date of another plan, the Excess Amount attributed
to this Plan will be the product of:
(i) the total Excess Amount allocated as of such date,
times
(ii) the ratio of (1) the Annual Additions allocated to
the Participant for the Limitation Year as of such
date under this Plan to (2) the total Annual
Additions allocated to the Participant for the
Limitation Year as of such date under this and all
the other qualified defined contribution plans.
(6) Any Excess Amount attributed to this Plan will be disposed in
the manner described in Section 4.4(a)(4).
(c) If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a Prototype
Plan, Annual Additions which may be credited to the Participant's
account under this Plan for any Limitation Year will be limited in
accordance with Section 4.4(b), unless the Employer provides other
limitations in the Adoption Agreement.
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<PAGE> 32
(d) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan the sum of
the Participant's Defined Benefit Plan Fraction and Defined
Contribution Plan Fraction will not exceed 1.0 in any Limitation Year.
The Annual Additions which may be credited to the Participant's
account under this Plan for any Limitation Year will be limited in
accordance with the Limitation on Allocations Section of the Adoption
Agreement.
Except, however, if the Plans are standardized paired plans, the rate
of accrual in the defined benefit plan will be reduced to the extent
necessary so that the sum of the Defined Contribution Fraction and
Defined Benefit Fraction will equal 1.0.
(e) For purposes of applying the limitations of Code Section 415, the
transfer of funds from one qualified plan to another is not an "annual
addition." In addition, the following are not Employee contributions
for the purposes of Section 4.4(f)(1)(2): (1) rollover contributions
(as defined in Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and
408(d)(3)); (2) repayments of loans made to a Participant from the
Plan; (3) repayments of distributions received by an Employee pursuant
to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of
distributions received by an Employee pursuant to Code Section
411(a)(3)(D) (mandatory contributions); and (5) Employee contributions
to a simplified employee pension excludable from gross income under
Code Section 408(k)(6).
(f) For purposes of this Section, the following terms shall be defined as
follows:
(1) Annual Additions means the sum credited to a Participant's
accounts for any Limitation Year of (1) Employer
contributions, (2) effective with respect to "limitation
years" beginning after December 31, 1986, Employee
contributions, (3) forfeitures, (4) amounts allocated, after
March 31, 1984, to an individual medical account, as defined
in Code Section 415(l)(2), which is part of a pension or
annuity plan maintained by the Employer and (5) amounts
derived from contributions paid or accrued after December 31,
1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits allocated to
the separate account of a key employee (as defined in Code
Section 419A(d)(3)) under a welfare benefit fund (as defined
in Code Section 419(e)) maintained by the Employer. Except,
however, the "415 Compensation" percentage limitation referred
to in paragraph (a)(2) above shall not apply to: (1) any
contribution for medical benefits (within the meaning of Code
Section 419A(f)(2)) after separation from service which is
otherwise treated as an "annual addition," or (2) any amount
otherwise treated as an "annual addition" under Code Section
415(l)(1). Notwithstanding the foregoing, for "limitation
years" beginning prior to January 1, 1987, only that portion
of Employee contributions equal to the lesser of Employee
contributions in excess of six percent (6%) of "415
Compensation" or one-half of Employee contributions shall be
considered an "annual addition."
For this purpose, any Excess Amount applied under Sections
4.4(a)(4) and 4.4(b)(6) in the Limitation Year to reduce
Employer contributions shall be considered Annual Additions
for such Limitation Year.
(2) Compensation means a Participant's Compensation as elected in
the Adoption Agreement. However, regardless of any selection
made in the Adoption Agreement, "415 Compensation" shall
exclude compensation which is not currently includible in the
Participant's gross income by reason of the application of
Code Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b).
For limitation years beginning after December 31, 1991, for
purposes of applying the limitations of this article,
compensation for a limitation year is the compensation
actually paid or made available during such limitation year.
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<PAGE> 33
Notwithstanding the preceding sentence, compensation for a
participant in a defined contribution plan who is permanently
and totally disabled (as defined in section 22(e)(3) of the
Internal Revenue Code) is the compensation such participant
would have received for the limitation year if the participant
had been paid at the rate of compensation paid immediately
before becoming permanently and totally disabled; such imputed
compensation for the disabled participant may be taken into
account only if the participant is not a Highly Compensated
Employee and contributions made on behalf of such participant
are nonforfeitable when made.
(3) Defined Benefit Fraction means a fraction, the numerator of
which is the sum of the Participant's Projected Annual
Benefits under all the defined benefit plans (whether or not
terminated) maintained by the Employer, and the denominator of
which is the lesser of 125 percent of the dollar limitation
determined for the Limitation Year under Code Sections 415(b)
and (d) or 140 percent of his Highest Average Compensation
including any adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first Limitation Year
beginning after December 31, 1986, in one or more defined
benefit plans maintained by the Employer which were in
existence on May 6, 1986, the denominator of this fraction
will not be less than 125 percent of the sum of the annual
benefits under such plans which the Participant had accrued as
of the end of the close of the last Limitation Year beginning
before January 1, 1987, disregarding any changes in the terms
and conditions of the plan after May 5, 1986. The preceding
sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements
of Code Section 415 for all Limitation Years beginning before
January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan Year,
100 shall be substituted for 125 unless the extra minimum
allocation is being made pursuant to the Employer's election
in F1 of the Adoption Agreement. However, for any Plan Year in
which this Plan is a Super Top Heavy Plan, 100 shall be
substituted for 125 in any event.
(4) Defined Contribution Dollar Limitation means $30,000, or, if
greater, one-fourth of the defined benefit dollar limitation
set forth in Code Section 415(b)(1) as in effect for the
Limitation Year.
(5) Defined Contribution Fraction means a fraction, the numerator
of which is the sum of the Annual Additions to the
Participant's account under all the defined contribution plans
(whether or not terminated) maintained by the Employer for the
current and all prior Limitation Years, (including the Annual
Additions attributable to the Participant's nondeductible
voluntary employee contributions to any defined benefit plans,
whether or not terminated, maintained by the Employer and the
annual additions attributable to all welfare benefit funds, as
defined in Code Section 419(e), and individual medical
accounts, as defined in Code Section 415(l)(2), maintained by
the Employer), and the denominator of which is the sum of the
maximum aggregate amounts for the current and all prior
Limitation Years of Service with the Employer (regardless of
whether a defined contribution plan was maintained by the
Employer). The maximum aggregate amount in any Limitation Year
is the lesser of 125 percent of the Defined Contribution
Dollar Limitation or 35 percent of the Participant's
Compensation for such year. For Limitation Years beginning
prior to January 1, 1987, the "annual addition" shall not be
recomputed to treat all Employee contributions as an Annual
Addition.
If the Employee was a Participant as of the end of the first
day of the first Limitation Year beginning after December 31,
1986, in one or more defined contribution plans maintained by
the Employer which were in existence on May 5, 1986, the
numerator of this fraction will be adjusted if the sum of this
fraction and the Defined Benefit Fraction would otherwise
exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the denominator
of this fraction, will be permanently subtracted from the
numerator of this fraction. The adjustment is calculated using
the fractions as they would be computed as of the end of the
last Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the
plan made after May 5, 1986, but using the Code Section 415
limitation applicable to the first Limitation Year beginning
on or after January 1, 1987.
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<PAGE> 34
Notwithstanding the foregoing, for any Top Heavy Plan Year,
100 shall be substituted for 125 unless the extra minimum
allocation is being made pursuant to the Employer's election
in F1 of the Adoption Agreement. However, for any Plan Year in
which this Plan is a Super Top Heavy Plan, 100 shall be
substituted for 125 in any event.
(6) Employer means the Employer that adopts this Plan and all
Affiliated Employers, except that for purposes of this
Section, Affiliated Employers shall be determined pursuant to
the modification made by Code Section 415(h).
(7) Excess Amount means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible
Amount.
(8) Highest Average Compensation means the average Compensation
for the three consecutive Years of Service with the Employer
that produces the highest average. A Year of Service with the
Employer is the 12 consecutive month period defined in Section
E1 of the Adoption Agreement which is used to determine
Compensation under the Plan.
(9) Limitation Year means the Compensation Year (a 12 consecutive
month period) as elected by the Employer in the Adoption
Agreement. All qualified plans maintained by the Employer must
use the same Limitation Year. If the Limitation Year is
amended to a different 12 consecutive month period, the new
Limitation Year must begin on a date within the Limitation
Year in which the amendment is made.
(10) Master or Prototype Plan means a plan the form of which is the
subject of a favorable opinion letter from the Internal
Revenue Service.
(11) Maximum Permissible Amount means the maximum Annual Addition
that may be contributed or allocated to a Participant's
account under the plan for any Limitation Year, which shall
not exceed the lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's Compensation for the
Limitation Year.
The Compensation Limitation referred to in (ii) shall
not apply to any contribution for medical benefits
(within the meaning of Code Sections 401(h) or
419A(f)(2)) which is otherwise treated as an annual
addition under Code Sections 415(l)(1) or 419A(d)(2).
If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different 12 consecutive
month period, the Maximum Permissible Amount will not exceed
the Defined Contribution Dollar Contribution multiplied by the
following fraction:
number of months in the short Limitation Year
---------------------------------------------
12
(12) Projected Annual Benefit means the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity
if such benefit is expressed in a form other than a straight
life annuity or qualified Joint and Survivor Annuity) to which
the Participant would be entitled under the terms of the plan
assuming:
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<PAGE> 35
(i) the Participant will continue employment until Normal
Retirement Age (or current age, if later), and
(ii) the Participant's Compensation for the current
Limitation Year and all other relevant factors used
to determine benefits under the Plan will remain
constant for all future Limitation Years.
(g) Notwithstanding anything contained in this Section to the contrary,
the limitations, adjustments and other requirements prescribed in this
Section shall at all times comply with the provisions of Code Section
415 and the Regulations thereunder, the terms of which are
specifically incorporated herein by reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If as a result of the allocation of Forfeitures, a reasonable error in
estimating a Participant's annual Compensation, a reasonable error in
determining the amount of elective deferrals (within the meaning of
Code Section 402(g)(3)) that may be made with respect to any
Participant under the limits of Section 4.4, or other facts and
circumstances to which Regulation 1.415-6(b)(6) shall be applicable,
the "annual additions" under this Plan would cause the maximum
provided in Section 4.4 to be exceeded, the Administrator shall treat
the excess in accordance with Section 4.4(a)(4).
4.6 TRANSFERS FROM QUALIFIED PLANS
(a) If specified in the Adoption Agreement and with the consent of the
Administrator, amounts may be transferred from other qualified plans,
provided that the trust from which such funds are transferred permits
the transfer to be made and the transfer will not jeopardize the tax
exempt status of the Plan or create adverse tax consequences for the
Employer. The amounts transferred shall be set up in a separate
account herein referred to as a "Participant's Rollover Account." Such
account shall be fully Vested at all times and shall not be subject to
forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan and may not be
withdrawn by, or distributed to the Participant, in whole or in part,
except as provided in Paragraphs (c) and (d) of this Section.
(c) Amounts attributable to elective contributions (as defined in
Regulation 1.401(k)-1(g)(4)), including amounts treated as elective
contributions, which are transferred from another qualified plan in a
plan-to-plan transfer shall be subject to the distribution limitations
provided for in Regulation 1.401(k)-1(d).
(d) At Normal Retirement Date, or such other date when the Participant or
his Beneficiary shall be entitled to receive benefits, the fair market
value of the Participant's Rollover Account shall be used to provide
additional benefits to the Participant or his Beneficiary. Any
distributions of amounts held in a Participant's Rollover Account
shall be made in a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited to, all notice
and consent requirements of Code Sections 411(a)(11) and 417 and the
Regulations thereunder.
Furthermore, such amounts shall be considered as part of a
Participant's benefit in determining whether an involuntary cash-out
of benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made after a
valuation date be segregated into a separate account for each
Participant until such time as the allocations pursuant to this Plan
have been made, at which time they may remain segregated or be
invested as part of the general Trust Fund, to be determined by the
Administrator.
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<PAGE> 36
(f) For purposes of this Section, the term "qualified plan" shall mean any
tax qualified plan under Code Section 401(a). The term "amounts
transferred from other qualified plans" shall mean: (i) amounts
transferred to this Plan directly from another qualified plan; (ii)
lump-sum distributions received by an Employee from another qualified
plan which are eligible for tax free rollover to a qualified plan and
which are transferred by the Employee to this Plan within sixty (60)
days following his receipt thereof; (iii) amounts transferred to this
Plan from a conduit individual retirement account provided that the
conduit individual retirement account has no assets other than assets
which (A) were previously distributed to the Employee by another
qualified plan as a lump-sum distribution (B) were eligible for
tax-free rollover to a qualified plan and (C) were deposited in such
conduit individual retirement account within sixty (60) days of
receipt thereof and other than earnings on said assets; and (iv)
amounts distributed to the Employee from a conduit individual
retirement account meeting the requirements of clause (iii) above, and
transferred by the Employee to this Plan within sixty (60) days of his
receipt thereof from such conduit individual retirement account.
(g) Prior to accepting any transfers to which this Section applies, the
Administrator may require the Employee to establish that the amounts
to be transferred to this Plan meet the requirements of this Section
and may also require the Employee to provide an opinion of counsel
satisfactory to the Employer that the amounts to be transferred meet
the requirements of this Section.
(h) Notwithstanding anything herein to the contrary, a transfer directly
to this Plan from another qualified plan (or a transaction having the
effect of such a transfer) shall only be permitted if it will not
result in the elimination or reduction of any "Section 411(d)(6)
protected benefit" as described in Section 8.1.
4.7 VOLUNTARY CONTRIBUTIONS
(a) If this is an amendment to a Plan that had previously allowed
voluntary Employee contributions, then, except as provided in 4.7(b)
below, this Plan will not accept voluntary Employee contributions for
Plan Years beginning after the Plan Year in which this Plan is adopted
by the Employer.
(b) For 401(k) Plans, if elected in the Adoption Agreement, each
Participant may, at the discretion of the Administrator in a
nondiscriminatory manner, elect to voluntarily contribute a portion of
his compensation earned while a Participant under this Plan. Such
contributions shall be paid to the Trustee within a reasonable period
of time but in no event later than 90 days after the receipt of the
contribution.
(c) The balance in each Participant's Voluntary Contribution Account shall
be fully Vested at all times and shall not be subject to Forfeiture
for any reason.
(d) A Participant may elect to withdraw his voluntary contributions from
his Voluntary Contribution Account and the actual earnings thereon in
a manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 411(a)(11) and 417 and the Regulations
thereunder. If the Administrator maintains sub-accounts with respect
to voluntary contributions (and earnings thereon) which were made on
or before a specified date, a Participant shall be permitted to
designate which sub-account shall be the source for his withdrawal. No
Forfeitures shall occur solely as a result of an Employee's withdrawal
of Employee contributions.
In the event such a withdrawal is made, or in the event a Participant
has received a hardship distribution pursuant to Regulation
1.401(k)-1(d)(2)(iii)(B) from any plan maintained by the Employer,
then such Participant shall be barred from making any voluntary
contributions for a period of twelve (12) months after receipt of the
withdrawal or distribution.
(e) At Normal Retirement Date, or such other date when the Participant or
his Beneficiary shall be entitled to receive benefits, the fair market
value of the Voluntary Contribution Account shall be used to provide
additional benefits to the Participant or his Beneficiary.
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(f) The Administrator may direct that voluntary contributions made after a
valuation date be segregated into a separate account until such time
as the allocations pursuant to this Plan have been made, at which time
they may remain segregated or be invested as part of the general Trust
Fund, to be determined by the Administrator.
4.8 DIRECTED INVESTMENT ACCOUNT
(a) If elected in the Adoption Agreement, each Participant shall direct
the Trustee as to the investment of the Participant's individual
account balances from among the investment vehicles designated by the
Employer pursuant to Section 2.3(b). Any such direction shall be
delivered to the Administrator by the Participant at such time and in
such manner as the Administrator shall direct, and the Administrator
shall take all actions necessary to carry out such directions. That
portion of the account of any Participant so directing will be
considered a Directed Investment Account.
(b) A separate Directed Investment Account shall be established for each
Participant who has directed an investment. Transfers between the
Participant's regular account and their Directed Investment Account
shall be charged and credited as the case may be to each account. The
Directed Investment Account shall not share in Trust Fund Earnings,
but it shall be charged or credited as appropriate with the net
earnings, gains, losses and expenses as well as any appreciation or
depreciation in market value attributable to such account.
(c) The Administrator shall establish a procedure, to be applied in a
uniform and nondiscriminatory manner, setting forth the permissible
investment options under this Section, how often changes between
investments may be made, and any other limitations that the
Administrator shall impose on a Participant's right to direct
investments, including those required for compliance with ERISA
Section 404(c) and regulations promulgated thereunder.
4.9 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS
(a) If this is an amendment to a Plan that previously permitted deductible
voluntary contributions, then each Participant who made a "Qualified
Voluntary Employee Contribution" within the meaning of Code Section
219(e)(2) as it existed prior to the enactment of the Tax Reform Act
of 1986, shall have his contribution held in a separate Qualified
Voluntary Employee Contribution Account which shall be fully Vested at
all times. Such contributions, however, shall not be permitted if they
are attributable to taxable years beginning after December 31, 1986.
(b) A Participant may, upon written request delivered to the
Administrator, make withdrawals from his Qualified Voluntary Employee
Contribution Account. Any distribution shall be made in a manner which
is consistent with and satisfies the provisions of Section 6.5,
including, but not limited to, all notice and consent requirements of
Code Sections 411(a)(11) and 417 and the Regulations thereunder.
(c) At Normal Retirement Date, or such other date when the Participant or
his Beneficiary shall be entitled to receive benefits, the fair market
value of the Qualified Voluntary Employee Contribution Account shall
be used to provide additional benefits to the Participant or his
Beneficiary.
(d) Unless the Administrator directs Qualified Voluntary Employee
Contributions made pursuant to this Section be segregated into a
separate account for each Participant, they shall be invested as part
of the general Trust Fund and share in earnings and losses.
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4.10 ACTUAL CONTRIBUTION PERCENTAGE TESTS
In the event this Plan previously provided for voluntary or mandatory Employee
contributions, then, with respect to Plan Years beginning after December 31,
1986, such contributions must satisfy the provisions of Code Section 401(m) and
the Regulations thereunder.
4.11 INTEGRATION IN MORE THAN ONE PLAN
If the Employer and/or an Affiliated Employer maintain qualified retirement
plans integrated with Social Security such that any Participant in this Plan is
covered under more than one of such plans, then such plans will be considered
to be one plan and will be considered to be integrated if the extent of the
integration of all such plans does not exceed 100%. For purposes of the
preceding sentence, the extent of integration of a plan is the ratio, expressed
as a percentage, which the actual benefits, benefit rate, offset rate, or
employer contribution rate, whatever is applicable under the Plan bears to the
limitation applicable to such Plan. If the Employer maintains two or more
standardized paired plans, only one plan may be integrated with Social
Security.
ARTICLE V. VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary Date, and at
such other date or dates deemed necessary by the Administrator, herein called
"valuation date," to determine the net worth of the assets comprising the Trust
Fund as it exists on the "valuation date." In determining such net worth, the
Trustee shall value the assets comprising the Trust Fund at their fair market
value as of the "valuation date" and shall deduct all expenses for which the
Trustee has not yet obtained reimbursement from the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust Fund which
are listed on a registered stock exchange, the Administrator shall direct the
Trustee to value the same at the prices they were last traded on such exchange
preceding the close of business on the "valuation date." If such securities
were not traded on the "valuation date," or if the exchange on which they are
traded was not open for business on the "valuation date," then the securities
shall be valued at the prices at which they were last traded prior to the
"valuation date." Any unlisted security held in the Trust Fund shall be valued
at its bid price next preceding the close of business on the "valuation date,"
which bid price shall be obtained from a registered broker or an investment
banker. In determining the fair market value of assets other than securities
for which trading or bid prices can be obtained, the Trustee may appraise such
assets itself, or in its discretion, employ one or more appraisers for that
purpose and rely on the values established by such appraiser or appraisers.
ARTICLE VI. DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and retire for
the purposes hereof on or after his Normal Retirement Date or Early Retirement
Date. Upon such Normal Retirement Date or Early Retirement Date, all amounts
credited to such Participant's Combined Account shall become distributable.
However, a Participant may postpone the termination of his employment with the
Employer to a later date, in which event the participation of such Participant
in the Plan, including the right to receive allocations pursuant to Section
4.3, shall continue until his Late Retirement Date. Upon a Participant's
Retirement Date, or as soon thereafter as is practicable,
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the Administrator shall direct the distribution of all amounts credited to such
Participant's Combined Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or other
termination of his employment, all amounts credited to such
Participant's Combined Account shall become fully Vested. The
Administrator shall direct, in accordance with the provisions of
Sections 6.6 and 6.7, the distribution of the deceased Participant's
accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator shall
direct, in accordance with the provisions of Sections 6.6 and 6.7, the
distribution of any remaining amounts credited to the accounts of such
deceased Former Participant to such Former Participant's Beneficiary.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive payment of the value of
the account of a deceased Participant or Former Participant as the
Administrator may deem desirable. The Administrator's determination of
death and of the right of any person to receive payment shall be
conclusive.
(d) Unless otherwise elected in the manner prescribed in Section 6.6, the
Beneficiary of the Pre-Retirement Survivor Annuity shall be the
Participant's spouse. Except, however, the Participant may designate a
Beneficiary other than his spouse for the Pre-Retirement Survivor
Annuity if:
(1) the Participant and his spouse have validly waived the
Pre-Retirement Survivor Annuity in the manner prescribed in
Section 6.6, and the spouse has waived his or her right to be
the Participant's Beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a
court order to such effect (and there is no "qualified
domestic relations order" as defined in Code Section 414(p)
which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on a
form satisfactory to the Administrator. A Participant may at any time
revoke his designation of a Beneficiary or change his Beneficiary by
filing written notice of such revocation or change with the
Administrator. However, the Participant's spouse must again consent in
writing to any change in Beneficiary unless the original consent
acknowledged that the spouse had the right to limit consent only to a
specific Beneficiary and that the spouse voluntarily elected to
relinquish such right. The Participant may, at any time, designate a
Beneficiary for death benefits payable under the Plan that are in
excess of the Pre-Retirement Survivor Annuity. In the event no valid
designation of Beneficiary exists at the time of the Participant's
death, the death benefit shall be payable to his estate.
(e) If the Plan provides an insured death benefit and a Participant dies
before any insurance coverage to which he is entitled under the Plan
is effected, his death benefit from such insurance coverage shall be
limited to the standard rated premium which was or should have been
used for such purpose.
(f) In the event of any conflict between the terms of this Plan and the
terms of any Contract issued hereunder, the Plan provisions shall
control.
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6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to his
Retirement Date or other termination of his employment, all amounts credited
to such Participant's Combined Account shall become fully Vested. In the event
of a Participant's Total and Permanent Disability, the Administrator, in
accordance with the provisions of Sections 6.5 and 6.7, shall direct the
distribution to such Participant of all amounts credited to such Participant's
Combined Account as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date, or other valuation date, coinciding
with or subsequent to the termination of a Participant's employment
for any reason other than retirement, death, or Total and Permanent
Disability, the Administrator may direct that the amount of the Vested
portion of such Terminated Participant's Combined Account be
segregated and invested separately. In the event the Vested portion of
a Participant's Combined Account is not segregated, the amount shall
remain in a separate account for the Terminated Participant and share
in allocations pursuant to Section 4.3 until such time as a
distribution is made to the Terminated Participant. The amount of the
portion of the Participant's Combined Account which is not Vested may
be credited to a separate account (which will always share in gains
and losses of the Trust Fund) and at such time as the amount becomes a
Forfeiture shall be treated in accordance with the provisions of the
Plan regarding Forfeitures.
Regardless of whether distributions in kind are permitted, in the
event that the amount of the Vested portion of the Terminated
Participant's Combined Account equals or exceeds the fair market value
of any insurance Contracts, the Trustee, when so directed by the
Administrator and agreed to by the Terminated Participant, shall
assign, transfer, and set over to such Terminated Participant all
Contracts on his life in such form or with such endorsements, so that
the settlement options and forms of payment are consistent with the
provisions of Section 6.5. In the event that the Terminated
Participant's Vested portion does not at least equal the fair market
value of the Contracts, if any, the Terminated Participant may pay
over to the Trustee the sum needed to make the distribution equal to
the value of the Contracts being assigned or transferred, or the
Trustee, pursuant to the Participant's election, may borrow the cash
value of the Contracts from the Insurer so that the value of the
Contracts is equal to the Vested portion of the Terminated
Participant's Combined Account and then assign the Contracts to the
Terminated Participant.
Distribution of the funds due to a Terminated Participant shall be
made on the occurrence of an event which would result in the
distribution had the Terminated Participant remained in the employ of
the Employer (upon the Participant's death, Total and Permanent
Disability, Early or Normal Retirement). However, at the election of
the Participant, the Administrator shall direct that the entire Vested
portion of the Terminated Participant's Combined Account to be payable
to such Terminated Participant provided the conditions, if any, set
forth in the Adoption Agreement have been satisfied. Any distribution
under this paragraph shall be made in a manner which is consistent
with and satisfies the provisions of Section 6.5, including but not
limited to, all notice and consent requirements of Code Sections
411(a)(11) and 417 and the Regulations thereunder.
Notwithstanding the above, if the value of a Terminated Participant's
Vested benefit derived from Employer and Employee contributions does
not exceed, and at the time of any prior distribution, has never
exceeded $3,500, the Administrator shall direct that the entire Vested
benefit be paid to such Participant in a single lump-sum without
regard to the consent of the Participant or the Participant's spouse.
A Participant's Vested benefit shall not include Qualified Voluntary
Employee Contributions within the meaning of Code Section 72(o)(5)(B)
for Plan Years beginning prior to January 1, 1989.
(b) The Vested portion of any Participant's Account shall be a percentage
of such Participant's Account determined on the basis of the
Participant's number of Years of Service according to the vesting
schedule specified in the Adoption Agreement.
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(c) For any Top Heavy Plan Year, one of the minimum top heavy vesting
schedules as elected by the Employer in the Adoption Agreement will
automatically apply to the Plan. The minimum top heavy vesting
schedule applies to all benefits within the meaning of Code Section
411(a)(7) except those attributable to Employee contributions,
including benefits accrued before the effective date of Code Section
416 and benefits accrued before the Plan became top heavy. Further, no
decrease in a Participant's Vested percentage may occur in the event
the Plan's status as top heavy changes for any Plan Year. However,
this Section does not apply to the account balances of any Employee
who does not have an Hour of Service after the Plan has initially
become top heavy and the Vested percentage of such Employee's
Participant's Account shall be determined without regard to this
Section 6.4(c).
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy
Plan, the Administrator shall continue to use the vesting schedule in
effect while the Plan was a Top Heavy Plan for each Employee who had
an Hour of Service during a Plan Year when the Plan was Top Heavy.
(d) Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer's contributions to the Plan or upon any
full or partial termination of the Plan, all amounts credited to the
account of any affected Participant shall become 100% Vested and shall
not thereafter be subject to Forfeiture.
(e) If this is an amended or restated Plan, then notwithstanding the
vesting schedule specified in the Adoption Agreement, the Vested
percentage of a Participant's Account shall not be less than the
Vested percentage attained as of the later of the effective date or
adoption date of this amendment and restatement. The computation of a
Participant's nonforfeitable percentage of his interest in the Plan
shall not be reduced as the result of any direct or indirect amendment
to this Article, or due to changes in the Plan's status as a Top Heavy
Plan.
(f) If the Plan's vesting schedule is amended, or if the Plan is amended
in any way that directly or indirectly affects the computation of the
Participant's nonforfeitable percentage or if the Plan is deemed
amended by an automatic change to a top heavy vesting schedule, then
each Participant with at least 3 Years of Service as of the expiration
date of the election period may elect to have his nonforfeitable
percentage computed under the Plan without regard to such amendment or
change. Notwithstanding the foregoing, for Plan Years beginning before
January 1, 1989, or with respect to Employees who fail to complete at
least one (1) Hour of Service in a Plan Year beginning after December
31, 1988, five (5) shall be substituted for three (3) in the preceding
sentence. If a Participant fails to make such election, then such
Participant shall be subject to the new vesting schedule. The
Participant's election period shall commence on the adoption date of
the amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
(g)(1) If any Former Participant shall be reemployed by the Employer
before a 1-Year Break in Service occurs, he shall continue to
participate in the Plan in the same manner as if such
termination had not occurred.
(2) If any Former Participant shall be reemployed by the Employer
before five (5) consecutive 1-Year Breaks in Service, and such
Former Participant had received a distribution of his entire
Vested interest prior to his reemployment, his forfeited
account shall be reinstated only if he repays the full amount
distributed to him before the earlier of five (5) years after
the first date on which the Participant is subsequently
reemployed by the Employer or the close of the first period of
5 consecutive 1-Year Breaks in Service commencing after the
distribution. If a distribution occurs for any reason other
than a separation from service, the time for repayment may not
end earlier than five (5) years after the date
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of separation. In the event the Former Participant does repay
the full amount distributed to him, the undistributed portion
of the Participant's Account must be restored in full,
unadjusted by any gains or losses occurring subsequent to the
Anniversary Date or other valuation date preceding his
termination. If an employee receives a distribution pursuant
to this section and the employee resumes employment covered
under this plan, the employee's employer-derived account
balance will be restored to the amount on the date of
distribution if the employee repays to the plan the full
amount of the distribution attributable to employer
contributions before the earlier of 5 years after the first
date on which the participant is subsequently re-employed by
the employer, or the date the participant incurs 5 consecutive
1-year breaks in service following the date of the
distribution. If a non-Vested Former Participant was deemed to
have received a distribution and such Former Participant is
reemployed by the Employer before five (5) consecutive 1-Year
Breaks in Service, then such Participant will be deemed to
have repaid the deemed distribution as of the date of
reemployment.
(3) If any Former Participant is reemployed after a 1-Year Break
in Service has occurred, Years of Service shall include Years
of Service prior to his 1-Year Break in Service subject to the
following rules:
(i) Any Former Participant who under the Plan does not
have a nonforfeitable right to any interest in the
Plan resulting from Employer contributions shall lose
credits if his consecutive 1-Year Breaks in Service
equal or exceed the greater of (A) five (5) or (B)
the aggregate number of his pre-break Years of
Service;
(ii) After five (5) consecutive 1-Year Breaks in Service,
a Former Participant's Vested Account balance
attributable to pre-break service shall not be
increased as a result of post-break service;
(iii) A Former Participant who is reemployed and who has
not had his Years of Service before a 1-Year Break in
Service disregarded pursuant to (i) above, shall
participate in the Plan as of his date of
reemployment;
(iv) If a Former Participant completes a Year of Service
(a 1-Year Break in Service previously occurred, but
employment had not terminated), he shall participate
in the Plan retroactively from the first day of the
Plan Year during which he completes one (1) Year of
Service.
(h) In determining Years of Service for purposes of vesting under the
Plan, Years of Service shall be excluded as specified in the Adoption
Agreement.
6.5 DISTRIBUTION OF BENEFITS
(a)(1) Unless otherwise elected as provided below, a Participant who
is married on the "annuity starting date" and who does not die
before the "annuity starting date" shall receive the value of
all of his benefits in the form of a Joint and Survivor
Annuity. The Joint and Survivor Annuity is an annuity that
commences immediately and shall be equal in value to a single
life annuity. Such joint and survivor benefits following the
Participant's death shall continue to the spouse during the
spouse's lifetime at a rate equal to 50% of the rate at which
such benefits were payable to the Participant. This Joint and
Survivor Annuity shall be considered the designated qualified
Joint and Survivor Annuity and automatic form of payment for
the purposes of this Plan. However, the Participant may elect
to receive a smaller annuity benefit with continuation of
payments to the spouse at a rate of seventy-five percent (75%)
or one hundred percent (100%) of the rate payable to a
Participant during his lifetime which alternative Joint and
Survivor Annuity shall be equal in value to the automatic
Joint and 50% Survivor Annuity. An unmarried Participant shall
receive the value of his benefit in the form of a life
annuity. Such unmarried Participant, however, may elect in
writing to waive the life annuity. The election must comply
with the provisions of this Section as if it were an election
to waive the Joint and Survivor Annuity by a married
Participant, but without the spousal consent requirement. The
Participant may
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elect to have any annuity provided for in this Section
distributed upon the attainment of the "earliest retirement
age" under the Plan. The "earliest retirement age" is the
earliest date on which, under the Plan, the Participant could
elect to receive retirement benefits.
(2) Any election to waive the Joint and Survivor Annuity must be
made by the Participant in writing during the election period
and be consented to by the Participant's spouse. If the spouse
is legally incompetent to give consent, the spouse's legal
guardian, even if such guardian is the Participant, may give
consent. Such election shall designate a Beneficiary (or a
form of benefits) that may not be changed without spousal
consent (unless the consent of the spouse expressly permits
designations by the Participant without the requirement of
further consent by the spouse). Such spouse's consent shall be
irrevocable and must acknowledge the effect of such election
and be witnessed by a Plan representative or a notary public.
Such consent shall not be required if it is established to the
satisfaction of the Administrator that the required consent
cannot be obtained because there is no spouse, the spouse
cannot be located, or other circumstances that may be
prescribed by Regulations. The election made by the
Participant and consented to by his spouse may be revoked by
the Participant in writing without the consent of the spouse
at any time during the election period. The number of
revocations shall not be limited. Any new election must comply
with the requirements of this paragraph. A former spouse's
waiver shall not be binding on a new spouse.
(3) The election period to waive the Joint and Survivor Annuity
shall be the 90 day period ending on the "annuity starting
date."
(4) For purposes of this Section and Section 6.6, the "annuity
starting date" means the first day of the first period for
which an amount is paid as an annuity, or, in the case of a
benefit not payable in the form of an annuity, the first day
on which all events have occurred which entitles the
Participant to such benefit.
(5) With regard to the election, the Administrator shall provide
to the Participant no less than 30 days and no more than 90
days before the "annuity starting date" a written explanation
of:
(i) the terms and conditions of the Joint and Survivor
Annuity, and
(ii) the Participant's right to make and the effect of an
election to waive the Joint and Survivor Annuity, and
(iii) the right of the Participant's spouse to consent to
any election to waive the Joint and Survivor Annuity,
and
(iv) the right of the Participant to revoke such election,
and the effect of such revocation.
(b) In the event a married Participant duly elects pursuant to paragraph
(a)(2) above not to receive his benefit in the form of a Joint and
Survivor Annuity, or if such Participant is not married, in the form
of a life annuity, the Administrator, pursuant to the election of the
Participant, shall direct the distribution to a Participant or his
Beneficiary any amount to which he is entitled under the Plan in one
or more of the following methods which are permitted pursuant to the
Adoption Agreement:
(1) One lump-sum payment in cash or in property;
(2) Payments over a period certain in monthly, quarterly,
semiannual, or annual cash installments. In order to provide
such installment payments, the Administrator may direct that
the Participant's interest in the Plan be segregated and
invested separately, and that the funds in the segregated
account be used for the payment of the installments. The
period over which such payment is to be made shall not extend
beyond the Participant's life expectancy (or the life
expectancy of the Participant and his designated
Beneficiary);
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(3) Purchase of or providing an annuity. However, such annuity may
not be in any form that will provide for payments over a
period extending beyond either the life of the Participant (or
the lives of the Participant and his designated Beneficiary)
or the life expectancy of the Participant (or the life
expectancy of the Participant and his designated Beneficiary).
(c) The present value of a Participant's Joint and Survivor Annuity
derived from Employer and Employee contributions may not be paid
without his written consent if the value exceeds, or has ever exceeded
at the time of any prior distribution, $3,500. Further, the spouse of
a Participant must consent in writing to any immediate distribution.
If the value of the Participant's benefit derived from Employer and
Employee contributions does not exceed $3,500 and has never exceeded
$3,500 at the time of any prior distribution, the Administrator may
immediately distribute such benefit without such Participant's
consent. No distribution may be made under the preceding sentence
after the "annuity starting date" unless the Participant and his
spouse consent in writing to such distribution. Any written consent
required under this paragraph must be obtained not more than 90 days
before commencement of the distribution and shall be made in a manner
consistent with Section 6.5(a)(2).
(d) Any distribution to a Participant who has a benefit which exceeds, or
has ever exceeded at the time of any prior distribution, $3,500 shall
require such Participant's consent if such distribution commences
prior to the later of his Normal Retirement Age or age 62. With regard
to this required consent:
(1) No consent shall be valid unless the Participant has received
a general description of the material features and an
explanation of the relative values of the optional forms of
benefit available under the Plan that would satisfy the notice
requirements of Code Section 417.
(2) The Participant must be informed of his right to defer receipt
of the distribution. If a Participant fails to consent, it
shall be deemed an election to defer the commencement of
payment of any benefit. However, any election to defer the
receipt of benefits shall not apply with respect to
distributions which are required under Section 6.5(e).
(3) Notice of the rights specified under this paragraph shall be
provided no less than 30 days and no more than 90 days before
the "annuity starting date."
(4) Written consent of the Participant to the distribution must
not be made before the Participant receives the notice and
must not be made more than 90 days before the "annuity
starting date."
(5) No consent shall be valid if a significant detriment is
imposed under the Plan on any Participant who does not consent
to the distribution.
(e) Notwithstanding any provision in the Plan to the contrary, the
distribution of a Participant's benefits, made on or after January 1,
1985, whether under the Plan or through the purchase of an annuity
Contract, shall be made in accordance with the following requirements
and shall otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder (including Regulation Section 1.401(a)(9)-2),
the provisions of which are incorporated herein by reference:
(1) A Participant's benefits shall be distributed to him not later
than April 1st of the calendar year following the later of (i)
the calendar year in which the Participant attains age 70 1/2
or (ii) the calendar year in which the Participant retires,
provided, however, that this clause (ii) shall not apply in
the case of a Participant who is a "five (5) percent owner" at
any time during the five (5) Plan Year period ending in the
calendar year in which he attains age 70 1/2 or, in the case
of a Participant who becomes a "five (5) percent owner" during
any subsequent Plan Year, clause (ii) shall no longer apply
and the required beginning date shall be the April 1st of the
calendar year following the calendar year in which such
subsequent Plan Year ends. Alternatively, distributions to a
Participant must begin no later than the applicable April 1st
as determined under the preceding sentence and must be made
over the life of the Participant (or the lives of the
Participant and the Participant's designated Beneficiary)
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or, if benefits are paid in the form of a Joint and Survivor
Annuity, the life expectancy of the Participant (or the life
expectancies of the Participant and his designated
Beneficiary) in accordance with Regulations. For Plan Years
beginning after December 31, 1988, clause (ii) above shall not
apply to any Participant unless the Participant had attained
age 70 1/2 before January 1, 1988 and was not a "five (5)
percent owner" at any time during the Plan Year ending with or
within the calendar year in which the Participant attained age
66 1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall
only be made in accordance with the incidental death benefit
requirements of Code Section 401(a)(9)(G) and the Regulations
thereunder.
Additionally, for calendar years beginning before 1989,
distributions may also be made under an alternative method
which provides that the then present value of the payments to
be made over the period of the Participant's life expectancy
exceeds fifty percent (50%) of the then present value of the
total payments to be made to the Participant and his
Beneficiaries.
(f) For purposes of this Section, the life expectancy of a Participant and
a Participant's spouse (other than in the case of a life annuity)
shall be redetermined annually in accordance with Regulations if
permitted pursuant to the Adoption Agreement. If the Participant or
the Participant's spouse may elect whether recalculations will be
made, then the election, once made, shall be irrevocable. If no
election is made by the time distributions must commence, then the
life expectancy of the Participant and the Participant's spouse shall
not be subject to recalculation. Life expectancy and joint and last
survivor expectancy shall be computed using the return multiples in
Tables V and VI of Regulation 1.72-9.
(g) All annuity Contracts under this Plan shall be non-transferable when
distributed. Furthermore, the terms of any annuity Contract purchased
and distributed to a Participant or spouse shall comply with all of
the requirements of this Plan.
(h) Subject to the spouse's right of consent afforded under the Plan, the
restrictions imposed by this Section shall not apply if a Participant
has, prior to January 1, 1984, made a written designation to have his
retirement benefit paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity
and Fiscal Responsibility Act of 1982.
(i) If a distribution is made at a time when a Participant who has not
terminated employment is not fully Vested in his Participant's Account
and the Participant may increase the Vested percentage in such
account:
(1) A separate account shall be established for the Participant's
interest in the Plan as of the time of the distribution, and
(2) At any relevant time the Participant's Vested portion of the
separate account shall be equal to an amount ("X") determined
by the formula:
X = P(AB plus (RxD)) - (R x D)
For purposes of applying the formula: P is the Vested
percentage at the relevant time, AB is the account balance at
the relevant time, D is the amount of distribution, and R is
the ratio of the account balance at the relevant time to the
account balance after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a Vested Participant who
dies before the annuity starting date and who has a surviving spouse
shall have the Pre-Retirement Survivor Annuity paid to his surviving
spouse. The Participant's spouse may direct that payment of the
Pre-Retirement Survivor Annuity
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commence within a reasonable period after the Participant's death. If
the spouse does not so direct, payment of such benefit will commence
at the time the Participant would have attained the later of his
Normal Retirement Age or age 62. However, the spouse may elect a later
commencement date. Any distribution to the Participant's spouse shall
be subject to the rules specified in Section 6.6(h).
(b) Any election to waive the Pre-Retirement Survivor Annuity before the
Participant's death must be made by the Participant in writing during
the election period and shall require the spouse's irrevocable consent
in the same manner provided for in Section 6.5(a)(2). Further, the
spouse's consent must acknowledge the specific nonspouse Beneficiary.
Notwithstanding the foregoing, the nonspouse Beneficiary need not be
acknowledged, provided the consent of the spouse acknowledges that the
spouse has the right to limit consent only to a specific Beneficiary
and that the spouse voluntarily elects to relinquish such right.
(c) The election period to waive the Pre-Retirement Survivor Annuity shall
begin on the first day of the Plan Year in which the Participant
attains age 35 and end on the date of the Participant's death. An
earlier waiver (with spousal consent) may be made provided a written
explanation of the Pre-Retirement Survivor Annuity is given to the
Participant and such waiver becomes invalid at the beginning of the
Plan Year in which the Participant turns age 35. In the event a Vested
Participant separates from service prior to the beginning of the
election period, the election period shall begin on the date of such
separation from service.
(d) With regard to the election, the Administrator shall provide each
Participant within the applicable period, with respect to such
Participant (and consistent with Regulations), a written explanation
of the Pre-Retirement Survivor Annuity containing comparable
information to that required pursuant to Section 6.5(a)(4). For the
purposes of this paragraph, the term "applicable period" means, with
respect to a Participant, whichever of the following periods ends
last:
(1) The period beginning with the first day of the Plan Year in
which the Participant attains age 32 and ending with the close
of the Plan Year preceding the Plan Year in which the
Participant attains age 35;
(2) A reasonable period after the individual becomes a
Participant. For this purpose, in the case of an individual
who becomes a Participant after age 32, the explanation must
be provided by the end of the three-year period beginning with
the first day of the first Plan Year for which the individual
is a Participant;
(3) A reasonable period ending after the Plan no longer fully
subsidizes the cost of the Pre-Retirement Survivor Annuity
with respect to the Participant;
(4) A reasonable period ending after Code Section 401(a)(11)
applies to the Participant; or
(5) A reasonable period after separation from service in the case
of a Participant who separates before attaining age 35. For
this purpose, the Administrator must provide the explanation
beginning one year before the separation from service and
ending one year after separation.
(e) The Pre-Retirement Survivor Annuity provided for in this Section shall
apply only to Participants who are credited with an Hour of Service on
or after August 23, 1984. Former Participants who are not credited
with an Hour of Service on or after August 23, 1984 shall be provided
with rights to the Pre-Retirement Survivor Annuity in accordance with
Section 303(e)(2) of the Retirement Equity Act of 1984.
(f) If the value of the Pre-Retirement Survivor Annuity derived from
Employer and Employee contributions does not exceed $3,500 and has
never exceeded $3,500 at the time of any prior distribution, the
Administrator shall direct the immediate distribution of such amount
to the Participant's spouse. No distribution may be made under the
preceding sentence after the annuity starting date unless the spouse
consents in writing. If the value exceeds, or has ever exceeded at the
time of any prior distribution, $3,500, an immediate distribution of
the entire amount may be made to the surviving spouse, provided such
surviving spouse consents in writing to such distribution. Any written
consent required under this
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paragraph must be obtained not more than 90 days before commencement
of the distribution and shall be made in a manner consistent with
Section 6.5(a)(2).
(g)(1) In the event there is an election to waive the Pre-Retirement
Survivor Annuity, and for death benefits in excess of the
Pre-Retirement Survivor Annuity, such death benefits shall be
paid to the Participant's Beneficiary by either of the
following methods, as elected by the Participant (or if no
election has been made prior to the Participant's death, by
his Beneficiary) subject to the rules specified in Section
6.6(h) and the selections made in the Adoption Agreement:
(i) One lump-sum payment in cash or in property;
(ii) Payment in monthly, quarterly, semi-annual, or annual
cash installments over a period to be determined by
the Participant or his Beneficiary. After periodic
installments commence, the Beneficiary shall have the
right to reduce the period over which such periodic
installments shall be made, and the cash amount of
such periodic installments shall be adjusted
accordingly.
(iii) If death benefits in excess of the Pre-Retirement
Survivor Annuity are to be paid to the surviving
spouse, such benefits may be paid pursuant to (i) or
(ii) above, or used to purchase an annuity so as to
increase the payments made pursuant to the
Pre-Retirement Survivor Annuity;
(2) In the event the death benefit payable pursuant to Section 6.2
is payable in installments, then, upon the death of the
Participant, the Administrator may direct that the death
benefit be segregated and invested separately, and that the
funds accumulated in the segregated account be used for the
payment of the installments.
(h) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant made on or after January
1, 1985, shall be made in accordance with the following requirements
and shall otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder.
(1) If it is determined, pursuant to Regulations, that the
distribution of a Participant's interest has begun and the
Participant dies before his entire interest has been
distributed to him, the remaining portion of such interest
shall be distributed at least as rapidly as under the method
of distribution selected pursuant to Section 6.5 as of his
date of death.
(2) If a Participant dies before he has begun to receive any
distributions of his interest in the Plan or before
distributions are deemed to have begun pursuant to
Regulations, then his death benefit shall be distributed to
his Beneficiaries in accordance with the following rules
subject to the selections made in the Adoption Agreement and
Subsections 6.6(h)(3) and 6.6(i) below:
(i) The entire death benefit shall be distributed to the
Participant's Beneficiaries by December 31st of the
calendar year in which the fifth anniversary of the
Participant's death occurs;
(ii) The 5-year distribution requirement of (i) above
shall not apply to any portion of the deceased
Participant's interest which is payable to or for the
benefit of a designated Beneficiary. In such event,
such portion shall be distributed over the life of
such designated Beneficiary (or over a period not
extending beyond the life expectancy of such
designated Beneficiary) provided such distribution
begins not later than December 31st of the calendar
year immediately following the calendar year in which
the Participant died;
(iii) However, in the event the Participant's spouse
(determined as of the date of the Participant's
death) is his designated Beneficiary, the provisions
of (ii) above shall apply except that the requirement
that distributions commence within one year of the
Participant's death shall not apply. In lieu thereof,
distributions must commence on or before the later
of: (1) December 31st of the calendar year
immediately following the calendar year in which the
Participant died; or (2) December 31st
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of the calendar year in which the Participant would
have attained age 70 1/2. If the surviving spouse
dies before distributions to such spouse begin, then
the 5-year distribution requirement of this Section
shall apply as if the spouse was the Participant.
(3) Notwithstanding subparagraph (2) above, or any selections made
in the Adoption Agreement, if a Participant's death benefits
are to be paid in the form of a Pre-Retirement Survivor
Annuity, then distributions to the Participant's surviving
spouse must commence on or before the later of: (1) December
31st of the calendar year immediately following the calendar
year in which the Participant died; or (2) December 31st of
the calendar year in which the Participant would have attained
age 70 1/2.
(i) For purposes of Section 6.6(h)(2), the election by a designated
Beneficiary to be excepted from the 5-year distribution requirement
(if permitted in the Adoption Agreement) must be made no later than
December 31st of the calendar year following the calendar year of the
Participant's death. Except, however, with respect to a designated
Beneficiary who is the Participant's surviving spouse, the election
must be made by the earlier of: (1) December 31st of the calendar year
immediately following the calendar year in which the Participant died
or, if later, the calendar year in which the Participant would have
attained age 70 1/2; or (2) December 31st of the calendar year which
contains the fifth anniversary of the date of the Participant's death.
An election by a designated Beneficiary must be in writing and shall
be irrevocable as of the last day of the election period stated
herein. In the absence of an election by the Participant or a
designated Beneficiary, the 5-year distribution requirement shall
apply.
(j) For purposes of this Section, the life expectancy of a Participant and
a Participant's spouse (other than in the case of a life annuity)
shall or shall not be redetermined annually as provided in the
Adoption Agreement and in accordance with Regulations. If the
Participant or the Participant's spouse may elect, pursuant to the
Adoption Agreement, to have life expectancies recalculated, then the
election, once made shall be irrevocable. If no election is made by
the time distributions must commence, then the life expectancy of the
Participant and the Participant's spouse shall not be subject to
recalculation. Life expectancy and joint and last survivor expectancy
shall be computed using the return multiples in Tables V and VI of
Regulation Section 1.72-9.
(k) In the event that less than 100% of a Participant's interest in the
Plan is distributed to such Participant's spouse, the portion of the
distribution attributable to the Participant's Voluntary Contribution
Account shall be in the same proportion that the Participant's
Voluntary Contribution Account bears to the Participant's total
interest in the Plan.
(l) Subject to the spouse's right of consent afforded under the Plan, the
restrictions imposed by this Section shall not apply if a Participant
has, prior to January 1, 1984, made a written designation to have his
death benefits paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity
and Fiscal Responsibility Act of 1982.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever a distribution is to be
made, or a series of payments are to commence, on or as of an Anniversary Date,
the distribution or series of payments may be made or begun on such date or as
soon thereafter as is practicable, but in no event later than 180 days after
the Anniversary Date. However, unless a Former Participant elects in writing to
defer the receipt of benefits (such election may not result in a death benefit
that is more than incidental), the payment of benefits shall begin not later
than the 60th day after the close of the Plan Year in which the latest of the
following events occurs: (a) the date on which the Participant attains the
earlier of age 65 or the Normal Retirement Age specified herein; (b) the 10th
anniversary of the year in which the Participant commenced participation in the
Plan; or (c) the date the Participant terminates his service with the Employer.
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Notwithstanding the foregoing, the failure of a Participant and, if applicable,
the Participant's spouse, to consent to a distribution pursuant to Section
6.5(d), shall be deemed to be an election to defer the commencement of payment
of any benefit sufficient to satisfy this Section.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the Administrator
may direct that such distribution be paid to the legal guardian, or if none, to
a parent of such Beneficiary or a responsible adult with whom the Beneficiary
maintains his residence, or to the custodian for such Beneficiary under the
Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the
laws of the state in which said Beneficiary resides. Such a payment to the
legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a
Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is
located subsequent to his benefit being reallocated, such benefit shall be
restored, first from Forfeitures, if any, and then from an additional Employer
contribution if necessary.
6.10 PRE-RETIREMENT DISTRIBUTION
For Profit Sharing Plans and 401(k) Profit Sharing Plans, if elected in the
Adoption Agreement, at such time as a Participant shall have attained the age
specified in the Adoption Agreement, the Administrator, at the election of the
Participant, shall direct the distribution of up to the entire amount then
credited to the accounts maintained on behalf of the Participant. However, no
such distribution from the Participant's Account shall occur prior to 100%
Vesting. In the event that the Administrator makes such a distribution, the
Participant shall continue to be eligible to participate in the Plan on the
same basis as any other Employee. Any distribution made pursuant to this
Section shall be made in a manner consistent with Section 6.5, including, but
not limited to, all notice and consent requirements of Code Sections 411(a)(11)
and 417 and the Regulations thereunder.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) For Profit Sharing Plans, if elected in the Adoption Agreement, the
Administrator, at the election of the Participant, shall direct the
distribution to any Participant in any one Plan Year up to the lesser
of 100% of his Participant's Combined Account valued as of the last
Anniversary Date or other valuation date or the amount necessary to
satisfy the immediate and heavy financial need of the Participant. Any
distribution made pursuant to this Section shall be deemed to be made
as of the first day of the Plan Year or, if later, the valuation date
immediately preceding the date of distribution, and the account from
which the distribution is made shall be reduced accordingly.
Withdrawal under this Section shall be authorized only if the
distribution is on account of:
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(1) Medical expenses described in Code Section 213(d) incurred by
the Participant, his spouse, or any of his dependents (as
defined in Code Section 152) or expenses necessary for these
persons to obtain medical care;
(2) The purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) Funeral expenses for a member of the Participant's family;
(4) Payment of tuition and related educational fees for the next
12 months of post-secondary education for the Participant, his
spouse, children, or dependents; or
(5) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) No such distribution shall be made from the Participant's Account
until such Account has become fully Vested.
(c) Any distribution made pursuant to this Section shall be made in a
manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 411(a)(11) and 417 and the Regulations
thereunder.
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a Participant in this
Plan shall be subject to the rights afforded to any "alternate payee" under a
"qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order," even if the affected Participant has not
reached the "earliest retirement age" under the Plan. For the purposes of this
Section, "alternate payee," "qualified domestic relations order" and "earliest
retirement age" shall have the meaning set forth under Code Section 414(p).
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS
If elected in the Adoption Agreement, the following shall apply to a
Participant in a Profit Sharing Plan or 401(k) Profit Sharing Plan and to any
distribution, made on or after the first day of the first plan year beginning
after December 31, 1988, from or under a separate account attributable solely
to accumulated deductible employee contributions, as defined in Code Section
72(o)(5)(B), and maintained on behalf of a participant in a money purchase
pension plan, (including a target benefit plan):
(a) The Participant shall be prohibited from electing benefits in the form
of a life annuity;
(b) Upon the death of the Participant, the Participant's entire Vested
account balances will be paid to his or her surviving spouse, or, if
there is no surviving spouse or the surviving spouse has already
consented to waive his or her benefit, in accordance with Section 6.6,
to his designated Beneficiary;
(c) Except to the extent otherwise provided in this Section and Section
6.5(h), the other provisions of Sections 6.2, 6.5 and 6.6 regarding
spousal consent and the forms of distributions shall be inoperative
with respect to this Plan.
(d) If a distribution is one to which Sections 401(a)(11) and 417 of the
Internal Revenue Code do not apply, such distribution may commence
less than 30 days after the notice required under Section
1.411(a)-11(c) of the Income Tax Regulations is given, provided that:
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(1) the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days
after the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular
distribution option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
This Section shall not apply to any Participant if it is determined that this
Plan is a direct or indirect transferee of a defined benefit plan or money
purchase plan, or a target benefit plan, stock bonus or profit sharing plan
which would otherwise provide for a life annuity form of payment to the
Participant.
ARTICLE VII. TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) To invest the assets of the Trust Fund in the investment vehicles or
other property designated by the Employer pursuant to Section 2.3(b)
subject, however, to the direction of any Investment Manager appointed
pursuant to Section 2.3(b) and/or the directions of Participants as
communicated to the Trustee by the Administrator pursuant to Section
4.8(a);
(b) At the direction of the Administrator, to pay benefits required under
the Plan to be paid to Participants, or, in the event of their death,
to their Beneficiaries;
(c) To maintain records of receipts and disbursements and furnish to the
Employer and/or Administrator for each Plan Year a written annual
report per Section 7.7; and
(d) If there shall be more than one Trustee, they shall act by a majority
of their number, but may authorize one or more of them to sign papers
on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund without
distinction between principal and income in one or more investment
vehicles designated by the Employer pursuant to Section 2.3(b) or in
other property, real or personal, wherever situated, as the Trustee
may be directed by the Employer (acting pursuant to Section 2.3(b)) or
an Investment Manager. The Trustee shall not be restricted to
securities or other property of the character expressly authorized by
the applicable law for trust investments.
(b) The Trustee may employ a bank or trust company pursuant to the terms
of its usual and customary bank agency agreement, under which the
duties of such bank or trust company shall be of a custodial, clerical
and record-keeping nature.
(c) Notwithstanding Section 2.3(b), the Employer, in writing to the
Trustee, may delegate investment responsibility to the Administrator.
If the Administrator has been delegated such authority, (i) the
Administrator may exercise the powers reserved to the Employer by
Section 2.3(b) hereof, and (ii) the Trustee shall not be liable or
responsible for losses or unfavorable results arising from the
Trustee's compliance with directions received from the Administrator.
(d) The Trustee may from time to time transfer to a common, collective, or
pooled trust fund maintained by any corporate Trustee hereunder
pursuant to Revenue Ruling 81-100, which has been designated as an
investment vehicle for the Plan pursuant to Section 2.3(b), all or
such part of the Trust Fund as the Trustee
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may deem advisable, and such part or all of the Trust Fund so
transferred shall be subject to all the terms and provisions of the
common, collective, or pooled trust fund which contemplate the
commingling for investment purposes of such trust assets with trust
assets of other trusts. The Trustee may withdraw from such common,
collective, or pooled trust fund all or such part of the Trust Fund as
the Trustee may be directed pursuant to Section 2.3(b) or 4.8.
(e) The Trustee, at the direction of the Employer and pursuant to
instructions from the Administrator shall own, and pay all premiums on
Contracts on the lives of the Participants which may be transferred to
the Trust Fund from a prior trustee of the Plan or a plan that has
been merged with the Plan. The aggregate premium for ordinary life
insurance for each Participant must be less than 50% of the aggregate
contributions and Forfeitures allocated to a Participant's Combined
Account. For purposes of this limitation, ordinary life insurance
Contracts are Contracts with both non-decreasing death benefits and
non-increasing premiums. If term insurance or universal life
insurance is purchased with such contributions, the aggregate premium
must be 25% or less of the aggregate contributions and Forfeitures
allocated to a Participant's Combined Account. If both term insurance
and ordinary life insurance are purchased with such contributions, the
amount expended for term insurance plus one-half of the premium for
ordinary life insurance may not in the aggregate exceed 25% of the
aggregate Employer contributions and Forfeitures allocated to a
Participant's Combined Account. The Trustee must distribute the
Contracts to the Participant or convert the entire value of the
Contracts at or before retirement into cash or provide for a periodic
income so that no portion of such value may be used to continue life
insurance protection beyond retirement. Notwithstanding the above, the
limitations imposed herein with respect to the purchase of life
insurance shall not apply, in the case of a Profit Sharing Plan, to
the portion of a Participant's Account that has accumulated for at
least two (2) Plan Years.
Notwithstanding anything hereinabove to the contrary, amounts credited
to a Participant's Qualified Voluntary Employee Contribution Account
pursuant to Section 4.9, shall not be applied to the purchase of life
insurance contracts.
(f) The Trustee will be the owner of any life insurance Contract purchased
under the terms of this Plan. The Contract must provide that the
proceeds will be payable to the Trustee; however, the Trustee shall be
required to pay over all proceeds of the Contract to the Participant's
designated Beneficiary in accordance with the distribution provisions
of Article VI. A Participant's spouse will be the designated
Beneficiary pursuant to Section 6.2, unless a qualified election has
been made in accordance with Sections 6.5 and 6.6 of the Plan, if
applicable. Under no circumstances shall the Trust retain any part of
the proceeds. However, the Trustee shall not pay the proceeds in a
method that would violate the requirements of the Retirement Equity
Act, as stated in Article VI of the Plan, or Code Section 401(a)(9)
and the Regulations thereunder.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common law,
statutory authority, including the Act, and other provisions of this Plan,
shall have the following powers and authorities, to be exercised at the
direction of the Employer, the Administrator, an Investment Manager or Plan
Participants, as the case may be, pursuant to Section 2.3 or Section 4.8.
(a) To purchase, or subscribe for, any securities or other property and to
retain the same. In conjunction with the purchase of securities,
margin accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to purchase, or
otherwise dispose of any securities or other property held by the
Trustee, by private contract or at public auction. No person dealing
with the Trustee shall be bound to see to the application of the
purchase money or to inquire into the validity, expediency, or
propriety of any such sale or other disposition, with or without
advertisement;
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(c) To vote upon any stocks, bonds, or other securities; to give general
or special proxies or powers of attorney with or without power of
substitution; to exercise any conversion privileges, subscription
rights or other options, and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate securities, and
to delegate discretionary powers, and to pay any assessments or
charges in connection therewith; and generally to exercise any of the
powers of an owner with respect to stocks, bonds, securities, or other
property. However, the Trustee shall not vote proxies relating to
securities for which it has not been assigned full investment
management responsibilities. In those cases where another party has
such investment authority or discretion, be it the Administrator or an
outside Investment Manager, the Trustee will deliver all proxies to
said party who will then have full responsibility for voting those
proxies;
(d) To cause any securities or other property to be registered in the
Trustee's own name or in the name of one or more of the Trustee's
nominees, and to hold any investments in bearer form, but the books
and records of the Trustee shall at all times show that all such
investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in such amount,
and upon such terms and conditions, as the Trustee shall deem
advisable; and for any sum so borrowed, to issue a promissory note as
Trustee, and to secure the repayment thereof by pledging all, or any
part, of the Trust Fund; and no person lending money to the Trustee
shall be bound to see to the application of the money lent or to
inquire into the validity, expediency, or propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash balances as the
Trustee may, from time to time, deem to be in the best interests of
the Plan, without liability for interest thereon;
(g) To accept and retain for such time as it may deem advisable any
securities or other property received or acquired by it as Trustee
hereunder, whether or not such securities or other property would
normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be
necessary or appropriate to carry out the powers herein granted;
(i) To settle, compromise, or submit to arbitration any claims, debts, or
damages due or owing to or from the Plan, to commence or defend suits
or legal or administrative proceedings, and to represent the Plan in
all suits and legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their reasonable
expenses and compensation, and such agent or counsel may or may not be
agent or counsel for the Employer;
(k) To apply for and procure from the Insurer as an investment of the
Trust Fund such annuity, or other Contracts (on the life of any
Participant) as the Administrator shall deem proper; to exercise, at
any time or from time to time, whatever rights and privileges may be
granted under such annuity, or other Contracts; to collect, receive,
and settle for the proceeds of all such annuity, or other Contracts as
and when entitled to do so under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings accounts
bearing a reasonable rate of interest in the Trustee's bank;
(m) To invest in Treasury Bills and other forms of United States
government obligations;
(n) To sell, purchase and acquire put or call options if the options are
traded on and purchased through a national securities exchange
registered under the Securities Exchange Act of 1934, as amended, or,
if the options are not traded on a national securities exchange, are
guaranteed by a member firm of the New York Stock Exchange;
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(o) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(p) To pool all or any of the Trust Fund, from time to time, with assets
belonging to any other qualified employee pension benefit trust
created by the Employer or any Affiliated Employer, and to commingle
such assets and make joint or common investments and carry joint
accounts on behalf of this Plan and such other trust or trusts,
allocating undivided shares or interests in such investments or
accounts or any pooled assets of the two or more trusts in accordance
with their respective interests;
(q) To do all such acts and exercise all such rights and privileges,
although not specifically mentioned herein, as the Trustee may deem
necessary to carry out the purposes of the Plan.
(r) Directed Investment Account. If elected in the Adoption Agreement,
each Participant may direct the Administrator to give directions to
the Trustee concerning the investment of the Participant's Directed
Investment Account, which directions shall be delivered to the Trustee
by the Administrator. The Trustee shall not be under any duty to
question any such direction of the Participant or to make any
suggestions to the Participant in connection therewith, and the
Trustee shall comply as promptly as practicable with directions given
by the Administrator. Any such direction may be of a continuing nature
or otherwise and may be revoked by the Participant at any time in such
form as the Administrator may require. The Trustee may refuse to
comply with any direction from the Participant in the event the
Trustee, in its sole and absolute discretion, deems such directions
improper by virtue of applicable law, and in such event, the Trustee
shall not be responsible or liable for any loss or expense which may
result. Any costs and expenses related to compliance with the
Participant's directions shall be borne by the Participant's Directed
Investment Account.
Notwithstanding anything hereinabove to the contrary, the Trustee
shall not invest any portion of a Directed Investment Account in
"collectibles" within the meaning of that term as employed in Code
Section 408(m).
7.4 LOANS TO PARTICIPANTS
(a) If specified in the Adoption Agreement, the Administrator may, in the
Administrator's sole discretion, make loans to Participants or
Beneficiaries under the following circumstances: (1) loans shall be
made available to all Participants and Beneficiaries on a reasonably
equivalent basis; (2) loans shall not be made available to Highly
Compensated Employees in an amount greater than the amount made
available to other Participants; (3) loans shall bear a reasonable
rate of interest; (4) loans shall be adequately secured; (5) shall
provide for periodic repayment over a reasonable period of time; and
(6) loans shall be treated as Directed Investments.
(b) Loans shall not be made to any Shareholder-Employee or Owner-Employee
unless an exemption for such loan is obtained pursuant to Act Section
408 and further provided that such loan would not be subject to tax
pursuant to Code Section 4975.
(c) Loans shall not be granted to any Participant that provide for a
repayment period extending beyond such Participant's Normal Retirement
Date.
(d) Loans made pursuant to this Section (when added to the outstanding
balance of all other loans made by the Plan to the Participant) shall
be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the Plan to the Participant
during the one year period ending on the day before the date
on which such loan is made, over the outstanding balance of
loans from the Plan to the Participant on the date on which
such loan was made, or
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(2) one-half (1/2) of the present value of the non-forfeitable
accrued benefit of the Employee under the Plan.
For purposes of this limit, all plans of the Employer shall be considered one
plan. Additionally, with respect to any loan made prior to January 1, 1987, the
$50,000 limit specified in (1) above shall be unreduced.
(e) No Participant loan shall take into account the present value of such
Participant's Qualified Voluntary Employee Contribution Account.
(f) Loans shall provide for level amortization with payments to be made
not less frequently than quarterly over a period not to exceed five
(5) years. However, loans used to acquire any dwelling unit which,
within a reasonable time, is to be used (determined at the time the
loan is made) as a principal residence of the Participant shall
provide for periodic repayment over a reasonable period of time that
may exceed five (5) years. Notwithstanding the foregoing, loans made
prior to January 1, 1987 which are used to acquire, construct,
reconstruct or substantially rehabilitate any dwelling unit which,
within a reasonable period of time is to be used (determined at the
time the loan is made) as a principal residence of the Participant or
a member of his family (within the meaning of Code Section 267(c)(4))
may provide for periodic repayment over a reasonable period of time
that may exceed five (5) years. Additionally, loans made prior to
January 1, 1987, may provide for periodic payments which are made less
frequently than quarterly and which do not necessarily result in level
amortization.
(g) An assignment or pledge of any portion of a Participant's interest in
the Plan and a loan, pledge, or assignment with respect to any
insurance Contract purchased under the Plan, shall be treated as a
loan under this Section.
(h) Any loan made pursuant to this Section after August 18, 1985 where the
Vested interest of the Participant is used to secure such loan shall
require the written consent of the Participant's spouse in a manner
consistent with Section 6.5(a) provided the spousal consent
requirements of such Section apply to the Plan. Such written consent
must be obtained within the 90-day period prior to the date the loan
is made. Any security interest held by the Plan by reason of an
outstanding loan to the Participant shall be taken into account in
determining the amount of the death benefit or Pre-Retirement Survivor
Annuity. However, no spousal consent shall be required under this
paragraph if the total accrued benefit subject to the security is not
in excess of $3,500.
(i) With regard to any loans granted or renewed on or after the last day
of the first Plan Year beginning after December 31, 1988, a
Participant loan program shall be established which must include, but
need not be limited to, the following:
(1) the identity of the person or positions authorized to
administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans
offered, including what constitutes a hardship or financial
need if selected in the Adoption Agreement;
(5) the procedure under the program for determining a reasonable
rate of interest;
(6) the types of collateral which may secure a Participant loan;
and
(7) the events constituting default and the steps that will be
taken to preserve plan assets.
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Such Participant loan program shall be contained in a separate written
document which, when properly executed, is hereby incorporated by
reference and made a part of this plan. Furthermore, such Participant
loan program may be modified or amended in writing from time to time
without the necessity of amending this Section of the Plan.
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from time to time, in
accordance with the terms of the Plan, make payments out of the Trust Fund. The
Trustee shall not be responsible in any way for the application of such
payments.
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as set forth in the
Trustee's fee schedule (if the Trustee has such a schedule) or as agreed upon
in writing by the Employer and the Trustee. An individual serving as Trustee
who already receives full-time pay from the Employer shall not receive
compensation from this Plan. In addition, the Trustee shall be reimbursed for
any reasonable expenses, including reasonable counsel fees incurred by it as
Trustee. Such compensation and expenses shall be paid from the Trust Fund
unless paid or advanced by the Employer. All taxes of any kind and all kinds
whatsoever that may be levied or assessed under existing or future laws upon,
or in respect of, the Trust Fund or the income thereof, shall be paid from the
Trust Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the Anniversary Date or
receipt of the Employer's contribution for each Plan Year, the Trustee, or its
agent, shall furnish to the Employer and Administrator a written statement of
account with respect to the Plan Year for which such contribution was made
setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon sales or other
disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments and distributions made from the Trust Fund; and
(e) such further information as the Trustee and Administrator may agree.
The Employer, forthwith upon its receipt of each such statement of
account, shall acknowledge receipt thereof in writing and advise the
Trustee and/or Administrator of its approval or disapproval thereof.
Failure by the Employer to disapprove any such statement of account
within thirty (30) days after its receipt thereof shall be deemed an
approval thereof. The approval by the Employer of any statement of
account shall be binding as to all matters embraced therein as between
the Employer and the Trustee to the same extent as if the account of
the Trustee had been settled by judgment or decree in an action for a
judicial settlement of its account in a court of competent
jurisdiction in which the Trustee, the Employer and all persons having
or claiming an interest in the Plan were parties; provided, however,
that nothing herein contained shall deprive the Trustee of its right
to have its accounts judicially settled if the Trustee so desires.
7.8 AUDIT
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(a) If an audit of the Plan's records shall be required by the Act and the
regulations thereunder for any Plan Year, the Administrator shall
engage on behalf of all Participants an independent qualified public
accountant for that purpose. Such accountant shall, after an audit of
the books and records of the Plan in accordance with generally
accepted auditing standards, within a reasonable period after the
close of the Plan Year, furnish to the Administrator and the Trustee a
report of his audit setting forth his opinion as to whether any
statements, schedules or lists, that are required by Act Section 103
or the Secretary of Labor to be filed with the Plan's annual report,
are presented fairly in conformity with generally accepted accounting
principles applied consistently.
(b) All auditing and accounting fees shall be an expense of and may, at
the election of the Administrator, be paid from the Trust Fund.
(c) If some or all of the information necessary to enable the
Administrator to comply with Act Section 103 is maintained by a bank,
insurance company, or similar institution, regulated and supervised
and subject to periodic examination by a state or federal agency, it
shall transmit and certify the accuracy of that information to the
Administrator as provided in Act Section 103(b) within one hundred
twenty (120) days after the end of the Plan Year or such other date as
may be prescribed under regulations of the Secretary of Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the Employer, at
least thirty (30) days before its effective date, a written notice of
his resignation.
(b) The Employer may remove the Trustee by mailing by registered or
certified mail, addressed to such Trustee at his last known address,
at least thirty (30) days before its effective date, a written notice
of his removal.
(c) Upon the death, resignation, incapacity, or removal of any Trustee, a
successor may be appointed by the Employer; and such successor, upon
accepting such appointment in writing and delivering same to the
Employer, shall, without further act, become vested with all the
estate, rights, powers, discretions, and duties of his predecessor
with like respect as if he were originally named as a Trustee herein.
Until such a successor is appointed, the remaining Trustee or Trustees
shall have full authority to act under the terms of the Plan.
(d) The Employer may designate one or more successors prior to the death,
resignation, incapacity, or removal of a Trustee. In the event a
successor is so designated by the Employer and accepts such
designation, the successor shall, without further act, become vested
with all the estate, rights, powers, discretions, and duties of his
predecessor with the like effect as if he were originally named as
Trustee herein immediately upon the death, resignation, incapacity, or
removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he shall
furnish to the Employer and Administrator a written statement of
account with respect to the portion of the Plan Year during which he
served as Trustee. This statement shall be either
(i) included as part of the annual statement of account for the
Plan Year required under Section 7.7 or
(ii) set forth in a special statement. Any such special statement
of account should be rendered to the Employer no later than
the due date of the annual statement of account for the Plan
Year. The procedures set forth in Section 7.7 for the approval
by the Employer of annual statements of account shall apply to
any special statement of account rendered hereunder and
approval by the Employer of any such special statement in the
manner provided in Section 7.7 shall have the same effect upon
the
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statement as the Employer's approval of an annual statement of
account. No successor to the Trustee shall have any duty or
responsibility to investigate the acts or transactions of any
predecessor who has rendered all statements of account
required by Section 7.7 and this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee at the
direction of the Administrator shall transfer the Vested interest, if any, of
such Participant in his account to another trust forming part of a pension,
profit sharing, or stock bonus plan maintained by such Participant's new
employer and represented by said employer in writing as meeting the
requirements of Code Section 401(a), provided that the trust to which such
transfers are made permits the transfer to be made.
(a) Notwithstanding any provision of the plan to the contrary, with
respect to distributions made after December 31, 1992, a Participant
shall be permitted to elect to have any "eligible rollover
distribution" transferred directly to an "eligible retirement plan"
specified by the Participant. The Plan provisions otherwise applicable
to distributions continue to apply to the direct transfer option. The
Participant shall, in the time and manner prescribed by the
Administrator, specify the amount to be directly transferred and the
"eligible retirement plan" to receive the transfer. Any portion of a
distribution which is not transferred shall be distributed to the
Participant.
(b) For purposes of this Section, the term "eligible rollover
distribution" means any distribution other than a distribution of
substantially equal periodic payments over the life or life expectancy
of the Participant (or joint life or joint life expectancies of the
Participant and the designated beneficiary) or a distribution over a
period certain of ten years or more. Amounts required to be
distributed under Code Section 401(a)(9) are not eligible rollover
distributions. The direct transfer option described in subsection (a)
applies only to eligible rollover distributions which would otherwise
be includible in gross income if not transferred.
(c) For purposes of this Section, the term "eligible retirement plan"
means an individual retirement account as described in Code Section
408(a), an individual retirement annuity as described in Code Section
408(b), an annuity plan as described in Code Section 403(a), or a
defined contribution plan as described in Code Section 401(a) which is
exempt from tax under Code Section 501(a) and which accepts rollover
distributions.
(d) The election described in subsection (a) also applies to the surviving
spouse after the Participant's death; however, distributions to the
surviving spouse may only be transferred to an individual retirement
account or individual retirement annuity. For purposes of subsection
(a), a spouse or former spouse who is the alternate payee under a
qualified domestic relations order as defined in Code Section 414(p)
will be treated as the Participant.
7.11 TRUSTEE INDEMNIFICATION
The Employer agrees to indemnify and save harmless the Trustee against any and
all claims, losses, damages, expenses and liabilities the Trustee may incur in
the exercise and performance of the Trustee's powers and duties hereunder,
unless the same are determined to be due to gross negligence or willful
misconduct.
7.12 EMPLOYER SECURITIES AND REAL PROPERTY
The Trustee shall be empowered to acquire and hold "qualifying Employer
securities" and "qualifying Employer real property," as those terms are defined
in the Act. However, no more than 100%, in the case of a Profit Sharing
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Plan or 401(k) Plan or 10%, in the case of a Money Purchase Plan of the fair
market value of all the assets in the Trust Fund may be invested in "qualifying
Employer securities" and "qualifying Employer real property."
ARTICLE VIII. AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend this Plan
subject to the limitations of this Section. However, any amendment
which affects the rights, duties or responsibilities of the Trustee
and Administrator may only be made with the Trustee's and
Administrator's written consent. Any such amendment shall become
effective as provided therein upon its execution. The Trustee shall
not be required to execute any such amendment unless the amendment
affects the duties of the Trustee hereunder.
(b) The Employer may (1) change the choice of options in the Adoption
Agreement, (2) add overriding language in the Adoption Agreement when
such language is necessary to satisfy Code Sections 415 or 416 because
of the required aggregation of multiple plans, and (3) add certain
model amendments published by the Internal Revenue Service which
specifically provide that their adoption will not cause the Plan to be
treated as an individually designed plan. An Employer that amends the
Plan for any other reason, including a waiver of the minimum funding
requirement under Code Section 412(d), will no longer participate in
this Prototype Plan and will be considered to have an individually
designed plan.
(c) The Employer expressly delegates authority to the sponsoring
organization of this Plan, the right to amend this Plan by submitting
a copy of the amendment to each Employer who has adopted this Plan
after first having received a ruling or favorable determination from
the Internal Revenue Service that the Plan as amended qualifies under
Code Section 401(a) and the Act. For purposes of this Section, the
mass submitter shall be recognized as the agent of the sponsoring
organization. If the sponsoring organization does not adopt the
amendments made by the mass submitter, it will no longer be identical
to or a minor modifier of the mass submitter plan.
(d) No amendment to the Plan shall be effective if it authorizes or
permits any part of the Trust Fund (other than such part as is
required to pay taxes and administration expenses) to be used for or
diverted to any purpose other than for the exclusive benefit of the
Participants or their Beneficiaries or estates; or causes any
reduction in the amount credited to the account of any Participant; or
causes or permits any portion of the Trust Fund to revert to or become
property of the Employer.
(e) Except as permitted by Regulations (including Regulation 1.411(d)-4),
no Plan amendment or transaction having the effect of a Plan amendment
(such as a merger, plan transfer or similar transaction) shall be
effective if it eliminates or reduces any "Section 411(d)(6) protected
benefit" or adds or modifies conditions relating to "Section 411(d)(6)
protected benefits" the result of which is a further restriction on
such benefit unless such protected benefits are preserved with respect
to benefits accrued as of the later of the adoption date or effective
date of the amendment. "Section 411(d)(6) protected benefits" are
benefits described in Code Section 411(d)(6)(A), early retirement
benefits and retirement-type subsidies, and optional forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the Plan by
delivering to the Trustee and Administrator written notice of such
termination. Upon any full or partial termination all amounts credited
to the affected Participants' Combined Accounts shall become 100%
Vested and shall not thereafter be
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subject to forfeiture, and all unallocated amounts shall be allocated
to the accounts of all Participants in accordance with the provisions
hereof.
(b) Upon the full termination of the Plan, the Employer shall direct the
distribution of the assets to Participants in a manner which is
consistent with and satisfies the provisions of Section 6.5.
Distributions to a Participant shall be made in cash (or in property
if permitted in the Adoption Agreement) or through the purchase of
irrevocable nontransferable deferred commitments from the Insurer.
Except as permitted by Regulations, the termination of the Plan shall
not result in the reduction of "Section 411(d)(6) protected benefits"
as described in Section 8.1.
8.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or liabilities
may be transferred to any other plan only if the benefits which would be
received by a Participant of this Plan, in the event of a termination of the
plan immediately after such transfer, merger or consolidation, are at least
equal to the benefits the Participant would have received if the Plan had
terminated immediately before the transfer, merger or consolidation and such
merger or consolidation does not otherwise result in the elimination or
reduction of any "Section 411(d)(6) protected benefits" as described in Section
8.1(e).
ARTICLE IX. MISCELLANEOUS
9.1 EMPLOYER ADOPTIONS
(a) Any organization may become the Employer hereunder by executing the
Adoption Agreement in form satisfactory to the Trustee, and it shall
provide such additional information as the Trustee may require. The
consent of the Trustee to act as such shall be signified by its
execution of the Adoption Agreement.
(b) Except as otherwise provided in this Plan, the affiliation of the
Employer and the participation of its Participants shall be separate
and apart from that of any other employer and its participants
hereunder.
9.2 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the Employer and
any Participant or to be a consideration or an inducement for the employment
of any Participant or Employee. Nothing contained in this Plan shall be deemed
to give any Participant or Employee the right to be retained in the service of
the Employer or to interfere with the right of the Employer to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon him as a Participant of this Plan.
9.3 ALIENATION
(a) Subject to the exceptions provided below, no benefit which shall be
payable to any person (including a Participant or his Beneficiary)
shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any attempt
to anticipate, alienate, sell, transfer, assign, pledge, encumber, or
charge the same shall be void; and no such benefit shall in any manner
be liable for, or subject to, the debts, contracts, liabilities,
engagements, or torts of any such person, nor shall it be subject to
attachment or legal process for or against such person, and the same
shall not be recognized except to such extent as may be required by
law.
(b) This provision shall not apply to the extent a Participant or
Beneficiary is indebted to the Plan, for any reason, under any
provision of this Plan. At the time a distribution is to be made to or
for a Participant's or Beneficiary's benefit, such proportion of the
amount to be distributed as shall equal such indebtedness shall
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be paid to the Plan, to apply against or discharge such indebtedness.
Prior to making a payment, however, the Participant or Beneficiary
must be given written notice by the Administrator that such
indebtedness is to be so paid in whole or part from his Participant's
Combined Account. If the Participant or Beneficiary does not agree
that the indebtedness is a valid claim against his Vested
Participant's Combined Account, he shall be entitled to a review of
the validity of the claim in accordance with procedures provided in
Sections 2.12 and 2.13.
(c) This provision shall not apply to a "qualified domestic relations
order" defined in Code Section 414(p), and those other domestic
relations orders permitted to be so treated by the Administrator under
the provisions of the Retirement Equity Act of 1984. The Administrator
shall establish a written procedure to determine the qualified status
of domestic relations orders and to administer distributions under
such qualified orders. Further, to the extent provided under a
"qualified domestic relations order," a former spouse of a Participant
shall be treated as the spouse or surviving spouse for all purposes
under the Plan.
9.4 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the Act and
the laws of the State or Commonwealth in which the Employer's principal office
is located, other than its laws respecting choice of law, to the extent not
pre-empted by the Act.
9.5 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter gender,
they shall be construed as though they were also used in another gender in all
cases where they would so apply, and whenever any words are used herein in the
singular or plural form, they shall be construed as though they were also used
in the other form in all cases where they would so apply.
9.6 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Trust
and/or Plan established hereunder to which the Trustee or the Administrator may
be a party, and such claim, suit, or proceeding is resolved in favor of the
Trustee or Administrator, they shall be entitled to be reimbursed from the
Trust Fund for any and all costs, attorney's fees, and other expenses
pertaining thereto incurred by them for which they shall have become liable.
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted by law,
it shall be impossible by operation of the Plan or of the Trust, by
termination of either, by power of revocation or amendment, by the
happening of any contingency, by collateral arrangement or by any
other means, for any part of the corpus or income of any Trust Fund
maintained pursuant to the Plan or any funds contributed thereto to be
used for, or diverted to, purposes other than the exclusive benefit of
Participants, Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make a contribution under a mistake of
fact pursuant to Section 403(c)(2)(A) of the Act, the Employer may
demand repayment of such contribution at any time within one (1) year
following the time of payment and the Trustees shall return such
amount to the Employer within
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the one (1) year period. Earnings of the Plan attributable to the
contributions may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
9.8 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted by the
Act and regulations thereunder, shall be bonded in an amount not less than 10%
of the amount of the funds such Fiduciary handles; provided, however, that the
minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of
funds handled shall be determined at the beginning of each Plan Year by the
amount of funds handled by such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to the Plan against any
loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Act Section 412(a)(2)), and the bond shall be in a form
approved by the Secretary of Labor. Notwithstanding anything in the Plan to the
contrary, the cost of such bonds shall be an expense of and may, at the
election of the Administrator, be paid from the Trust Fund or by the Employer.
9.9 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the
failure on the part of the Insurer to make payments provided by any such
Contract, or for the action of any person which may delay payment or render a
Contract null and void or unenforceable in whole or in part.
9.10 INSURER'S PROTECTIVE CLAUSE
The Insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The Insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the Insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the Insurer.
9.11 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary, or to
any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of this Plan, shall, to the extent thereof, be
in full satisfaction of all claims hereunder against the Trustee and the
Employer.
9.12 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or required to
do or perform any act or matter or thing, it shall be done and performed by a
person duly authorized by its legally constituted authority.
9.13 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
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The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator, (3) the Trustee, and (4) any Investment Manager appointed
hereunder. The named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them under the
Plan. In general, the Employer shall have the sole responsibility for making
the contributions provided for under Section 4.1; and shall have the sole
authority to appoint and remove the Trustee and the Administrator; to designate
investment vehicles to be held in the Trust Fund; to direct or appoint an
Investment Manager to direct the Trustee with respect to investments of the
Trust Fund; and to amend the elective provisions of the Adoption Agreement or
terminate, in whole or in part, the Plan. The Administrator shall have the sole
responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the responsibility
to hold and invest the assets of the Trust Fund as directed by the Employer, an
Investment Manager, the Administrator or Participants pursuant to the terms of
the Plan. Each named Fiduciary warrants that any directions given, information
furnished, or action taken by it shall be in accordance with the provisions of
the Plan, authorizing or providing for such direction, information or action.
Furthermore, each named Fiduciary may rely upon any such direction, information
or action of another named Fiduciary as being proper under the Plan, and is not
required under the Plan to inquire into the propriety of any such direction,
information or action. It is intended under the Plan that each named Fiduciary
shall be responsible for the proper exercise of its own powers, duties,
responsibilities and obligations under the Plan. No named Fiduciary shall
guarantee the Trust Fund in any manner against investment loss or depreciation
in asset value. Any person or group may serve in more than one Fiduciary
capacity.
9.14 HEADINGS
The headings and subheadings of this Plan have been inserted for convenience of
reference and are to be ignored in any construction of the provisions hereof.
9.15 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, if, pursuant to a
timely application filed by or in behalf of the Plan, the Commissioner
of Internal Revenue Service or his delegate should determine that the
Plan does not initially qualify as a tax-exempt plan under Code
Sections 401 and 501, and such determination is not contested, or if
contested, is finally upheld, then if the Plan is a new plan, it shall
be void ab initio and all amounts contributed to the Plan, by the
Employer, less expenses paid, shall be returned within one year and
the Plan shall terminate, and the Trustee shall be discharged from all
further obligations. If the disqualification relates to an amended
plan, then the Plan shall operate as if it had not been amended and
restated.
(b) Except as specifically stated in the Plan, any contribution by the
Employer to the Trust Fund is conditioned upon the deductibility of
the contribution by the Employer under the Code and, to the extent any
such deduction is disallowed, the Employer may within one (1) year
following a final determination of the disallowance, whether by
agreement with the Internal Revenue Service or by final decision of a
court of competent jurisdiction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution within one
(1) year following the disallowance. Earnings of the Plan attributable
to the excess contribution may not be returned to the Employer, but
any losses attributable thereto must reduce the amount so returned.
9.16 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a uniform,
nondiscriminatory manner.
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9.17 PAYMENT OF BENEFITS
Benefits under this Plan shall be paid, subject to Section 6.10 and Section
6.11 only upon death, Total and Permanent Disability, normal or early
retirement, termination of employment, or upon Plan Termination.
ARTICLE X. PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER
Notwithstanding anything herein to the contrary, with the consent of the
Employer and Trustee, any Affiliated Employer may adopt this Plan and all of
the provisions hereof, and participate herein and be known as a Participating
Employer, by a properly executed document evidencing said intent and will of
such Participating Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each Participating Employer shall be required to select the same
Adoption Agreement provisions as those selected by the Employer other
than the Plan Year, the Fiscal Year, and such other items that must,
by necessity, vary among employers.
(b) Each such Participating Employer shall be required to use the same
Trustee as provided in this Plan.
(c) The Trustee may, but shall not be required to, commingle, hold and
invest as one Trust Fund all contributions made by Participating
Employers, as well as all increments thereof.
(d) The transfer of any Participant from or to an Employer participating
in this Plan, whether he be an Employee of the Employer or a
Participating Employer, shall not affect such Participant's rights
under the Plan, and all amounts credited to such Participant's
Combined Account as well as his accumulated service time with the
transferor or predecessor, and his length of participation in the
Plan, shall continue to his credit.
(e) Any expenses of the Plan which are to be paid by the Employer or borne
by the Trust Fund shall be paid by each Participating Employer in the
same proportion that the total amount standing to the credit of all
Participants employed by such Employer bears to the total standing to
the credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a part of this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent.
Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between Participating
Employers, and in the event of any such transfer, the Employee involved shall
carry with him his accumulated service and eligibility. No such transfer shall
effect a termination of employment hereunder, and the Participating Employer to
which the Employee is transferred
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shall thereupon become obligated hereunder with respect to such Employee in the
same manner as was the Participating Employer from whom the Employee was
transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES
Any contribution or Forfeiture subject to allocation during each Plan Year
shall be allocated among all Participants of all Participating Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs of each Participating Employer hereunder and as
to the accounts and credits of the Employees of each Participating Employer.
The Trustee may, but need not, register Contracts so as to evidence that a
particular Participating Employer is the interested Employer hereunder, but in
the event of an Employee transfer from one Participating Employer to another,
the employing Employer shall immediately notify the Trustee thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be a
Participating Employer hereunder shall only be by the written action of each
and every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Except in the case of a Standardized Plan, any Participating Employer shall be
permitted to discontinue or revoke its participation in the Plan at any time.
At the time of any such discontinuance or revocation, satisfactory evidence
thereof and of any applicable conditions imposed shall be delivered to the
Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts
and other Trust Fund assets allocable to the Participants of such Participating
Employer to such new Trustee as shall have been designated by such
Participating Employer, in the event that it has established a separate pension
plan for its Employees provided, however, that no such transfer shall be made
if the result is the elimination or reduction of any "Section 411(d)(6)
protected benefits" in accordance with Section 8.1(e). If no successor is
designated, the Trustee shall retain such assets for the Employees of said
Participating Employer pursuant to the provisions of Article VII hereof. In no
such event shall any part of the corpus or income of the Trust Fund as it
relates to such Participating Employer be used for or diverted for purposes
other than for the exclusive benefit of the Employees of such Participating
Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary rules or
regulations, binding upon all Participating Employers and all Participants, to
effectuate the purpose of this Article.
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE
If any Participating Employer is prevented in whole or in part from making a
contribution which it would otherwise have made under the Plan by reason of
having no current or accumulated earnings or profits, or because such earnings
or profits are less than the contribution which it would otherwise have made,
then, pursuant to Code Section 404(a)(3)(B), so much of the contribution which
such Participating Employer was so prevented from making may be made, for the
benefit of the participating employees of such Participating Employer, by other
Participating Employers who are members of the same affiliated group within the
meaning of Code Section 1504 to the extent of their current or accumulated
earnings or profits, except that such contribution by each such other
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Participating Employer shall be limited to the proportion of its total current
and accumulated earnings or profits remaining after adjustment for its
contribution to the Plan made without regard to this paragraph which the total
prevented contribution bears to the total current and accumulated earnings or
profits of all the Participating Employers remaining after adjustment for all
contributions made to the Plan without regard to this paragraph.
A Participating Employer on behalf of whose employees a contribution is made
under this paragraph shall not be required to reimburse the contributing
Participating Employers.
ARTICLE XI. CASH OR DEFERRED PROVISIONS
Notwithstanding any provisions in the Plan to the contrary, the provisions of
this Article shall apply with respect to any 401(k) Profit Sharing Plan.
Notwithstanding anything in this Article to the contrary, effective as of the
Plan Year in which this amendment becomes effective, the Actual Deferral
Percentage Test and the Actual Contribution Percentage Test shall be applied
(and adjusted) by applying the Family Member aggregation rules of Code Section
414(q)(6).
11.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of all Participants
made pursuant to Section 11.2(a), which amount shall be deemed an
Employer's Elective Contribution, plus
(b) If specified in E3 of the Adoption Agreement, a matching contribution
equal to the percentage specified in the Adoption Agreement of the
Deferred Compensation of each Participant eligible to share in the
allocations of the matching contribution, which amount shall be deemed
an Employer's Non-Elective or Elective Contribution as selected in the
Adoption Agreement, plus
(c) If specified in E4 of the Adoption Agreement, a discretionary amount,
if any, which shall be deemed an Employer's Non-Elective Contribution,
plus
(d) If specified in E5 of the Adoption Agreement, a Qualified Non-Elective
Contribution.
(e) Notwithstanding the foregoing, however, the Employer's contributions
for any Fiscal Year shall not exceed the maximum amount allowable as a
deduction to the Employer under the provisions of Code Section 404.
All contributions by the Employer shall be made in cash or in such
employer securities as is acceptable to the Trustee.
(f) Except, however, to the extent necessary to provide the top heavy
minimum allocations, the Employer shall make a contribution even if it
exceeds current or accumulated Net Profit or the amount which is
deductible under Code Section 404.
(g) Employer Elective Contributions accumulated through payroll deductions
shall be paid to the Trustee as of the earliest date on which such
contributions can reasonably be segregated from the Employer's general
assets, but in any event within ninety (90) days from the date on
which such amounts would otherwise have been payable to the
Participant in cash. The provisions of Department of Labor regulations
2510.3-102 are incorporated herein by reference. Furthermore, any
additional Employer contributions which are allocable to the
Participant's Elective Account for a Plan Year shall be paid to the
Plan no later than the twelve-month period immediately following the
close of such Plan Year.
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11.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) If selected in the Adoption Agreement, each Participant may elect to
defer his Compensation which would have been received in the Plan
Year, but for the deferral election, subject to the limitations of
this Section and the Adoption Agreement. A deferral election (or
modification of an earlier election) may not be made with respect to
Compensation which is currently available on or before the date the
Participant executed such election, or if later, the latest of the
date the Employer adopts this cash or deferred arrangement, or the
date such arrangement first became effective. Any elections made
pursuant to this Section shall become effective as soon as is
administratively feasible. Additionally, if elected in the Adoption
Agreement, each Participant may elect to defer and have allocated for
a Plan Year all or a portion of any cash bonus attributable to
services performed by the Participant for the Employer during such
Plan Year and which would have been received by the Participant on or
before two and one-half months following the end of the Plan Year but
for the deferral. A deferral election may not be made with respect to
cash bonuses which are currently available on or before the date the
Participant executed such election. Notwithstanding the foregoing,
cash bonuses attributable to services performed by the Participant
during a Plan Year but which are to be paid to the Participant later
than two and one-half months after the close of such Plan Year will be
subjected to whatever deferral election is in effect at the time such
cash bonus would have otherwise been received.
The amount by which Compensation and/or cash bonuses are reduced shall
be that Participant's Deferred Compensation and be treated as an
Employer Elective Contribution and allocated to that Participant's
Elective Account.
Once made, a Participant's election to reduce Compensation shall
remain in effect until modified or terminated. Modifications may be
made as specified in the Adoption Agreement, and terminations may be
made at any time. Any modification or termination of an election will
become effective as soon as is administratively feasible.
(b) The balance in each Participant's Elective Account shall be fully
Vested at all times and shall not be subject to Forfeiture for any
reason.
(c) Amounts held in the Participant's Elective Account and Qualified
Non-Elective Account may be distributable as permitted under the Plan,
but in no event prior to the earlier of:
(1) a Participant's termination of employment, Total and Permanent
Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the proven financial hardship of a Participant, subject to the
limitations of Section 11.8;
(4) the termination of the Plan without the existence at the time
of Plan termination of another defined contribution plan
(other than an employee stock ownership plan as defined in
Code Section 4975(e)(7)) or the establishment of a successor
defined contribution plan (other than an employee stock
ownership plan as defined in Code Section 4975(e)(7)) by the
Employer or an Affiliated Employer within the period ending
twelve months after distribution of all assets from the Plan
maintained by the Employer;
(5) the date of the sale by the Employer to an entity that is not
an Affiliated Employer of substantially all of the assets
(within the meaning of Code Section 409(d)(2)) with respect to
a Participant who continues employment with the corporation
acquiring such assets; or
(6) the date of the sale by the Employer or an Affiliated Employer
of its interest in a subsidiary (within the meaning of Code
Section 409(d)(3)) to an entity that is not an Affiliated
Employer with respect to a Participant who continues
employment with such subsidiary.
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(d) In any Plan Year beginning after December 31, 1986, a Participant's
Deferred Compensation made under this Plan and all other plans,
contracts or arrangements of the Employer maintaining this Plan shall
not exceed the limitation imposed by Code Section 402(g), as in effect
for the calendar year in which such Plan Year began. If such dollar
limitation is exceeded solely from elective deferrals made under this
Plan or any other Plan maintained by the Employer, a Participant will
be deemed to have notified the Administrator of such excess amount
which shall be distributed in a manner consistent with Section
11.2(f). This dollar limitation shall be adjusted annually pursuant to
the method provided in Code Section 415(d) in accordance with
Regulations.
(e) In the event a Participant has received a hardship distribution
pursuant to Regulation 1.401(k)-1(d)(2)(iii)(B) from any other plan
maintained by the Employer or from his Participant's Elective Account
pursuant to Section 11.8, then such Participant shall not be permitted
to elect to have Deferred Compensation contributed to the Plan on his
behalf for a period of twelve (12) months following the receipt of the
distribution. Furthermore, the dollar limitation under Code Section
402(g) shall be reduced, with respect to the Participant's taxable
year following the taxable year in which the hardship distribution was
made, by the amount of such Participant's Deferred Compensation, if
any, made pursuant to this Plan (and any other plan maintained by the
Employer) for the taxable year of the hardship distribution.
(f) If a Participant's Deferred Compensation under this Plan together with
any elective deferrals (as defined in Regulation 1.402(g)-1(b)) under
another qualified cash or deferred arrangement (as defined in Code
Section 401(k)), a simplified employee pension (as defined in Code
Section 408(k)), a salary reduction arrangement (within the meaning of
Code Section 3121(a)(5)(D)), a deferred compensation plan under Code
Section 457, or a trust described in Code Section 501(c)(18)
cumulatively exceed the limitation imposed by Code Section 402(g) (as
adjusted annually in accordance with the method provided in Code
Section 415(d) pursuant to Regulations) for such Participant's
taxable year, the Participant may, not later than March 1st following
the close of his taxable year, notify the Administrator in writing of
such excess and request that his Deferred Compensation under this Plan
be reduced by an amount specified by the Participant. In such event,
the Administrator shall direct the Trustee to distribute such excess
amount (and any Income allocable to such excess amount) to the
Participant not later than the first April 15th following the close of
the Participant's taxable year. Distributions in accordance with this
paragraph may be made for any taxable year of the Participant which
begins after December 31, 1986. Any distribution of less than the
entire amount of Excess Deferred Compensation and Income shall be
treated as a pro rata distribution of Excess Deferred Compensation and
Income. The amount distributed shall not exceed the Participant's
Deferred Compensation under the Plan for the taxable year. Any
distribution on or before the last day of the Participant's taxable
year must satisfy each of the following conditions:
(1) the Participant shall designate the distribution as Excess
Deferred Compensation;
(2) the distribution must be made after the date on which the Plan
received the Excess Deferred Compensation; and
(3) the Plan must designate the distribution as a distribution of
Excess Deferred Compensation.
Any distribution under this Section shall be made first from unmatched
Deferred Compensation and, thereafter, simultaneously from Deferred
Compensation which is matched and matching contributions which relate
to such Deferred Compensation. However, any such matching
contributions which are not Vested shall be forfeited in lieu of being
distributed.
For the purpose of this Section, "Income" means the amount of income
or loss allocable to a Participant's Excess Deferred Compensation and
shall be equal to the sum of the allocable gain or loss for the
taxable year of the Participant and the allocable gain or loss for the
period between the end of the taxable year of the Participant and the
date of distribution ("gap period"). The income or loss allocable to
each such period is calculated separately and is determined by
multiplying the income or loss allocable to the Participant's
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Deferred Compensation for the respective period by a fraction. The
numerator of the fraction is the Participant's Excess Deferred
Compensation for the taxable year of the Participant. The denominator
is the balance, as of the last day of the respective period, of the
Participant's Elective Account that is attributable to the
Participant's Deferred Compensation reduced by the gain allocable to
such total amount for the respective period and increased by the loss
allocable to such total amount for the respective period.
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable income or loss for the
"gap period." Under such "safe harbor method," allocable income or
loss for the "gap period" shall be deemed to equal ten percent (10%)
of the income or loss allocable to a Participant's Excess Deferred
Compensation for the taxable year of the Participant multiplied by the
number of calendar months in the "gap period." For purposes of
determining the number of calendar months in the "gap period," a
distribution occurring on or before the fifteenth day of the month
shall be treated as having been made on the last day of the preceding
month and a distribution occurring after such fifteenth day shall be
treated as having been made on the first day of the next subsequent
month.
Income or loss allocable to any distribution of Excess Deferred
Compensation on or before the last day of the taxable year of the
Participant shall be calculated from the first day of the taxable year
of the Participant to the date on which the distribution is made
pursuant to either the "fractional method" or the "safe harbor
method."
Notwithstanding the above, for any distribution under this Section
which is made after August 15, 1991, such distribution shall not
include any income for the "gap period". Further provided, for any
distribution under this Section which is made after August 15, 1991,
the amount of Income may be computed using a reasonable method that is
consistent with Section 4.3(c), provided such method is used
consistently for all Participants and for all such distributions for
the Plan Year.
Notwithstanding the above, for the 1987 calendar year, Income during
the "gap period" shall not be taken into account.
(g) Notwithstanding the above, a Participant's Excess Deferred
Compensation shall be reduced, but not below zero, by any distribution
and/or recharacterization of Excess Contributions pursuant to Section
11.5(a) for the Plan Year beginning with or within the taxable year of
the Participant.
(h) At Normal Retirement Date, or such other date when the Participant
shall be entitled to receive benefits, the fair market value of the
Participant's Elective Account shall be used to provide benefits to
the Participant or his Beneficiary.
(i) Employer Elective Contributions made pursuant to this Section may be
segregated into a separate account for each Participant in a federally
insured savings account, certificate of deposit in a bank or savings
and loan association, money market certificate, or other short-term
debt security acceptable to the Trustee until such time as the
allocations pursuant to Section 11.3 have been made.
(j) The Employer and the Administrator shall adopt a procedure necessary
to implement the salary reduction elections provided for herein.
11.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in the name
of each Participant to which the Administrator shall credit as of each
Anniversary Date, or other valuation date, all amounts allocated to
each such Participant as set forth herein.
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(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of the
Employer's contributions for each Plan Year. Within a reasonable
period of time after the date of receipt by the Administrator of such
information, the Administrator shall allocate such contribution as
follows:
(1) With respect to the Employer's Elective Contribution made
pursuant to Section 11.1(a), to each Participant's Elective
Account in an amount equal to each such Participant's Deferred
Compensation for the year.
(2) With respect to the Employer's Matching Contribution made
pursuant to Section 11.1(b), to each Participant's Account, or
Participant's Elective Account as selected in E3 of the
Adoption Agreement, in accordance with Section 11.1(b).
Except, however, a Participant who is not credited with a Year of
Service during any Plan Year shall or shall not share in the
Employer's Matching Contribution for that year as provided in E3 of
the Adoption Agreement. However, for Plan Years beginning after 1989,
if this is a standardized Plan, a Participant shall share in the
Employer's Matching Contribution regardless of Hours of Service.
(3) With respect to the Employer's Non-Elective Contribution made
pursuant to Section 11.1(c), to each Participant's Account in
accordance with the provisions of Sections 4.3(b)(2) or
4.3(b)(3), whichever is applicable, 4.3(k) and 4.3(l).
(4) With respect to the Employer's Qualified Non-Elective
Contribution made pursuant to Section 11.1(d), to each
Participant's Qualified Non-Elective Contribution Account in
the same proportion that each such Participant's Compensation
for the year bears to the total Compensation of all
Participants for such year. However, for any Plan Year
beginning prior to January 1, 1990, and if elected in the non-
standardized Adoption Agreement for any Plan Year beginning on
or after January 1, 1990, a Participant who is not credited
with a Year of Service during any Plan Year shall not share in
the Employer's Qualified Non-Elective Contribution for that
year, unless required pursuant to Section 4.3(h). In addition,
the provisions of Sections 4.3(k) and 4.3(l) shall apply with
respect to the allocation of the Employer's Qualified
Non-Elective contribution.
(c) Notwithstanding anything in the Plan to the contrary, for Plan Years
beginning after December 31, 1988, in determining whether a Non-Key
Employee has received the required minimum allocation pursuant to
Section 4.3(f) such Non-Key Employee's Deferred Compensation and
matching contributions used to satisfy the "Actual Deferral
Percentage" test pursuant to Section 11.4(a) or the "Actual
Contribution Percentage" test of Section 11.6(a) shall not be taken
into account.
(d) Notwithstanding anything herein to the contrary, participants who
terminated employment during the Plan Year shall share in the salary
reduction contributions made by the Employer for the year of
termination without regard to the Hours of Service credited.
(e) Notwithstanding anything herein to the contrary (other than Sections
11.3(d) and 11.3(g)), any Participant who terminated employment during
the Plan Year for reasons other than death, Total and Permanent
Disability, or retirement shall or shall not share in the allocations
of the Employer's Matching Contribution made pursuant to Section
11.1(b), the Employer's Non-Elective Contributions made pursuant to
Section 11.1(c), the Employer's Qualified Non-Elective Contribution
made pursuant to Section 11.1(d), and Forfeitures as provided in the
Adoption Agreement. Notwithstanding the foregoing, for Plan Years
beginning after 1989, if this is a standardized Plan, any such
terminated Participant shall share in such allocations provided the
terminated Participant completed more than 500 Hours of Service.
(f) Notwithstanding anything herein to the contrary, Participants
terminating for reasons of death, Total and Permanent Disability, or
retirement shall share in the allocation of the Employer's Matching
Contribution made pursuant to Section 11.1(b), the Employer's
Non-Elective Contributions made pursuant to Section
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11.1(c), the Employer's Qualified Non-Elective Contribution made
pursuant to Section 11.1(d), and Forfeitures as provided in this
Section regardless of whether they completed a Year of Service during
the Plan Year.
(g) Notwithstanding any election in the Adoption Agreement to the
contrary, if this is a non-standardized Plan that would otherwise fail
to meet the requirements of Code Sections 401(a)(26), 410(b)(1), or
410(b)(2)(A)(i) and the Regulations thereunder because Employer
matching Contributions made pursuant to Section 11.1(b), Employer
Non-Elective Contributions made pursuant to Section 11.1(c) or
Employer Qualified Non-Elective Contributions made pursuant to Section
11.1(d) have not been allocated to a sufficient number or percentage
of Participants for a Plan Year, then the following rules shall apply:
(1) The group of Participants eligible to share in the respective
contributions for the Plan Year shall be expanded to include
the minimum number of Participants who would not otherwise be
eligible as are necessary to satisfy the applicable test
specified above. The specific participants who shall become
eligible under the terms of this paragraph shall be those who
are actively employed on the last day of the Plan Year and,
when compared to similarly situated Participants, have
completed the greatest number of Hours of Service in the Plan
Year.
(2) If after application of paragraph (1) above, the applicable
test is still not satisfied, then the group of Participants
eligible to share for the Plan Year shall be further expanded
to include the minimum number of Participants who are not
actively employed on the last day of the Plan Year as are
necessary to satisfy the applicable test. The specific
Participants who shall become eligible to share shall be those
Participants, when compared to similarly situated
Participants, who have completed the greatest number of Hours
of Service in the Plan Year before terminating employment.
11.4 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year beginning after December
31, 1986, the annual allocation derived from Employer Elective
Contributions and Qualified Non-Elective Contributions to a
Participant's Elective Account and Qualified Non-Elective Account
shall satisfy one of the following tests:
(1) The "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not be more than the "Actual Deferral
Percentage" of the Non-Highly Compensated Participant group
multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the Highly
Compensated Participant group over the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group
shall not be more than two percentage points. Additionally,
the "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not exceed the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group
multiplied by 2. The provisions of Code Section 401(k)(3) and
Regulation 1.401(k)-1(b) are incorporated herein by
reference.
However, for Plan Years beginning after December 31, 1988, to
prevent the multiple use of the alternative method described
in (2) above and Code Section 401(m)(9)(A), any Highly
Compensated Participant eligible to make elective deferrals
pursuant to Section 11.2 and to make Employee contributions or
to receive matching contributions under this Plan or under any
other plan maintained by the Employer or an Affiliated
Employer shall have his actual contribution ratio reduced
pursuant to Regulation 1.401(m)-2, the provisions of which are
incorporated herein by reference.
(b) For the purposes of this Section "Actual Deferral Percentage" means,
with respect to the Highly Compensated Participant group and
Non-Highly Compensated Participant group for a Plan Year, the
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average of the ratios, calculated separately for each Participant in
such group, of the amount of Employer Elective Contributions and
Qualified Non-Elective Contributions allocated to each Participant's
Elective Account and Qualified Non-Elective Account for such Plan
Year, to such Participant's "414(s) Compensation" for such Plan Year.
The actual deferral ratio for each Participant and the "Actual
Deferral Percentage" for each group, for Plan Years beginning after
December 31, 1988, shall be calculated to the nearest one-hundredth of
one percent of the Participant's "414(s) Compensation." Employer
Elective Contributions allocated to each Non-Highly Compensated
Participant's Elective Account shall be reduced by Excess Deferred
Compensation to the extent such excess amounts are made under this
Plan or any other plan maintained by the Employer.
(c) For the purpose of determining the actual deferral ratio of a Highly
Compensated Participant who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Participant
is either a "five percent owner" of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual deferral ratio for the family group (which
shall be treated as one Highly Compensated Participant) shall
be the greater of: (i) the ratio determined by aggregating
Employer Elective Contributions and "414(s) Compensation" of
all eligible Family Members who are Highly Compensated
Participants without regard to family aggregation; and (ii)
the ratio determined by aggregating Employer Elective
Contributions and "414(s) Compensation" of all eligible Family
Members (including Highly Compensated Participants). However,
in applying the $200,000 limit to "414(s) Compensation" for
Plan Years beginning after December 31, 1988, Family Members
shall include only the affected Employee's spouse and any
lineal descendants who have not attained age 19 before the
close of the Plan Year.
(2) The Employer Elective Contributions and "414(s) Compensation"
of all Family Members shall be disregarded for purposes of
determining the "Actual Deferral Percentage" of the Non-Highly
Compensated Participant group except to the extent taken into
account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are
members of those family groups that include the Participant
are aggregated as one family group in accordance with
paragraphs (1) and (2) above.
(d) For the purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(k), if two or more plans which include cash or
deferred arrangements are considered one plan for the purposes
of Code Section 401(a)(4) or 410(b) (other than Code Section
401(b)(2)(A)(ii) as in effect for Plan Years beginning after
December 31, 1988), the cash or deferred arrangements included
in such plans shall be treated as one arrangement. In
addition, two or more cash or deferred arrangements may be
considered as a single arrangement for purposes of determining
whether or not such arrangements satisfy Code Sections
401(a)(4), 410(b) and 401(k). In such a case, the cash or
deferred arrangements included in such plans and the plans
including such arrangements shall be treated as one
arrangement and as one plan for purposes of this Section and
Code Sections 401(a)(4), 410(b) and 401(k). For plan years
beginning after December 31, 1989, plans may be aggregated
under this paragraph (e) only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after December 31,
1988, an employee stock ownership plan described in Code Section
4975(e)(7) may not be combined with this Plan for purposes of
determining whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(k).
(e) For the purposes of this Section, if a Highly Compensated Participant
is a Participant under two (2) or more cash or deferred arrangements
(other than a cash or deferred arrangement which is part of an
employee stock ownership plan as defined in Code Section 4975(e)(7)
for Plan Years beginning after December 31, 1988) of the Employer or
an Affiliated Employer, all such cash or deferred arrangements shall
be treated as
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one cash or deferred arrangement for the purpose of determining the
actual deferral ratio with respect to such Highly Compensated
Participant. However, for Plan Years beginning after December 31,
1988, if the cash or deferred arrangements have different Plan Years,
this paragraph shall be applied by treating all cash or deferred
arrangements ending with or within the same calendar year as a single
arrangement.
11.5 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions and Qualified Non-Elective Contributions do not satisfy one of
the tests set forth in Section 11.4, for Plan Years beginning after December
31, 1986, the Administrator shall adjust Excess Contributions pursuant to the
options set forth below:
(a) On or before the fifteenth day of the third month following the end of
each Plan Year, the Highly Compensated Participant having the highest
actual deferral ratio shall have his portion of Excess Contributions
distributed to him and/or at his election recharacterized as a
voluntary Employee contribution pursuant to Section 4.7 until one of
the tests set forth in Section 11.4 is satisfied, or until his actual
deferral ratio equals the actual deferral ratio of the Highly
Compensated Participant having the second highest actual deferral
ratio. This process shall continue until one of the tests set forth
in Section 11.4 is satisfied. For each Highly Compensated Participant,
the amount of Excess Contributions is equal to the Elective
Contributions and Qualified Non-Elective Contributions made on behalf
of such Highly Compensated Participant (determined prior to the
application of this paragraph) minus the amount determined by
multiplying the Highly Compensated Participant's actual deferral ratio
(determined after application of this paragraph) by his "414(s)
Compensation." However, in determining the amount of Excess
Contributions to be distributed and/or recharacterized with respect to
an affected Highly Compensated Participant as determined herein, such
amount shall be reduced by any Excess Deferred Compensation previously
distributed to such affected Highly Compensated Participant for his
taxable year ending with or within such Plan Year. Any distribution
and/or recharacterization of Excess Contributions shall be made in
accordance with the following:
(1) With respect to the distribution of Excess Contributions
pursuant to (a) above, such distribution:
(i) may be postponed but not later than the close of the
Plan Year following the Plan Year to which they are
allocable;
(ii) shall be made first from unmatched Deferred
Compensation and, thereafter, simultaneously from
Deferred Compensation which is matched and matching
contributions which relate to such Deferred
Compensation. However, any such matching
contributions which are not Vested shall be forfeited
in lieu of being distributed;
(iii) shall be made from Qualified Non-Elective
Contributions only to the extent that Excess
Contributions exceed the balance in the Participant's
Elective Account attributable to Deferred
Compensation and Employer matching contributions.
(iv) shall be adjusted for Income; and
(v) shall be designated by the Employer as a distribution
of Excess Contributions (and Income).
(2) With respect to the recharacterization of Excess Contributions
pursuant to (a) above, such recharacterized amounts:
(i) shall be deemed to have occurred on the date on which
the last of those Highly Compensated Participants
with Excess Contributions to be recharacterized is
notified of the recharacterization and the tax
consequences of such recharacterization;
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(ii) for Plan Years ending on or before August 8, 1988,
may be postponed but not later than October 24, 1988;
(iii) shall not exceed the amount of Deferred Compensation
on behalf of any Highly Compensated Participant for
any Plan Year;
(iv) shall be treated as voluntary Employee contributions
for purposes of Code Section 401(a)(4) and Regulation
1.401(k)-1(b). However, for purposes of Sections 2.2
and 4.3(f), recharacterized Excess Contributions
continue to be treated as Employer contributions that
are Deferred Compensation. For Plan Years beginning
after December 31, 1988, Excess Contributions
recharacterized as voluntary Employee contributions
shall continue to be nonforfeitable and subject to
the same distribution rules provided for in Section
11.2(c);
(v) which relate to Plan Years ending on or before
October 24, 1988, may be treated as either Employer
contributions or voluntary Employee contributions and
therefore shall not be subject to the restrictions of
Section 11.2(c);
(vi) are not permitted if the amount recharacterized plus
voluntary Employee contributions actually made by
such Highly Compensated Participant, exceed the
maximum amount of voluntary Employee contributions
(determined prior to application of Section 11.6)
that such Highly Compensated Participant is permitted
to make under the Plan in the absence of
recharacterization;
(vii) shall be adjusted for Income.
(3) Any distribution and/or recharacterization of less than the
entire amount of Excess Contributions shall be treated as a
pro rata distribution and/or recharacterization of Excess
Contributions and Income.
(4) The determination and correction of Excess Contributions of a
Highly Compensated Participant whose actual deferral ratio is
determined under the family aggregation rules shall be
accomplished as follows:
(i) If the actual deferral ratio for the Highly
Compensated Participant is determined in accordance
with Section 11.4(c)(1)(ii), then the actual deferral
ratio shall be reduced as required herein and the
Excess Contributions for the family unit shall be
allocated among the Family Members in proportion to
the Elective Contributions of each Family Member that
were combined to determine the group actual deferral
ratio.
(ii) If the actual deferral ratio for the Highly
Compensated Participant is determined under Section
11.4(c)(1)(i), then the actual deferral ratio shall
first be reduced as required herein, but not below
the actual deferral ratio of the group of Family
Members who are not Highly Compensated Participants
without regard to family aggregation. The Excess
Contributions resulting from this initial reduction
shall be allocated (in proportion to Elective
Contributions) among the Highly Compensated
Participants whose Elective Contributions were
combined to determine the actual deferral ratio. If
further reduction is still required, then Excess
Contributions resulting from this further reduction
shall be determined by taking into account the
contributions of all Family Members and shall be
allocated among them in proportion to their
respective Elective Contributions.
(b) Within twelve (12) months after the end of the Plan Year, the Employer
shall make a special Qualified Non-Elective Contribution on behalf of
Non-Highly Compensated Participants in an amount sufficient to satisfy
one of the tests set forth in Section 11.4(a). Such contribution shall
be allocated to the Participant's Qualified Non-Elective Account of
each Non-Highly Compensated Participant in the same proportion that
each Non-Highly Compensated Participant's Compensation for the year
bears to the total Compensation of all Non-Highly Compensated
Participants.
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(c) For purposes of this Section, "Income" means the income or loss
allocable to Excess Contributions which shall equal the sum of the
allocable gain or loss for the Plan Year.
(d) Any amounts not distributed or recharacterized within 2 1/2 months
after the end of the Plan Year shall be subject to the 10% Employer
excise tax imposed by Code Section 4979.
11.6 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage," for Plan Years beginning after
the later of the Effective Date of this Plan or December 31, 1986, for
the Highly Compensated Participant group shall not exceed the greater
of:
(1) 125 percent of such percentage for the Non-Highly Compensated
Participant group; or
(2) the lesser of 200 percent of such percentage for the
Non-Highly Compensated Participant group, or such percentage
for the Non-Highly Compensated Participant group plus 2
percentage points. However, for Plan Years beginning after
December 31, 1988, to prevent the multiple use of the
alternative method described in this paragraph and Code
Section 401(m)(9)(A), any Highly Compensated Participant
eligible to make elective deferrals pursuant to Section 11.2
or any other cash or deferred arrangement maintained by the
Employer or an Affiliated Employer and to make Employee
contributions or to receive matching contributions under any
plan maintained by the Employer or an Affiliated Employer
shall have his actual contribution ratio reduced pursuant to
Regulation 1.401(m)-2. The provisions of Code Section 401(m)
and Regulations 1.401(m)-1(b) and 1.401(m)-2 are incorporated
herein by reference.
(b) For the purposes of this Section and Section 11.7, "Actual
Contribution Percentage" for a Plan Year means, with respect to the
Highly Compensated Participant group and Non-Highly Compensated
Participant group, the average of the ratios (calculated separately
for each Participant in each group) of:
(1) the sum of Employer matching contributions made pursuant to
Section 11.1(b) (to the extent such matching contributions are
not used to satisfy the tests set forth in Section 11.4),
voluntary Employee contributions made pursuant to Section 4.7
and Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 11.5 on behalf of each such
Participant for such Plan Year; to
(2) the Participant's "414(s) Compensation" for such Plan Year.
(c) For purposes of determining the "Actual Contribution Percentage" and
the amount of Excess Aggregate Contributions pursuant to Section
11.7(d), only Employer matching contributions (excluding matching
contributions forfeited or distributed pursuant to Section 11.2(f),
11.5(a), or 11.7(a)) contributed to the Plan prior to the end of the
succeeding Plan Year shall be considered. In addition, the
Administrator may elect to take into account, with respect to
Employees eligible to have Employer matching contributions made
pursuant to Section 11.1(b) or voluntary Employee contributions made
pursuant to Section 4.7 allocated to their accounts, elective
deferrals (as defined in Regulation 1.402(g)-1(b)) and qualified
non-elective contributions (as defined in Code Section 401(m)(4)(C))
contributed to any plan maintained by the Employer. Such elective
deferrals and qualified non-elective contributions shall be treated as
Employer matching contributions subject to Regulation 1.401(m)-1(b)(2)
which is incorporated herein by reference. However, for Plan Years
beginning after December 31, 1988, the Plan Year must be the same as
the plan year of the plan to which the elective deferrals and the
qualified non-elective contributions are made.
(d) For the purpose of determining the actual contribution ratio of a
Highly Compensated Employee who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Employee is
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either a "five percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual contribution ratio for the family group
(which shall be treated as one Highly Compensated Participant)
shall be the greater of: (i) the ratio determined by
aggregating Employer matching contributions made pursuant to
Section 11.1(b) (to the extent such matching contributions are
not used to satisfy the tests set forth in Section 11.4),
voluntary Employee contributions made pursuant to Section 4.7,
Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 11.5 and "414(s)
Compensation" of all eligible Family Members who are Highly
Compensated Participants without regard to family aggregation;
and (ii) the ratio determined by aggregating Employer matching
contributions made pursuant to Section 11.1(b) (to the extent
such matching contributions are not used to satisfy the tests
set forth in Section 11.4), voluntary Employee contributions
made pursuant to Section 4.7, Excess Contributions
recharacterized as voluntary Employee contributions pursuant
to Section 11.5 and "414(s) Compensation" of all eligible
Family Members (including Highly Compensated Participants).
However, in applying the $200,000 limit to "414(s)
Compensation" for Plan Years beginning after December 31,
1988, Family Members shall include only the affected
Employee's spouse and any lineal descendants who have not
attained age 19 before the close of the Plan Year.
(2) The Employer matching contributions made pursuant to Section
11.1(b) (to the extent such matching contributions are not
used to satisfy the tests set forth in Section 11.4),
voluntary Employee contributions made pursuant to Section 4.7,
Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 11.5 and "414(s)
Compensation" of all Family Members shall be disregarded for
purposes of determining the "Actual Contribution Percentage"
of the Non-Highly Compensated Participant group except to the
extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are
members of those family groups that include the Participant
are aggregated as one family group in accordance with
paragraphs (1) and (2) above.
(e) For purposes of this Section and Code Sections 401(a)(4), 410(b) and
401(m), if two or more plans of the Employer to which matching
contributions, Employee contributions, or both, are made are treated
as one plan for purposes of Code Sections 401(a)(4) or 410(b) (other
than the average benefits test under Code Section 410(b)(2)(A)(ii) as
in effect for Plan Years beginning after December 31, 1988), such
plans shall be treated as one plan. In addition, two or more plans of
the Employer to which matching contributions, Employee contributions,
or both, are made may be considered as a single plan for purposes of
determining whether or not such plans satisfy Code Sections 401(a)(4),
410(b) and 401(m). In such a case, the aggregated plans must satisfy
this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though
such aggregated plans were a single plan. For plan years beginning
after December 31, 1989, plans may be aggregated under this paragraph
only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after December 31,
1988, an employee stock ownership plan described in Code Section
4975(e)(7) may not be aggregated with this Plan for purposes of
determining whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant under two or more
plans (other than an employee stock ownership plan as defined in Code
Section 4975(e)(7) for Plan Years beginning after December 31, 1988)
which are maintained by the Employer or an Affiliated Employer to
which matching contributions, Employee contributions, or both, are
made, all such contributions on behalf of such Highly Compensated
Participant shall be aggregated for purposes of determining such
Highly Compensated Participant's actual contribution ratio. However,
for Plan Years beginning after December 31, 1988, if the plans have
different
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plan years, this paragraph shall be applied by treating all plans
ending with or within the same calendar year as a single plan.
(g) For purposes of Section 11.6(a) and 11.7, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any
Employee eligible to have matching contributions made pursuant to
Section 11.1(b) (whether or not a deferred election was made or
suspended pursuant to Section 11.2(e)) allocated to his account for
the Plan Year or to make salary deferrals pursuant to Section 11.2 (if
the Employer uses salary deferrals to satisfy the provisions of this
Section) or voluntary Employee contributions pursuant to Section 4.7
(whether or not voluntary Employee contributions are made) allocated
to his account for the Plan Year.
(h) For purposes of this Section, "Matching Contribution" shall mean an
Employer contribution made to the Plan, or to a contract described in
Code Section 403(b), on behalf of a Participant on account of an
Employee contribution made by such Participant, or on account of a
participant's deferred compensation, under a plan maintained by the
Employer.
11.7 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that for Plan Years beginning after December 31, 1986,
the "Actual Contribution Percentage" for the Highly Compensated
Participant group exceeds the "Actual Contribution Percentage" for the
Non-Highly Compensated Participant group pursuant to Section 11.6(a),
the Administrator (on or before the fifteenth day of the third month
following the end of the Plan Year, but in no event later than the
close of the following Plan Year) shall direct the Trustee to
distribute to the Highly Compensated Participant having the highest
actual contribution ratio, his portion of Excess Aggregate
Contributions (and Income allocable to such contributions) or, if
forfeitable, forfeit such non-Vested Excess Aggregate Contributions
attributable to Employer matching contributions (and Income allocable
to such Forfeitures) until either one of the tests set forth in
Section 11.6(a) is satisfied, or until his actual contribution ratio
equals the actual contribution ratio of the Highly Compensated
Participant having the second highest actual contribution ratio. This
process shall continue until one of the tests set forth in Section
11.6(a) is satisfied. The distribution and/or Forfeiture of Excess
Aggregate Contributions shall be made in the following order:
(1) Employer matching contributions distributed and/or forfeited
pursuant to Section 11.5(a)(1);
(2) Voluntary Employee contributions including Excess
Contributions recharacterized as voluntary Employee
contributions pursuant to Section 11.5(a)(2);
(3) Remaining Employer matching contributions.
(b) Any distribution or Forfeiture of less than the entire amount of
Excess Aggregate Contributions (and Income) shall be treated as a pro
rata distribution of Excess Aggregate Contributions and Income.
Distribution of Excess Aggregate Contributions shall be designated by
the Employer as a distribution of Excess Aggregate Contributions (and
Income). Forfeitures of Excess Aggregate Contributions shall be
treated in accordance with Section 4.3. However, no such Forfeiture
may be allocated to a Highly Compensated Participant whose
contributions are reduced pursuant to this Section.
(c) Excess Aggregate Contributions attributable to amounts other than
voluntary Employee contributions, including forfeited matching
contributions, shall be treated as Employer contributions for purposes
of Code Sections 404 and 415 even if distributed from the Plan.
(d) For the purposes of this Section and Section 11.6, "Excess Aggregate
Contributions" means, with respect to any Plan Year, the excess of:
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(1) the aggregate amount of Employer matching contributions made
pursuant to Section 11.1(b) (to the extent such contributions
are taken into account pursuant to Section 11.6(a)), voluntary
Employee contributions made pursuant to Section 4.7, Excess
Contributions recharacterized as voluntary Employee
contributions pursuant to Section 11.5 and any Qualified
Non-Elective Contributions or elective deferrals taken into
account pursuant to Section 11.6(c) actually made on behalf of
the Highly Compensated Participant group for such Plan Year,
over
(2) the maximum amount of such contributions permitted under the
limitations of Section 11.6(a).
(e) For each Highly Compensated Participant, the amount of Excess
Aggregate Contributions is equal to the total Employer matching
contributions made pursuant to Section 11.1(b) (to the extent taken
into account pursuant to Section 11.6(a)), voluntary Employee
contributions made pursuant to Section 4.7, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 11.5 and any Qualified Non-Elective Contributions or elective
deferrals taken into account pursuant to Section 11.6(c) on behalf of
the Highly Compensated Participant (determined prior to the
application of this paragraph) minus the amount determined by
multiplying the Highly Compensated Participant's actual contribution
ratio (determined after application of this paragraph) by his "414(s)
Compensation." The actual contribution ratio must be rounded to the
nearest one-hundredth of one percent for Plan Years beginning after
December 31, 1988. In no case shall the amount of Excess Aggregate
Contribution with respect to any Highly Compensated Participant exceed
the amount of Employer matching contributions made pursuant to Section
11.1(b) (to the extent taken into account pursuant to Section
11.6(a)), voluntary Employee contributions made pursuant to Section
4.7, Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 11.5 and any Qualified Non-Elective
Contributions or elective deferrals taken into account pursuant to
Section 11.6(c) on behalf of such Highly Compensated Participant for
such Plan Year.
(f) The determination of the amount of Excess Aggregate
Contributions with respect to any Plan Year shall be made after first
determining the Excess Contributions, if any, to be treated as
voluntary Employee contributions due to recharacterization for the
plan year of any other qualified cash or deferred arrangement (as
defined in Code Section 401(k)) maintained by the Employer that ends
with or within the Plan Year or which are treated as voluntary
Employee contributions due to recharacterization pursuant to Section
11.5.
(g) The determination and correction of Excess Aggregate Contributions of
a Highly Compensated Participant whose actual contribution ratio is
determined under the family aggregation rules shall be accomplished as
follows:
(1) If the actual contribution ratio for the Highly Compensated
Participant is determined in accordance with Section
11.6(d)(1), then the actual contribution ratio shall be
reduced and the Excess Aggregate Contributions for the family
unit shall be allocated among the Family Members in proportion
to the sum of Employer matching contributions made pursuant to
Section 11.1(b) (to the extent taken into account pursuant to
Section 11.6(a)), voluntary Employee contributions made
pursuant to Section 4.7, Excess Contributions recharacterized
as voluntary Employee contributions pursuant to Section 11.5
and any Qualified Non-Elective Contributions or elective
deferrals taken into account pursuant to Section 11.6(c) of
each Family Member that were combined to determine the group
actual contribution ratio.
(2) If the actual contribution ratio for the Highly Compensated
Participant is determined under Section 11.6(d)(2), then the
actual contribution ratio shall first be reduced, as required
herein, but not below the actual contribution ratio of the
group of Family Members who are not Highly Compensated
Participants without regard to family aggregation. The Excess
Aggregate Contributions resulting from this initial reduction
shall be allocated among the Highly Compensated Participants
whose Employer matching contributions made pursuant to Section
11.1(b) (to the extent taken into account pursuant to Section
11.6(a)), voluntary Employee contributions made pursuant to
Section 4.7, Excess Contributions recharacterized as voluntary
Employee contributions pursuant to Section 11.5 and any
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Qualified Non-Elective Contributions or elective deferrals
taken into account pursuant to Section 11.6(c) were combined
to determine the actual contribution ratio. If further
reduction is still required, then Excess Aggregate
Contributions resulting from this further reduction shall be
determined by taking into account the contributions of all
Family Members and shall be allocated among them in proportion
to their respective Employer matching contributions made
pursuant to Section 11.1(b) (to the extent taken into account
pursuant to Section 11.6(a)), voluntary Employee contributions
made pursuant to Section 4.7, Excess Contributions
recharacterized as voluntary Employee contributions pursuant
to Section 11.5 and any Qualified Non-Elective Contributions
or elective deferrals taken into account pursuant to Section
11.6(c).
(h) Notwithstanding the above, within twelve (12) months after the end of
the Plan Year, the Employer may make a special Qualified Non-Elective
Contribution on behalf of Non-Highly Compensated Participants in an
amount sufficient to satisfy one of the tests set forth in Section
11.6. Such contribution shall be allocated to the Participant's
Qualified Non-Elective Account of each Non-Highly Compensated
Participant in the same proportion that each Non-Highly Compensated
Participant's Compensation for the year bears to the total
Compensation of all Non-Highly Compensated Participants. A separate
accounting shall be maintained for the purpose of excluding such
contributions from the "Actual Deferral Percentage" tests pursuant to
Section 11.4.
(i) For purposes of this Section, "Income" means the income or loss
allocable to Excess Aggregate Contributions which shall equal the sum
of the allocable gain or loss for the Plan Year and the allocable gain
or loss for the period between the end of the Plan Year and the date
of distribution ("gap period"). The income or loss allocable to Excess
Aggregate Contributions for the Plan Year and the "gap period" is
calculated separately and is determined by multiplying the income or
loss for the Plan Year or the "gap period" by a fraction. The
numerator of the fraction is the Excess Aggregate Contributions for
the Plan Year. The denominator of the fraction is the total
Participant's Account and Voluntary Contribution Account attributable
to Employer matching contributions subject to Section 11.6, voluntary
Employee contributions made pursuant to Section 4.7, and any Qualified
Non-Elective Contributions and elective deferrals taken into account
pursuant to Section 11.6(c) as of the end of the Plan Year or the "gap
period," reduced by the gain allocable to such total amount for the
Plan Year or the "gap period" and increased by the loss allocable to
such total amount for the Plan Year or the "gap period."
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable Income for the "gap
period." Under such "safe harbor method," allocable Income for the
"gap period" shall be deemed to equal ten percent (10%) of the Income
allocable to Excess Aggregate Contributions for the Plan Year of the
Participant multiplied by the number of calendar months in the "gap
period." For purposes of determining the number of calendar months in
the "gap period," a distribution occurring on or before the fifteenth
day of the month shall be treated as having been made on the last day
of the preceding month and a distribution occurring after such
fifteenth day shall be treated as having been made on the first day of
the next subsequent month.
The Income allocable to Excess Aggregate Contributions resulting from
recharacterization of Elective Contributions shall be determined and
distributed as if such recharacterized Elective Contributions had been
distributed as Excess Contributions.
Notwithstanding the above, for any distribution under this Section
which is made after August 15, 1991, such distribution shall not
include any Income for the "gap period". Further provided, for any
distribution under this Section which is made after August 15, 1991,
the amount of Income may be computed using a reasonable method that is
consistent with Section 4.3(c), provided such method is used
consistently for all Participants and for all such distributions for
the Plan Year.
11.8 ADVANCE DISTRIBUTION FOR HARDSHIP
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(a) The Administrator, at the election of the Participant, shall direct
the Trustee to distribute to any Participant in any one Plan Year up
to the lesser of (1) 100% of his accounts as specified in the Adoption
Agreement valued as of the last Anniversary Date or other valuation
date or (2) the amount necessary to satisfy the immediate and heavy
financial need of the Participant. Any distribution made pursuant to
this Section shall be deemed to be made as of the first day of the
Plan Year or, if later, the valuation date immediately preceding the
date of distribution, and the account from which the distribution is
made shall be reduced accordingly. Withdrawal under this Section shall
be authorized only if the distribution is on account of one of the
following or any other items permitted by the Internal Revenue
Service:
(1) Medical expenses described in Code Section 213(d) incurred by
the Participant, his spouse, or any of his dependents (as
defined in Code Section 152) or expenses necessary for these
persons to obtain medical care;
(2) The purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) Payment of tuition and related educational fees for the next
12 months of post-secondary education for the Participant, his
spouse, children, or dependents; or
(4) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) No such distribution shall be made from the Participant's Account
until such Account has become fully Vested.
(c) No distribution shall be made pursuant to this Section unless the
Administrator, based upon the Participant's representation and such
other facts as are known to the Administrator, determines that all of
the following conditions are satisfied:
(1) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant
(including any amounts necessary to pay any federal, state, or
local taxes or penalties reasonably anticipated to result from
the distribution);
(2) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently
available under all plans maintained by the Employer;
(3) The Plan, and all other plans maintained by the Employer,
provide that the Participant's elective deferrals and
voluntary Employee contributions will be suspended for at
least twelve (12) months after receipt of the hardship
distribution; and
(4) The Plan, and all other plans maintained by the Employer,
provide that the Participant may not make elective deferrals
for the Participant's taxable year immediately following the
taxable year of the hardship distribution in excess of the
applicable limit under Code Section 402(g) for such next
taxable year less the amount of such Participant's elective
deferrals for the taxable year of the hardship distribution.
(d) Notwithstanding the above, distributions from the Participant's
Elective Account and Qualified Non-Elective Account pursuant to this
Section shall be limited solely to the Participant's Deferred
Compensation and any income attributable thereto credited to the
Participant's Elective Account as of December 31, 1988.
(e) Any distribution made pursuant to this Section shall be made in a
manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 411(a)(11) and 417 and the Regulations
thereunder.
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EXHIBIT 99.B14.2
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IRA
CUSTODIAL
AGREEMENT
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<PAGE> 2
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
Please read the following information together with the Individual Retirement
Account Custodial Agreement and the Prospectus(es) for the Fund(s) you select
for your investment. This information reflects the current provisions of the
Internal Revenue Code.
YOU MAY REVOKE YOUR INDIVIDUAL RETIREMENT ACCOUNT (IRA) UNDER THE FOLLOWING
CONDITIONS:
1. YOU RECEIVED YOUR STRONG FUNDS IRA DISCLOSURE STATEMENT LESS
THAN 7 DAYS BEFORE YOU PURCHASED YOUR IRA ACCOUNT AND
2. YOU REVOKE YOUR ACCOUNT WITHIN SEVEN (7) CALENDAR DAYS AFTER IT
IS RECEIVED BY STRONG FUNDS. MAIL OR DELIVER A WRITTEN REQUEST FOR
REVOCATION TO:
Strong Funds Strong Funds
P.O. Box 2936 100 Heritage Reserve
Milwaukee, WI 53201 Menomonee Falls, WI 53051
1-800-368-3863 (For overnight delivery)
You will receive a full refund for your initial IRA contribution without any
reduction for administrative expenses, sales commissions or changes in market
value.
TYPES OF IRAS
Regular IRA. If you are under age 70 1/2, have earned income, and you are of
legal age, you may make regular IRA contributions of $2,000 or 100% of your
compensation, whichever is less. To determine the tax deductible amount for
your IRA contribution, see "Deductible IRA Contributions," section 7.
Spousal IRA. If you are married and your spouse either earns no income or
elects to be treated as earning no income during the year, you may make
contributions to a Spousal IRA in addition to your IRA. Contributions to your
IRA and your spouse's IRA may not exceed 100% of your compensation or $2,250,
whichever is less. In no event, however, may the annual contribution to either
your IRA or your spouse's IRA exceed the $2,000 limit.
Rollover IRA. You may make a Rollover IRA contribution by rolling over all or
a portion of your distribution or directly transferring the assets from a
qualified retirement plan [pension plan, profit-sharing plan, Keogh, 401(k)],
403(b)(7) plan or another IRA to your Strong Funds IRA. The distribution must
be rolled over within sixty (60) days of receipt from the qualified retirement
plan.
The amount of your IRA Rollover contribution or transfer will not be included in
your taxable income for the year. However, strict limitations apply to these
rollovers and you should seek competent tax advice regarding these
restrictions.
Direct Rollover IRA. You may directly rollover a qualifed retirement or
403(b)(7) plan distribution to an IRA to avoid the mandatory 20% federal tax
withholding on cash distributions. The distribution must be eligible for
rollover.
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The amount of your Direct Rollover IRA contribution will not be included in
your taxable income for the year. However, strict limitations apply to these
rollovers and you should seek competent tax advice regarding these
restrictions.
Simplified Employee Pension Plan. A Simplified Employee Pension Plan or
SEP-IRA allows an employer to make deductible contributions to separate IRA
accounts established for each eligible employee. Your employer can make
contributions up to the lesser of 15% of your compensation or $30,000.
Eligibilty. If an employer or a self-employed individual
establishes a SEP-IRA, the plan must include all employees who are at
least 21 years old and who have worked for the employer at any time
during at least three of the past five years. Employees who earn less
than the minimum compensation amount for the current tax year, as
adjusted to reflect cost of living increases, may be excluded. Please
call us for the current minimum compensation amount. Employees who are
non-resident aliens may also be excluded in certain circumstances.
Salary Deferral SEP. Employers may allow you to make salary deferrals of up to
the lesser of 15% of your compensation or the current deferral limitation
amount, as adjusted to reflect cost of living increases. Please call us for
the current deferral limitation. However, the combination of your employer's
contributions and the salary deferrals may not exceed the lesser of 15% of your
compensation or $30,000.
Eligibility. The salary deferral option can only be
established by employers with 25 or fewer employees at any time during
the preceding year, and at least 50% of the eligible employees must
choose to participate.
If you are covered by a SEP-IRA, you can also make IRA contributions.
Participation in a SEP-IRA may affect the deductibility of your IRA
contributions, as described in "Deductible IRA Contributions," section 7.
The contributions made by the employer to your SEP-IRA are subject to the same
distribution rules that apply to other IRA contributions, as described in
"Distributions," section 12.
1. General. Your IRA is a custodial account created for your exclusive
benefit. Your interest in the account is non-forfeitable.
2. Investments. Contributions made to your IRA will be invested in one or more
of the Strong Funds.
3. Eligibility. Employees and self-employed individuals are eligible to
contribute to an IRA. Employers may also contribute to an employer-sponsored
IRA established for the benefit of their employees (see "Simplified Employee
Pension Plan"). You may also establish an IRA to receive rollover
contributions and/or transfers from another IRA or from certain retirement
plans.
4. Contributions. All contributions to your IRA must be made in cash.
Therefore, securities or other assets already owned cannot be contributed to an
IRA but can be converted to cash and then contributed. No part of your
contribution may be invested in life insurance contracts or mixed with other
property.
5. Time of Contribution. You may make regular contributions at any time up to
and including the due date for filing your tax return for the year, not
including any extensions. You may continue to make regular contributions to
your IRA up to, but not including, the calendar year in which you reach 70 1/2,
as long as you have earned
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income. In addition, if you are over age 70 1/2 but your spouse is under age
70 1/2, a spousal IRA contribution can still be made for your spouse. Rollover
contributions and transfers may be made at any time, including after you reach
age 70 1/2. Contributions to a Simplified Employee Pension Plan may be
continued after you attain age 70 1/2, provided you still have earned income.
6. Amount of Contribution. Employees or self-employed individuals may
contribute to an IRA up to 100% of compensation for the year or $2,000,
whichever is less. Qualifying rollover contributions and transfers are not
subject to this limitation.
7. Deductible IRA Contributions. If you are not married and are not
an "active participant" in a qualified retirement plan and you are under age
70 1/2, you may make a fully deductible IRA contribution in any amount up to
$2,000 or 100% of your compensation for the year, whichever is less. The same
limits apply if you are married and you file a joint return with your spouse,
if neither you nor your spouse is an "active participant" in a qualified
retirement plan.
For purposes of determining deductible IRA contributions, a qualified
retirement plan includes any of the following types of retirement plans:
* a qualified pension, profit-sharing, or stock bonus plan
established in accordance with IRC 401(a) or 401(k)
* a Simplified Employee Pension Plan (SEP-IRA) [IRC 408(k)]
* tax-sheltered annuities and custodial accounts [IRC 403(b)
and 403(b)(7)]
* a qualified annuity plan under IRC Section 403(a)
Generally, you are considered an "active participant" in a defined contribution
plan if an employer contribution or forfeiture was credited to your account
under the plan during the year. You are considered an "active participant" in
a defined benefit plan if you are eligible to participate in a plan, even
though you elect not to participate. You are also treated as an "active
participant" for a year you make a voluntary or mandatory contribution to any
type of plan, even if your employer makes no contribution to the plan.
If you (or your spouse, if filing a joint tax return) are covered by a
qualified retirement plan, your IRA contribution is tax-deductible only if your
adjusted gross income does not exceed certain limits. Adjusted gross income is
determined prior to adjustments for personal exemptions and itemized
deductions. For purposes of determining the IRA deduction, adjusted gross
income is not modified to take into account deductions for IRA contributions,
but does consider taxable benefits under the Social Security Act and the
Railroad Retirement Act and the passive loss limitations under Code Section 86.
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<PAGE> 5
8. Limits on Deductible Contributions
IRA DEDUCTIBILITY CHART
Tax-Deductibility of
Adjusted Gross Income* IRA Contribution
Covered by a Not Covered by
Individual Joint Qualified Plan a Qualified Plan
- -------------------------------------------------------------------------------
$25,000 $40,000 Fully Fully
and under and under Deductible Deductible
- -------------------------------------------------------------------------------
$25,000- $40,000- Partially Fully
$35,000 $50,000 Deductible Deductible
- -------------------------------------------------------------------------------
$35,000 $50,000 Not Fully
and up and up Deductible Deductible
*Adjusted Gross Income (AGI) is the total of yearly wages, interest, dividends,
capital gains (or losses) minus allowable adjustments, such as alimony and
business or moving expenses.
To determine the amount of your partially deductible contribution, use the two
step calculation.
1) Go to the appropriate individual/joint column and find your income
level. Subtract your income from the maximum dollar amount in your
category.
2) Multiply the result by 20% to determine the deductible amount of
your IRA contribution.
For example, let's assume you are married, file a joint tax return, one spouse
is covered by a qualified retirement plan, and your AGI is $47,200. You can
make a $2,000 contribution -- $560 is deductible and $1,440 is non-deductible.
1) $50,000-$47,200 = $2,800
2) $2,800 x 20% = $560
If the deduction limit is not a multiple of $10 then it should be rounded up to
the next highest $10. There is a $200 minimum floor on the deduction limit if
your adjusted gross income does not exceed $35,000 (for a single taxpayer),
$50,000 (for married taxpayers filing jointly) or $10,000 (for a married
taxpayer filing separately).
For married couples filing a joint tax return, the deduction limitations on IRA
contributions, as determined above, apply to each spouse.
9. Nondeductible IRA Contributions. Even if your income exceeds the
limits described above, you may make a contribution to your IRA of up to
$2,000 or 100% of your compensation, whichever is less. To the extent that
your contribution exceeds the deductible limits, it will be nondeductible.
Earnings on all IRA contributions are tax-deferred until distribution. You are
required to indicate the nondeductible and deductible IRA contributions on
your tax return.
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10. Excess Contributions. Contributions which exceed the maximum allowable
contribution to your IRA for federal income tax purposes (the lesser of $2,000
or 100% of compensation or $2,250 for Spousal IRAs) are treated as excess
contributions. Any excess contributions made to your IRA are subject to a
nondeductible penalty tax of 6% on the excess amount contributed. This penalty
tax will be added to your income tax liability for each year the excess
contribution remains in your account.
11. Correction of Excess Contribution. If you make a contribution in excess
of your allowable maximum, you may avoid the 6% excess contribution penalty
tax by withdrawing the excess amount by your tax filing deadline for that year.
The earnings on your excess contribution will be taxable to you for the year
the excess contribution was made and may be subject to a 10% premature
withdrawal penalty tax if you are under age 59 1/2.
12. Distributions. Distributions from your IRA will be included in your gross
income for federal tax purposes in the year received by you unless otherwise
excludable. You may begin receiving distributions from your IRA at any time.
You may choose any of the following alternatives for your payout:
(a) a single sum payment;
(b) equal or substantially equal monthly, quarterly, or annual
payments over your life expectancy;
(c) equal or substantially equal monthly, quarterly, or annual
payments over the joint life expectancy of you and your
designated beneficiary;
(d) equal or substantially equal monthly, quarterly, or annual
payments over a specified term not in excess of your life
expectancy; or
(e) equal or substantially equal monthly, quarterly, or annual
payments over a specified term not in excess of the joint
life expectancy of you and your designated beneficiary.
13. Tax Treatment of Distributions. Amounts distributed to you are generally
includable in your gross income in the taxable year you receive them and are
taxable as ordinary income. To the extent, however, that any part of a
distribution constitutes a return of your nondeductible contributions, it will
not be included in your income. The amount of any distribution excludable from
income is the portion that bears the same ratio as your aggregate nondeductible
contributions bear to the balance of your IRA at the end of the year
(calculated after adding back distributions during the year). For this
purpose, all of your IRAs are treated as a single IRA. Furthermore, all
distributions from an IRA during a taxable year are to be treated as one
distribution. The aggregate amount of distributions excludable from income for
all years cannot exceed the aggregate nondeductible contributions for all
calendar years.
Distributions from your IRA made before age 59 1/2 will be subject to a 10%
nondeductible penalty tax unless the distribution is a return of nondeductible
contributions or is made because of your death, disability, as part of a series
of substantially equal periodic payments over your life expectancy or the joint
life expectancy of you and your beneficiary, or the distribution is an exempt
withdrawal of an excess contribution. The penalty tax may also be avoided if
the distribution is rolled over to another individual retirement account.
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<PAGE> 7
14. Required Minimum Distributions. You must begin receiving the assets in
your account no later than April 1 following the calendar year in which you
reach age 70 1/2 (your "required beginning date"). In general, the minimum
amount that must be distributed each year is equal to the amount obtained by
dividing the balance in your IRA on the last day of the prior year (or the last
day of the year prior to the year in which you attain age 70 1/2) by your life
expectancy, the joint life expectancy of you and your beneficiary, or the
specified payment term, whichever is applicable. A federal tax penalty may be
imposed against you if the required minimum distribution is not made for the
year you reach age 70 1/2 and for each year thereafter. The penalty is equal
to 50% of the amount by which the actual distribution is less than the required
minimum.
Unless you or your spouse elects otherwise, your life expectancy and/or the
life expectancy of your spouse will be recalculated annually. An election not
to recalculate life expectancy(ies) is irrevocable and will apply to all
subsequent years. The life expectancy of a nonspouse beneficiary may not be
recalculated.
If you have two or more IRAs, you may satisfy the minimum distribution
requirements by receiving a distribution from one of your IRAs in an amount
sufficient to satisfy the minimum distribution requirements for your other
IRAs. You must still calculate the required minimum distribution separately
for each IRA, but then such amounts may be totalled and the total distribution
taken from one or more of your individual IRAs.
Distribution from your IRA must satisfy the special "incidental death benefit"
rules of the Internal Revenue Code. These provisions set forth certain
limitations on the joint life expectancy of you and your beneficiary. If your
beneficiary is not your spouse, your beneficiary will be generally considered
to be no more than 10 years younger than you for the purpose of calculating
the minimum amount that must be distributed.
15. Distribution of Account Assets After Death. If you die before receiving
the entire balance of your account, distribution of your remaining account
balance is subject to several special rules. If you die on or after your
required beginning date, distribution must continue in a method at least as
rapid as under the method of distribution in effect at your death. If you die
before your required beginning date, your remaining interest will, at the
election of your beneficiary or beneficiaries:
(i) be distributed by December 31 of the year in which occurs the
fifth anniversary of your death, or
(ii) commence to be distributed by December 31 of the year following
your death over a period not exceeding the life or life expectancy
of your designated beneficary or beneficiaries.
Two additional distribution options are available if your spouse is the
beneficiary:
(i) payments to your spouse may commence as late as December 31 of
the year you would have attained age 70 1/2 and be distributed over
a period not exceeding the life or life expectancy of your spouse,
or
(ii) your spouse can simply elect to treat your IRA as his or her own,
in which case distributions will be required to commence by April
1 following the calendar year in which your spouse attains age 70
1/2.
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<PAGE> 8
16. Excess Distributions. Distributions from tax-favored retirement plans,
including IRAs, are assessed a 15% excise tax when they exceed a certain
threshold amount. This threshold amount for the application of excess
distribution and excess accumulation penalties is adjusted to reflect cost of
living increases. Please call us for the current threshold amount. To
determine whether you have distributions in excess of this limit, you must
combine the amounts of all distributions you receive during the calendar year
from all retirement plans, including IRAs. Please consult with your tax
advisor for more complete information, including the availability of favorable
elections.
17. No Special Tax Treatment. No distribution to you or anyone else from
your IRA will qualify for special 5-year or 10-year averaging or capital gains
treatment under the federal income tax laws. All distributions are taxed to
the recipient as ordinary income except for the portion of a distribution
which represents the return of non-deductible contributions.
18. Qualification of the Plan. Your IRA has been approved as to form for use
as an IRA by the Internal Revenue Service. The Internal Revenue Service
approval is a determination only as to the form of the IRA and does not
represent a determination of the merits of the IRA. You may obtain further
information with respect to your IRA from any district office of the Internal
Revenue Service.
19. Designation of Beneficiary. You can designate your beneficiary on the IRA
application. Any new account opened by exchanging money from an existing IRA
account with a valid beneficiary designation will have the same beneficiary
designation as the original account. To change your beneficiary designation,
write to Strong Funds indicating the new beneficiary.
20. Prohibited Transactions. The occurrence of any of the below-listed events
during the existence of your IRA will result in the disqualification of your
account and the entire balance in your IRA will be treated as if distributed to
you and will be taxable to you in the year in which any of the following events
occur:
(a) the sale, exchange, or leasing of any property between your
account and yourself;
(b) the lending of money or other extensions of credit between your
account and yourself; and/or
(c) the furnishing of goods, services, or facilities between you and
your account.
In addition, if you pledge all or part of your IRA as security for a loan, the
portion that is pledged will be treated as if distributed to you and will be
taxed as ordinary income in the year it was pledged. If you are under age 59
1/2, you may also be subject to the 10% penalty tax on early distributions.
21. Reporting for Tax Purposes. contributions to your IRA for which a
deduction is allowed are reported on your Federal Income Tax, Form 1040, for
the tax year contributed. If any nondeductible contributions are made by you
during a tax year, such amounts must be reported on Form 8606 and attached to
your Federal Income Tax Return for the year contributed. If you report a
nondeductible contribution to your IRA and do not make the contribution, you
will be subject to a $100 penalty for each overstatement unless a reasonable
cause is shown for not contributing.
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Other reporting is required if any special taxes or penalties described herein
are due. You must also file Form 5329 with the Internal Revenue Service for
each taxable year in which the contribution limit has been exceeded, a
premature distribution has been made, an excess distribution has been made, or
less than the required minimum amount is distributed from your IRA.
22. Witholding of Income Tax. Federal law requires the custodian to withhold
income taxes on distributions from your IRA, unless you elect otherwise.
23. Service Charges. Any service charges or other types of fees or
assessments made against your IRA, and the amount of such charges, are
described in the Individual Retirement Account Custodial Agreement.
24. Allocation of Earnings. The method of computing and allocating annual
earnings shall be set forth in the Individual Retirement Account Custodial
Agreement. The growth in value of your IRA is neither guaranteed nor
projected.
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INDIVIDUAL RETIREMENT ACCOUNT
CUSTODIAL AGREEMENT
This is an agreement establishing an Individual Retirement Account
(under Section 408(a) of the Internal Revenue Code of 1986, as amended (the
"Code")) between the Depositor and the Custodian.
"Depositor" means the individual for whom the Individual Retirement Account is
established.
"Custodian" means Firstar Trust Company, or any successor thereto.
"Custodial Account" means the account established by the Custodian in the name
of the Depositor.
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 Code Section 402(c), 403(a)(4), 403(b)(8), or
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 Code Section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (as
defined in Code Section 408(m)(2)), except as otherwise permitted by Code
Section 408 (m)(3) which provides an exception for certain gold and silver
coins minted by the U.S. Treasury Department and any coins issued under
the laws of any state.
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 Code Section 408(a)(6) and Proposed Treasury Regulations
Section 1.408-8, including the incidental death benefit provisions of
Proposed Treasury Regulations Section 1.401(a)(9)-2, the provisions of
which are incorporated by reference.
2. Unless otherwise elected by the time of 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.
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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
immediately following the end of the calendar year end in which the
Depositor reaches age 70 1/2). By that date, the Depositor may elect, in
a manner acceptable to the Custodian, to have the balance in the
custodial account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated
beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor
expectancy of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest
has begun, distribution must continue to be made in accordance with
Paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of
the beneficiary or beneficiaries, either:
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following
the year of the Depositor's death. If, however, the
beneficiary is the Depositor's surviving spouse, then this
distribution is not required to begin before December 31 of
the year in which the Depositor would have turned age 70 1/2.
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(c) Except where distribution in the form of an annuity meeting the
requirements of Code Section 408(b)(3) and its related regulations
has irrevocably commenced, distributions are treated as having begun
on the Depositor's required beginning date, even though payments may
actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions
may be accepted in the account.
5. In the case of a distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the Depositor (or the joint life
and last survivor expectancy of the Depositor and the Depositor's
designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under
Paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and
designated beneficiary as of their birthdays in the year the Depositor
reaches age 70 1/2. In the case of a distribution in accordance with
Paragraph 4(b)(ii), determine life expectancy using the attained age of
the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Internal Revenue 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 Code
Section 408(i) and Treasury Regulations Section 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service
(IRS) and the Depositor prescribed by the IRS.
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 Code Section 408(a) and related
regulations will be invalid.
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ARTICLE VII
The Custodian shall amend this agreement from time to time to comply with the
provisions of the Code and related Treasury Regulations. The Custodian may
make other amendments with the consent of the persons whose signatures appear
below.
ARTICLE VIII
1. INVESTMENT OF ACCOUNT ASSETS.
(a) All contributions to the Custodial Account shall be invested in
the shares of any regulated investment company ("Investment Company")
for which Strong Capital Management, Inc. (the "Investment Advisor")
serves as investment advisor, or any other regulated investment
company designated by the Investment Advisor. Shares of stock of an
Investment Company shall be referred to as "Investment Company
Shares."
(b) Each contribution to the Custodial Account shall identify the
Depositor's account number and be accompanied by a signed statement
directing the investment of that contribution. The Custodian may
return to the Depositor, without liability for interest thereon, any
contribution which is not accompanied by adequate account
identification or an appropriate signed statement directing
investment of that contribution.
(c) Contributions shall be invested in whole and fractional
Investment Company Shares at the price and in the manner such shares
are offered to the public. All distributions received on Investment
Company Shares held in the Custodial Account shall be reinvested in
like shares. If any distribution of Investment Company Shares may be
received in additional like shares or in cash or other property, the
Custodian shall elect to receive such distribution in additional like
Investment Company Shares.
(d) All Investment Company Shares acquired by the Custodian shall be
registered in the name of the Custodian or its nominee. The Depositor
shall be the beneficial owner of all Investment Company Shares held in
the Custodial Account.
(e) The Custodian agrees to forward to the Depositor each prospectus,
report, notice, proxy and related proxy soliciting materials
applicable to Investment Company Shares held in the Custodial Account
received by the Custodian. By establishing or having established the
Custodial Account, the Depositor affirmatively directs the Custodian
to vote any Investment Company Shares held on the applicable record
date that have not been voted by the Depositor prior to a shareholder
meeting for which prior notice has been given. The Custodian shall
vote with the management of the Investment Company on each proposal
that the Investment Company's Board of Directors has approved
unanimously. If the Investment Company's Board of Directors has not
approved a proposal unanimously, the Custodian shall vote in
proportion to all shares voted by the Investment Company's
shareholders.
(f) The Depositor may, at any time, by written notice to the Custodian,
redeem any number of shares held in the Custodial Account and
reinvest the proceeds in the shares of any other Investment Company.
Such redemptions and reinvestments shall be done at the price and in
the manner such shares are then being redeemed or offered by the
respective Investment Companies.
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2. AMENDMENT AND TERMINATION.
(a) The Investment Advisor may amend the Custodial Account (including
retroactive amendments) by delivering to the Depositor written notice
of such amendment setting forth the substance and effective date of
the amendment. The Depositor shall be deemed to have consented to any
such amendment not objected to in writing by the Depositor within
thirty (30) days of receipt of the notice, provided that no amendment
shall cause or permit any part of the assets of the Custodial Account
to be diverted to purposes other than for the exclusive benefit of
the Depositor or his beneficiaries.
(b) The Depositor may terminate the Custodial Account by delivering to
the Custodian a written notice of such termination.
(c) The Custodial Account shall automatically terminate upon distribution
to the Depositor or any beneficiary of the entire balance in the
Custodial Account.
(d) At any time after three years from the effective date of this
Agreement, the Custodian may elect to terminate the Custodial Account
upon thirty (30) days written notice to the Depositor.
3. Taxes and Custodial Fees. Any income taxes or other taxes levied or
assessed upon or in respect of the assets or income of the Custodial
Account or any transfer taxes incurred shall be paid from the Custodial
Account. All administrative expenses incurred by the Custodian in the
performance of its duties, including fees for legal services rendered to
the Custodian and the Custodian's compensation, shall be paid from the
Custodial Account, unless otherwise paid by the Depositor or his or her
beneficiaries. The Custodian's current fees are:
(a) Annual maintenance fee - $10.00 per account
Maximum annual maintenance fee - $30.00
(b) Transfer to successor custodian - $10.00
(c) Complete distribution - $10.00
Extraordinary charges resulting from unusual administrative
responsibilities not contemplated by this schedule will be subject to such
additional charges as will reasonably compensate the Custodian for the
services performed.
A separate annual maintenance fee will be charged for each Investment
Company in which the Custodial Account is invested for that calendar year.
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If you decide not to prepay the maintenance fee, it will be deducted in
September of each year, and enough Investment Company Shares will be
redeemed to cover the fees. Upon thirty (30) days written notice to the
Depositor, the Custodian may change the fees payable in connection with
the Custodial Account.
4. REPORTS AND NOTICES.
(a) The Custodian shall keep adequate records of transactions it is
required to perform hereunder. After the close of each calendar year,
the Custodian shall provide to the Depositor or the Depositor's legal
representative a written report or reports reflecting the
transactions effected by it during such year and the assets and
liabilities of the Custodial Account at the close of the year.
(b) All communications or notices shall be deemed to be given upon
receipt by the Custodian of Strong Funds, at P. O. Box 2936,
Milwaukee, Wisconsin 53201, or the Depositor at his or her most
recent address shown in the Custodian's records. The Depositor agrees
to advise the Custodian promptly, in writing, of any change of
address.
5. DESIGNATION OF BENEFICIARY. The Depositor may designate a beneficiary or
beneficiaries to receive benefits from the Custodial Account in the event
of the Depositor's death. In the event the Depositor has not designated a
beneficiary, or if all beneficiaries shall predecease the Depositor, the
following persons shall take in the order named:
(a) The spouse of the Depositor; or
(b) The personal representative of the Depositor's estate, if the
Depositor does not have a spouse.
6. MULTIPLE INDIVIDUAL RETIREMENT ACCOUNTS. In the event the Depositor
maintains more than one individual retirement account (as defined in Code
Section 408(a)) and elects to satisfy his or her minimum distribution
requirements described in Article IV above by making a distribution for
another individual retirement account in accordance with Paragraph 6
thereof, the Depositor shall be deemed to have elected to calculate the
amount of his or her minimum distribution under this Custodial Account in
the same manner as under the individual retirement account from which the
distribution is made.
7. INALIENABILITY OF BENEFITS. The benefits provided under this Custodial
Account shall not be subject to alienation, assignment, garnishment,
attachment, execution, or levy of any kind and any attempt to cause such
benefits to be so subjected shall not be recognized except to the extent
as may be required by law.
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8. ROLLOVER CONTRIBUTIONS AND TRANSFERS. The Custodian shall have the right
to receive rollover contributions and to receive direct transfers from
other custodians or trustees. All contributions must be made in cash or by
check.
9. MINIMUM REQUIRED DISTRIBUTIONS. If a Depositor has attained age 70 1/2 and
has not notified the Custodian in writing as to how to calculate the
minimum required distribution or that a minimum required distribution has
been received from another IRA (reference Article IV, Section 6), a
minimum required distribution will be made in accordance with Article IV,
Section 5.
10. CONFLICT IN PROVISIONS. To the extent that any provisions of this Article
VIII shall conflict with the provisions of Articles IV, V and/or VII, the
provisions of this Article VIII shall govern.
11. APPLICABLE STATE LAW. This Custodial Account shall be construed,
administered, and enforced according to the laws of the State of
Wisconsin.
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EXHIBIT 99.B14.3
STRONG FUNDS
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SECTION 403(b)(7)
RETIREMENT PLAN
PLAN DOCUMENT
Employees of certain exempt organizations and schools may have a portion of
their compensation set aside for their retirement years in a mutual fund
custodial account plan. The employee is not taxed on the amount set aside or the
earnings thereon until the accumulated funds are withdrawn, normally at
retirement.
Under the Strong Funds Section 403(b)(7) Retirement Plan, contributions are
held by the authorized custodian (the "Custodian") and are invested in the
shares of one or more of the regulated investment companies in the fund group
managed by Strong/Corneliuson Capital Management, Inc., the Investment Advisor.
The Strong Funds 403(b)(7) Retirement Plan (the "Plan") is designed to allow
eligible employers described in Article I to make employer contributions to the
Plan and to allow eligible employees to elect to have their employer make
contributions to the Plan on their behalf pursuant to a salary reduction
agreement. This Plan is intended to comply with the provisions of the Employee
Retirement Income Security Act of 1974 (the "Act") and the Internal Revenue
Code of 1986, as amended (the "Code").
ARTICLE I
ELIGIBILITY
A. Any person who performs services as an employee for an employer which is
an organization described in Section 501(c)(3) of the Code and is exempt from
tax under Section 501(a) of the Code, or who performs services for an
educational institution (as defined in Section 170(b)(1)(A)(ii) of the Code) or
for an employer which is a State or political subdivision of a State or an
agency or instrumentality of either, and who obtains the consent of such
employer to participate herein, is eligible to adopt this Plan.
B. Any employer which is an organization described in Section 501(c)(3) of the
Code and is exempt from tax under Section 501(a) of the Code, or is an
educational institution (as defined in Section 170(b)(1)(A)(ii) of the Code) or
a State or a political subdivision of a State or an agency or instrumentality
of either (the "Employer") may, but is not required to, adopt this Plan for
some or all of its eligible employees. It is,
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however, necessary for the Employer if it does not adopt this Plan to
cooperate to the extent of executing the proper documents allowing the employee
to establish a custodial account and to reduce the employee's salary and apply
the amount of the reduction for the employee to this Plan.
C. An eligible individual shall not be entitled to elect to have his
Employer make contributions to the Plan pursuant to a salary reduction
agreement unless the Employer has established a plan or program which allows
all employees of the Employer (except as otherwise permitted by the Code) the
opportunity to have contributions made pursuant to such an agreement. An
Employer may exclude from participation employees who are participants in an
eligible deferred compensation plan under Section 457 of the Code, a qualified
cash or deferred arrangement under Section 401(k) of the Code or another
Section 403(b) annuity contract, and non-resident aliens and certain students.
D. In lieu of or in addition to a salary reduction arrangement, an
Employer may make contributions on behalf of its employees, but an Employer is
not obligated to do so. If an Employer makes contributions (other than
contributions made pursuant to a salary reduction agreement), this Plan as
adopted by such Employer must satisfy the nondiscrimination and minimum
participation requirements as set forth in Section 403(b)(12) of the Code.
E. An eligible individual is not disqualified from participation by
reason of the fact that his Employer provides any other retirement plan for its
employees. However, the contributions under this Plan or any other Section
403(b) plan will be affected by the Employer's contributions to such other
retirement plan.
ARTICLE II
PARTICIPATION
An eligible employee who wishes to establish this Plan (the
"Individual") may do so by completing the Section 403(b)(7) Application,
Beneficiary Designation and Spousal Consent Form, and Salary Reduction
Agreement or Transfer Form (as applicable), obtaining the Employer's signature
and returning all necessary forms to Strong Funds. An eligible Employer may
adopt this Plan by either having the Individual follow the procedure described
in the preceding sentence or by obtaining the Individual's signature on the
Application and following the procedure itself thereafter.
The Application, Beneficiary Designation and Spousal Consent Form, and the
Salary Reduction Agree-
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ment, if applicable, are incorporated herein by reference as part of the Plan.
The Plan will be effective upon written acceptance by or on behalf of the
Custodian on the Application. If the Employer maintains a written Section
403(b) plan for which this Plan serves as a funding vehicle, the terms and
conditions of such plan shall take precedence over the provisions of this Plan
to the extent such provisions are inconsistent.
ARTICLE III
CONTRIBUTIONS
A. An Employer may contribute cash to the Plan in any taxable year in any
amount which (1) is not an "excess contribution" as defined in Section 4973(c)
of the Code and (2) if such contribution is made pursuant to a Salary Reduction
Agreement between the Employer and the Individual, does not exceed the
limitation on "elective deferrals" contained in Section 402(g) of the Code.
Neither the Investment Advisor nor the Custodian shall be responsible for
determining the amount an Employer may contribute on behalf of the Individual,
nor shall either be responsible to recommend or compel Employer contributions
under the Plan.
If during any taxable year the Employer contributes an amount which is an
"excess contribution", such excess contribution (plus any income attributable
thereto) shall, upon written request, be paid to the Individual by the
Custodian or applied towards a contribution for the next subsequent year. In
the event that an amount contributed during a calendar year exceeds the
limitation on "elective deferrals" contained in Section 402(g) of the Code and
the Individual notifies the Custodian, in writing, of such excess amount no
later than March 1 of the following calendar year, the Custodian will
distribute such excess amount (plus any income attributable thereto) to the
Individual not later than the following April 15. Neither the Investment
Advisor nor the Custodian shall have any responsibility for determining that an
excess contribution or excess elective deferral has been made or for
distributing such excess amount except in accordance with the specific written
instructions of the Individual.
B. In addition, the Individual or the Employer may (1) transfer or cause to be
transferred to the Plan the cash surrender or redemption value of a Section
403(b) annuity or variable annuity or the assets of another Section 403(b)(7)
custodial account for which contributions were previously made on the
Individual's behalf or (2) contribute to the Plan any amount distributed from a
Section 403(b) annuity or custodial account which qualifies as a "rollover
contribution" within the meaning of Section 403(b)(8) of the Code. Neither the
Investment Advisor nor
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the Custodian shall be responsible for the tax treatment to the Individual of
any transfer or rollover contribution or for losses resulting from any acts,
omissions or delays of any party transferring or rolling over assets to the
Individual's account.
C. Employer contributions to the Plan (including permissible salary reduction
contributions) are not taxable income in the year contributed. The maximum
amount which may be contributed to the Plan on an Individual's behalf may not
exceed the lesser of:
(1) 25% of compensation (as defined in Section 415(c) of the
Code) or $30,000 whichever is less. For this purpose,
"compensation" generally means amounts included in your taxable
income, but does not include Section 403(b) contributions;
(2) the Individual's "exclusion allowance" under Section
403(b)(2) of the Code, which is calculated as 20% of Includible
Compensation times the number of years of service minus the
aggregate amount previously contributed by the Employer
(including salary reduction contributions), under a Section 403(b)
plan and excluded from the Individual's gross income for prior tax
years. "Includible Compensation" (as defined in Section 403(b)
(3) of the Code) is current taxable compensation from an eligible
employer, but does not include amounts contributed by an eligible
employer to a qualified retirement plan which were not currently
taxed to the employee or Section 403(b) contributions. (A special
minimum exclusion allowance applies to certain church employees
whose adjusted gross income is $17,000 or less under Section
403(b)(2)(D) of the Code.); or
(3) for amounts contributed pursuant to a Salary Reduction Agreement,
$9,500 less any salary reduction contributions made during the
year under a qualified cash or deferred arrangement under
Section 401(k) of the Code, a simplified employee pension under
Section 408(k) of the Code or any other Section 403(b) annuity or
custodial account.
If employed by an educational institution, hospital, home health service
agency, health and welfare service agency or a church or convention or
association of churches, the Individual may elect to be governed by one of
three alternate limitations: (a) in lieu of the limitation described in (1)
above, an amount equal to the lesser of 25% of Includible Compensation plus
$4,000, or $15,000; (b) that the limitation described in (2) above not apply;
or (c) for the year in which the
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Individual's employment terminates, replace
the 25% of compensation (but not the $30,000) limitation described in (1) above
with an amount which is equal to the contributions which could have been made,
but were not, under Code Section 403(b), during a ten-year period ending on the
date of termination. The final "catch-up" contribution in (c) cannot exceed
$30,000 and may only be used once. The alternate limitations available are
mutually exclusive and an election of one of the alternatives is irrevocable.
In addition, any employee of a qualified employer who has completed at least 15
years of service, may increase the amount described in (3) above by the lesser
of:
(a) $3,000:
(b) $15,000, less amounts excluded in prior years under this special
catch up election; or
(c) the excess of $5,000 multiplied by the number of years of
service minus any salary reduction contributions under
a Section 403(b) annuity, a Section 401(k) plan or a simplified
employee pension made by the employer on behalf of the employee for
prior taxable years.
D. The interest of the Individual in the Plan and the assets in his custodial
account shall be nonforfeitable at all times, may not be assigned, and shall
not be subject to alienation, assignment, trustee process, garnishment,
attachment, execution or levy of any kind, except with regard to payment of the
expenses of the Custodian as authorized by the provisions of this Plan.
Notwithstanding the foregoing or any other provision herein to the contrary,
the Custodian may recognize a qualified domestic relations order with respect
to child support, alimony payments or marital property rights if such order
contains sufficient information for the Employer to determine that it meets the
applicable requirements of Section 414(p) of the Code. If any such order so
directs, distribution of benefits to the alternate payee may be made at any
time even if the Individual is not then entitled to a distribution.
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
All contributions made to the Plan shall be used by the Custodian to purchase
shares of any regulated investment company in the fund group of the Investment
Advisor. Each such regulated investment company will be referred to as an
"Investment Company," and the shares of each Investment Company will be
referred to as "Investment Company Shares". Unless otherwise directed by the
Employer, contributions shall be allocated to a separate custodial account
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("Custodial Account") established for the Individual. The Individual (or the
Individual's beneficiary) may direct the Custodian to invest his Custodial
Account in the shares of the Investment Companies or other regulated investment
companies as may be made available by the Investment Advisor in the future. The
Individual (or the Individual's beneficiary) may direct the Custodian to
transfer all or any part of his Custodial Account assets from one Investment
Company to another at any time. In directing the Custodian to invest
contributions and/or Custodial Account assets, the Individual (or the
Individual's beneficiary) shall designate a percentage allocation to any or all
of the then available Investment Companies. The minimum allocation per fund is
$50 or 100% of the contribution, whichever is less. Any changes in the
allocation of future contributions will be effective only when the Custodian
receives written authorization from the Individual. In the event no direction
is made, the Custodian will invest all contributions in the Strong Money Market
Fund, until further notice is received. All dividends and capital gains shall
be reinvested in additional Investment Company Shares.
ARTICLE V
DISTRIBUTIONS
A. The Individual, or his beneficiary or estate in the event of his death,
shall be entitled to distribution of the assets in his Custodial Account upon
the occurrence of one of the following events:
(a) The Individual reaches age 59 1/2.
(b) The Individual terminates his employment.
(c) The Individual becomes disabled.
(d) The Individual's death.
Note that distributions prior to age 59 1/2 may be subject to a 10% additional
tax under the Code.
For purposes of the Plan, the Individual shall be considered disabled if he is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long continued and indefinite duration.
B. In addition, an Individual may request distribution of the assets in his
Custodial Account (to the extent attributable to contributions made pursuant to
a Salary Reduction Agreement, not including any earnings thereon) upon incurring
a substantial financial hardship. A substantial financial hardship shall exist
if the Individual incurs immediate and heavy financial need and that need
cannot be met by other resources reasonably available to the Individual.
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The Individual shall be eligible to receive a hardship distribution from his
Custodial Account after the Custodian's receipt of written notification from
the Employer indicating: (a) that the Individual has incurred a substantial
financial hardship and (b) the specific amount needed to meet the substantial
financial hardship. The amount distributed from the Custodial Account shall not
exceed the amount specified in the notification. The Employer will be
responsible for determining which of the Individual's assets are eligible for
hardship withdrawal.
For purposes of this Plan, a substantial financial hardship shall mean medical
expenses incurred by the Individual, his spouse or a dependent, purchase
(excluding mortgage payments) of a principal residence for the Individual,
payment of tuition for the next semester or quarter of post-secondary education
for the Individual, his spouse or a dependent, the need to prevent the eviction
of the Individual from his principal residence or foreclosure on the mortgage
of the Individual's principal residence, or such other events as may be
approved by the Commissioner of Internal Revenue in rulings, notices or other
published documents.
In determining whether the need cannot be met by other resources reasonably
available to the Individual, the Employer may rely on the Individual's
certification, executed in a form and manner specified by the Employer, that
the need cannot be relieved:
(a) through reimbursement or compensation by insurance or
otherwise;
(b) by reasonable liquidation of the Individual's assets, to
the extent such liquidation would not itself cause an immediate and
heavy financial need;
(c) by cessation of elective deferrals under the Plan; and
(d) by other distributions or nontaxable (at the time of the
loan) loans from plans maintained by the Employer or by any other
employer, or by borrowing from commercial sources on reasonable
commercial terms.
In the event the Individual is unwilling or unable to provide the certification
described above, or in the event the Employer determines that it cannot
reasonably rely on the certification provided by an Individual, then the
requirements of this Paragraph B shall be deemed satisfied only if all of the
following conditions are satisfied:
(a) the distribution is not in excess of the amount of the
immediate and heavy financial need of the Individual:
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(b) the Individual has obtained all distributions, other than hardship
distributions, and all non-taxable (at the time of the loan) loans from
plans maintained by the Employer;
(c) the Individual's elective deferrals under this Plan and all other
plans maintained by the Employer shall be suspended for at least 12
months after receipt of the hardship distribution; and
(d) under this Plan and all other plans maintained by the Employer, the
Individual may not make elective deferrals for the Individual's taxable
year immediately following the taxable year of the hardship distribution
in excess of the limitation on elective deferrals in effect for such next
taxable year under Section 402(g) of the Code less the amount of such
Individual's elective deferrals for the taxable year of the hardship
distribution.
The Employer shall be responsible for:
(a) determining that a substantial financial hardship exists;
(b) designating the amount necessary to meet such a substantial financial
hardship; and
(c) notifying the Custodian in writing of its decisions.
If the Employer does not process hardship distributions in accordance with the
standards set forth under this Plan and applicable law, the hardship
distribution provisions under this Paragraph B shall be ineffective. Neither
the Custodian nor the Investment Advisor shall be responsible for determining
that a substantial financial hardship exists or the amount necessary to satisfy
such hardship and may rely on any written notification from the Employer
certifying the existence and the amount of a substantial financial hardship.
Any determination under Paragraph B is to be made in accordance with uniform
and nondiscriminatory standards established by the Employer. The Individual has
the responsibility of providing the Employer with any and all documents,
financial data or other information which the Employer deems necessary in order
to make the determination.
C. The Individual may elect a form of distribution from among the following
alternatives:
(a) a single sum payment in cash;
(b) equal or substantially equal monthly, quarterly, or annual payments
over a period not extending beyond the life expectancy of the
Individual; or
(c) equal or substantially equal monthly, quarterly, or annual payments
over a period not extending
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beyond the joint and last survivor life expectancy of the Individual and
his beneficiary.
Such election shall be made in writing in such form as shall be acceptable to
the Custodian. After attaining age 70 1/2, certain restrictions may apply to
the Individual's ability to change the period over which payments are made. In
no event shall the Custodian or the Investment Advisor have any responsibility
for determining, or giving advice with respect to life expectancies or minimum
distribution requirements.
If the Individual fails to elect any of the methods of distribution described
above within the time specified for such election, the Custodian may distribute
the Individual's Custodial Account in the form of a single sum cash payment by
the April 1 following the calendar year in which the Individual attains age
70 1/2. If the Individual elects a mode of distribution under subparagraphs
(b) or (c) of this Paragraph C, except as otherwise required by
Section 403(b)(10) of the Code, the amount of the monthly, quarterly or annual
payments shall be determined by dividing the entire interest of the Individual
in the Custodial Account at the close of the prior year by the number of years
remaining in the period specified by the Individual's election.
D. Unless the Individual (or his spouse) elects not to have his life expectancy
recalculated, the Individual's life expectancy (and the life expectancy of the
Individual's spouse, if applicable) will be recalculated annually using their
attained ages as of their birthdays in the year for which the minimum annual
payment is being determined. The life expectancy of the designated beneficiary
(other than the spouse) will not be recalculated. The minimum annual payment
may be made in a series of installments (e.g., monthly, quarterly, etc.) as
long as the total payments for the year made by the date required are not less
than the minimum amounts required.
E. The Individual must receive distributions from the Plan in accordance with
Regulations prescribed by the Secretary of the Treasury pursuant to Section
403(b)(10) of the Code which are hereby incorporated by reference, or in the
absence of such regulations, in accordance with Section 401(a)(9) of the Code.
In general, these provisions require that certian minimum distributions must
commence not later than April 1, following the calendar year in which the
Individual attains age 70 1/2.
F. If the Individual dies before his entire interest in the Custodial Account
is distributed to him, the remaining undistributed balance of such interest
shall be distributed to the beneficiary or beneficiaries, if
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any, designated by the Individual. If no beneficiary designation is made,
distributions shall be made to the Individual's surviving spouse, or the
Individual's estate, in that order.
If the Individual dies after installment payments have commenced, the
beneficiary shall continue to receive distributions in accordance with the
payment method specified by the Individual or may elect, in writing, to receive
a lump sum distribution.
If the Individual dies prior to the commencement of benefits, the beneficiary
may elect, in writing, to receive the distribution in one of the following
forms:
(a) a single sum payment in cash made by December 31 of the
year containing the fifth anniversary of the Individual's death;
or
(b) equal or substantially equal monthly, quarterly, or annual
payments commencing not later than December 31 following the year
of the Individual's death over a period not to exceed the life
expectancy of the beneficiary.
Notwithstanding the foregoing, if the beneficiary is the Individual's spouse,
distributions may be delayed until December 31 of the year in which the
Individual would have attained age 70 1/2. A beneficiary must receive
distributions from the Plan in accordance with the regulations prescribed by
the Secretary of the Treasury pursuant to Section 403(b)(10) of the Code,
including the incidental death benefit requirements, which are hereby
incorporated by reference, or in the absence of such Regulations, in accordance
with Section 401(a)(9) of the Code.
G. The Individual may designate a beneficiary or beneficiaries, and may, in
addition, name a contingent beneficiary. Such designation shall be made in
writing in a form acceptable to the Custodian. The Individual may, at any time,
revoke his or her designation of a beneficiary or change the beneficiary by
filing notice of such revocation or change with the Custodian. Notwithstanding
the foregoing, in the event the Individual is married at the time of his death,
the beneficiary shall be the Individual's surviving spouse unless such spouse
consented in writing to the designation of an alternative beneficiary after
notice of the spouse's rights and such consent was witnessed by a notary public
or representative of the Employer. In the event no valid designation of
beneficiary is on file with the Employer or the Custodian at the date of death
or no designated beneficiary survives him, the Individual's spouse shall be
deemed the beneficiary; in the further event the Individual is unmarried or his
spouse does not survive him, the Individual's estate shall be deemed to be his
beneficiary.
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ARTICLE VI
ADMINISTRATION
Except as otherwise provided in this Plan, the Custodian shall perform solely
the duties assigned to the Custodian hereunder as agent on behalf of the
Individual and any beneficiary. The Custodian shall not be deemed to be a
fiduciary in carrying out the following duties:
(a) Receiving contributions pursuant to the provisions of this
Plan.
(b) Holding, investing and reinvesting the contributions in Investment
Company Shares.
(c) Registering any property held by the Custodian in its own name, or
in nominee or bearer form that will pass delivery.
(d) Making distributions from the Custodial Account in cash.
The Custodian shall mail to the Individual all proxies, proxy soliciting
materials, and periodic reports or other communications that may come into the
Custodian's possession by reason of its custody of Investment Company Shares.
The Individual shall vote the proxy, notwithstanding the fact that the
Custodian may be the registered owner of the Investment Company Shares, and the
Custodian shall have no further liability or responsibility with respect to the
voting of such shares.
The Custodian shall keep accurate and detailed account of its receipts,
investments and disbursements. As soon as practicable after December 31, each
year, and whenever required by Regulations adopted by the Internal Revenue
Service under the Act or the Code, the Custodian shall file with the Individual
a written report of the Custodian's transactions relating to the Custodial
Account during the period from the last previous accounting, and shall file
such other reports with the Internal Revenue Service as may be required by its
Regulations.
Unless the Individual sends the Custodian written objection to a report within
sixty (60) days after its receipt, the Individual shall be deemed to have
approved such report, and in such case, the Custodian shall be forever released
and discharged with respect to all matters and things included therein. The
Custodian may seek a judicial settlement of its accounts. In any such
proceeding the only necessary party thereto in addition to the Custodian shall
be the Individual.
All written notices or communications to the Individual or the Employer shall
be effective when sent by first class mail to the last known address of the
Individual or the Employer on the Custodian's records.
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All written notices or communications to the Custodian shall be mailed or
delivered to the Custodian at its designated mailing address, and no such
written notice of communications shall be effective until the Custodian's
actual receipt thereof. The Custodian shall be entitled to rely conclusively
upon, and shall be fully protected in any action taken by it in good faith in
reliance upon the authenticity of signatures contained in all written notices
or other communications which it receives and which appear to have been sent by
the Individual, the Employer, or any other person.
The Custodian shall make payments from the Custodial Account in accordance with
written directions received from the Individual, and it need not make inquiry as
to the rightfulness of such distribution. If the Custodian has reason to
believe that a distribution may be due, it may, but shall not be required to
make the distribution at the request of any beneficiary who appears to be
entitled thereto. The Custodian shall properly withhold from any payment to the
Individual or beneficiary such amounts as may be required to satisfy any income
or other tax withholding requirements.
The Custodian shall use ordinary care and reasonable diligence in the
performance of its duties as Custodian. The Custodian shall have no
responsibilities other than those provided for herein or in the Act or Code and
shall not be liable for a mistake in judgment, for any action taken in good
faith, or for any loss that is not a result of its gross negligence, except as
provided herein, or in the Act or Code, or regulations promulgated thereunder.
The Individual and the Employer agree to indemnify and hold the Custodian
harmless from and against any liability that the Custodian may incur in the
administration of the Custodial Account, unless arising from the Custodian's
own negligence or willful misconduct or from a violation of the provisions of
the Act or Regulations promulgated thereunder.
The Custodian shall be under no duty to question any direction of the
Individual with respect to the investment of contributions, or to make
suggestions to the Individual with respect to the investment, retention or
disposition of any contributions or assets held in the Custodial Account.
The Custodian shall be paid out of the Custodial Account for expenses of
administration, including the fees of counsel employed by the Custodian, taxes,
and its fees for maintaining the Custodial Account which are set forth in the
Application or in accordance with any schedule of fees subsequently adopted by
the Custodian. The Custodian may sell Investment
12
<PAGE> 13
Company Shares and use the proceeds of sale to pay the foregoing expenses.
The following fees apply to Strong Funds Section 403(b)(7) custodial accounts:
To establish an account $ 8.00
Annual maintenance fee per account $10.00
Nonretirement distribution
to a participant $15.00
Transfer to successor trustee $15.00
Refund of excess contribution $15.00
Periodic retirement distribution $ 2.50
(per distribution)
Systematic Retirement distribution No charge
The Custodian may make changes in the fee schedule at any time.
The Custodian will send account statments periodically, and after all
transactions. Statements will include any information as the law may require,
and in particular the amount of contributions, earnings, distributions, and
total account valuation. The Custodian will also send a statement to the
Internal Revenue Service as required by law.
The Custodian may resign as Custodian of any Individual's Custodial Account
upon sixty (60) days prior notice to the Investment Advisor and thirty (30)
days prior notice to each Individual who will be affected by such resignation.
ARTICLE VII
THE INVESTMENT ADVISOR
The Individual and the Employer delegate to the Investment Advisor the
following powers with respect to the Plan: to remove the Custodian and select a
successor Custodian; and to amend this Plan as provided in Article VIII hereof.
The powers herein delegated to the Investment Advisor shall be exercised by such
officer thereof as the Investment Advisor may designate from time to time, and
shall be exercised only when similarly exercised with respect to all other
Individuals adopting the Plan.
Neither an Investment Company, the Investment Advisor, nor any officer,
director, board, committee, employee or member of any Investment Company or of
the Investment Advisor shall have any responsibility with regard to the
administration of the Plan except as provided in this Article VII of the Plan,
and none of them shall incur any liability of any nature to the Individual or
beneficiary or other person in connection with any act done or omitted to be
done in good faith in the exercise of any power or authority herein delegated to
the Investment Advisor.
13
<PAGE> 14
The Individual and the Employer agree to indemnify and hold the Investment
Companies and the Investment Advisor harmless from and against any and all
liabilities and expenses, including attorneys' and accountants' fees, incurred
in connection with the exercise of, or omission to exercise, any of the powers
delegated to it under this Article, except such liabilities and expense as may
arise from the Investment Advisor's and/or Investment Company's willful
misconduct.
If the Investment Advisor shall hereafter determine that it is no longer
desirable for it to continue to exercise any of the powers hereby delegated to
it, it may relieve itself of any further responsibilities hereunder by notice
in writing to the Individual at least sixty (60) days prior to the date on
which it proposes to discontinue the exercise of the powers delegated to it.
ARTICLE VIII
AMENDMENT AND TERMINATION
The Individual and the Employer delegate to the Investment Advisor the power to
amend this Plan (including retroactive amendments).
The Individual or the Employer may amend the Application (including retroactive
amendment) by submitting to the Custodian a copy of such amended Application,
and evidence satisfactory to the Custodian that the Plan, as amended by such
amended Application, will continue to qualify under the provisions of Section
403(b)(7) of the Code.
No amendment shall be effective if it would cause or permit: (a) any part of
the Custodial Account to be diverted to any purpose that is not for the
exclusive benefit of the Individual and his beneficiaries; (b) the Individual
to be deprived of any portion of his interest in the Custodial Account; or (c)
the imposition of an additional duty on the Custodian without its consent.
The Employer reserves the right to terminate further contributions to this
Plan. The Individual also reserves the right to terminate his adoption of the
Plan in the event that he shall be unable to secure a favorable ruling from the
Internal Revenue Service with respect to this Plan. In the event of such
termination, the Custodian shall distribute the Custodial Account to the
Individual. The Individual also reserves the right to transfer the assets of
his Custodial Account to such other form of Section 403(b)(7) retirement plan
as he may determine, upon written instructions to the Custodian in such form as
the Custodian may reasonably require.
14
<PAGE> 15
ARTICLE IX
PROHIBITED TRANSACTIONS
Except as provided in Section 408 of the Act or Section 4975 of the Code, the
Custodian:
A. Shall not cause the Plan to engage in a transaction if it knows or should
know that such transaction constitutes a direct or indirect:
(1) sale or exchange or leasing of any property between the Plan and a
party in interest;
(2) lending of money or other extension of credit between the Plan and
a party in interest;
(3) furnishing of goods, services, or facilities between the Plan and a
party in interest;
(4) transfer to, or use by or for the benefit of, a party in interest,
of any assets of the Plan; or
(5) acquisition, on behalf of the Plan, of any employer security or
employer real property in violation of Section 407(a) of the Act.
B. Shall not permit the Plan to hold any employer security or employer real
property if it knows or should know that holding such security or real property
violates Section 407(a) of the Act.
C. Shall not deal with the assets of the Plan in its own interest or for its
own account.
D. Shall not in any capacity act in any transaction involving the Plan on
behalf of a party (or represent a party) whose interests are adverse to the
interests of the Plan or the interests of its participants or beneficiaries.
E. Shall not receive any consideration for its own account from any party
dealing with the Plan in connection with a transaction involving the assets of
the Plan; provided that nothing in this Article IX shall be construed to
prohibit the payment to the Custodian of any fees otherwise authorized under
the terms of this Plan.
ARTICLE X
CHANGES IN APPLICABLE LAW
The foregoing Plan provisions are intended to comply with applicable Code
requirements as currently in effect. Certain provisions of the Tax Reform Act
of 1986, effective in 1989, affect the operation and administration of the
Plan. The changes impose additional nondiscrimination, distribution and
withdrawal requirements. An individual should consult his attorney or tax
advisor as to the effect these changes have on his Section 403(b)(7)
contributions.
It should be understood that neither the Investment Advisor nor the Custodian
is in a position to render legal or tax advice and that the information
contained
15
<PAGE> 16
in and the documents furnished with this description merely represent the
Investment Advisor's understanding of the statutes and regulations affecting
the establishment and qualification of a Section 403(b)(7) plan. Accordingly,
an Individual is urged to consult his attorney or tax advisor in connection
with the adoption of the Plan and the submission of a ruling request on his
behalf.
16
<PAGE> 17
[STRONG FUNDS LOGO]
Amendment To The
Strong Funds Section 403(b)(7) Custodial Account
The rules applicable to Section 403(b)(7) arrangements have been
changed. Under the new rules, the maximum amount of compensation that an
employer may consider a participant as earning, regardless of the participant's
actual compensation, is $150,000. To comply with this change in applicable
law, the Strong Funds Section 403(b)(7) Custodial Account has been amended,
effective January 1, 1994, by adding the following at the conclusion of Section
111, Paragraph A.
In calculating the amount of Employer contributions (including
contributions made pursuant to a Salary Reduction Agreement) made on
behalf of an Individual for any plan year beginning on or after January
1, 1994, the annual compensation of the Individual taken into account
under the Plan shall not exceed $150,000 as adjusted by the
Commissioner of the Internal Revenue Service for increases in the cost
of living in accordance with Section 401(a)(17)(B) of the Internal
Revenue Code. The cost of living adjustment in effect for any
calendar year applies to any plan year or other determination period
not exceeding 12 months that begins in such calendar year and over
which Plan contributions are determined. If a plan year or other
determination period consists of fewer than 12 months, the annual
compensation limit for such period is the limit that would otherwise be
in effect multiplied by a fraction, the numerator of which is the
number of months in the plan year or other determination period, and
the denominator of which is 12.
Further, a clarifying change has been made in Article 1, Paragraphs A
and B of the Plan. As amended, these provisions read as follows:
A. Any person who performs services as an employee for an employer which
is an organization described in Section 501(c)(3) of the Code and is
exempt from tax under Section 501(a) of the Code, or who performs
services for an educational institution (as defined in Section 170(b)
(1)(A)(ii) of the Code) that is maintained by an employer which is a
State or political subdivision of a State or agency or instrumentality
of either, and who contains the consent of such employer to
participate herein, is eligible to adopt this Plan.
B. An employer which is an organization described in Section 501(c)(3)
of the Code and is exempt from tax under Section 501(a) of the Code, or
is an educational institution (as defined in Section 170(b)(1)(A)(ii)
of the Code) that is maintained by a State or a political subdivision
of a State or an agency or instrumentality of either (the "Employer")
may, but is not required to, adopt this Plan. It is, however,
necessary for the Employer if it does not adopt this Plan to cooperate
to the extent of executing the proper documents allowing the employee
to establish a custodial account and to reduce the employee's salary
and apply the amount of the reduction to contributions for the
employee under this Plan.
<PAGE> 1
Strong Total Return Fund, Inc.
EXHIBIT 16
SCHEDULE OF COMPUTATION OF
PERFORMANCE QUOTATIONS
<TABLE>
<CAPTION>
I. AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C>
A. Formula
-------
n n -----
P (1 + T) = ERV or T = \ /ERV/P - 1
Where: P = a hypothetical initial payment of $10,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $10,000 payment made
at the beginning of the stated periods at the end of the stated
periods.
B. Calculation
-----------
n -----
T = \ /ERV/P - 1
1. One-year period 10-31-94 through 10-31-95
1 -------------
17.48% = \ /11,748/10,000 - 1
2. Five-year period 10-31-90 through 10-31-95
5 -------------
14.78% = \ /19,919/10,000 - 1
3. Ten-year period 10-31-85 through 10-31-95
10 -------------
11.73% = \ /30,323/10,000 - 1
4. Since inception 12-30-81 through 10-31-95
13.833 -------------
15.19% = \ /70,725/10,000 - 1
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
II. TOTAL RETURN
<S> <C> <C>
A. Formula
-------
EV-IV
-----
IV = TR
Where: EV = Value at the end of the period, including reinvestment of all
dividends and capital gains distributions
IV = Initial value of a hypothetical investment at the net asset value
TR = Total Return
B. Calculation
-----------
EV-IV
-----
IV = TR
One-year period ended October 31, 1995
11,748 - 10,000
---------------
10,000 = 17.48%
</TABLE>
<PAGE> 1
EXHIBIT 99.B18
[GODFREY & KAHN, S. C. LETTERHEAD]
February 23, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Strong Total Return Fund, Inc.
Gentlemen:
We represent Strong Total Return Fund, Inc. (the
"Company"), in connection with its filing of Post-Effective
Amendment No. 20 (the "Post-Effective Amendment") to the
Company's Registration Statement (Registration Nos. 2-73967;
811-3254) on Form N-1A under the Securities Act of 1993 (the
"Securities Act") and the Investment Company Act of 1940. The
Post-Effective Amendment is being filed pursuant to Rule 485(b)
under the Securities Act.
We have reviewed the Post-Effective Amendment and, in
accordance with Rule 485(b)(4) under the Securities Act, hereby
represent that the Post-Effective Amendment does not contain
disclosures which would render it ineligible to become effective
pursuant to Rule 485(b).
Very truly yours,
GODFREY & KAHN, S.C.
/s/ Scott A. Moehrke
Scott A. Moehrke
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000355416
<NAME> STRONG TOTAL RETURN FUND, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 609260
<INVESTMENTS-AT-VALUE> 688394
<RECEIVABLES> 15221
<ASSETS-OTHER> 24
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 703639
<PAYABLE-FOR-SECURITIES> 32053
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 628
<TOTAL-LIABILITIES> 32681
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 565303
<SHARES-COMMON-STOCK> 23947
<SHARES-COMMON-PRIOR> 25685
<ACCUMULATED-NII-CURRENT> 296
<OVERDISTRIBUTION-NII> (295)
<ACCUMULATED-NET-GAINS> 26225
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 79134
<NET-ASSETS> 670958
<DIVIDEND-INCOME> 8013
<INTEREST-INCOME> 4169
<OTHER-INCOME> 0
<EXPENSES-NET> (6020)
<NET-INVESTMENT-INCOME> 6162
<REALIZED-GAINS-CURRENT> 72510
<APPREC-INCREASE-CURRENT> 33837
<NET-CHANGE-FROM-OPS> 112509
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6457)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4004
<NUMBER-OF-SHARES-REDEEMED> (5976)
<SHARES-REINVESTED> 234
<NET-CHANGE-IN-ASSETS> 64144
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (45694)
<OVERDISTRIB-NII-PRIOR> (2204)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4221
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6020
<AVERAGE-NET-ASSETS> 633869
<PER-SHARE-NAV-BEGIN> 23.62
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 4.41
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 28.02
<EXPENSE-RATIO> 1.1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
