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Registration Nos. 2-10653
811-82
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. 81 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36 [X]
(Check appropriate box or boxes)
CGM TRUST
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(Exact Name of Registrant as Specified in Charter)
One International Place, Boston, Massachusetts 02110
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(Address of Principal Executive Offices)
(617) 737-3225
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(Registrant's Telephone Number, including Area Code)
Edward T. O'Dell, Jr. P.C. and Philip H. Newman, Esq.
Goodwin, Procter & Hoar
Exchange Place
Boston, Massachusetts 02109
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant [X] on May 1, 1996 pursuant
to paragraph (b), to paragraph (b),
[ ] 60 days after filing pursuant [ ] on ____________ pursuant to
to paragraph (a)(1), paragraph (a)(1),
[ ] 75 days after filing pursuant [ ] on ____________ pursuant to
to paragraph (a)(2), 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.
STATEMENT UNDER RULE 24f-2(a)(1)
Registrant has registered an indefinite number of shares of CGM Mutual Fund, CGM
Fixed Income Fund, CGM American Tax Free Fund and CGM Realty Fund under the
Securities Act of 1933, as amended, in accordance with Rule 24f-2 under the
Investment Company Act of 1940, as amended. Registrant filed on approximately
February 27, 1996, the Rule 24f-2 Notices for CGM Mutual Fund, CGM Fixed Income
Fund, CGM American Tax Free Fund and CGM Realty Fund for the year ended December
31, 1995.
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CGM TRUST
CROSS REFERENCE SHEET
Items required by Form N-1A
Item No.
of Form N-1A Location/Caption in Prospectus
- ------------ ------------------------------
1 .................................. Cover Page
2 .................................. Schedule of Fees
3 .................................. Financial Highlights
4 .................................. Investment Objective and Policies
5 .................................. The Fund's Investment Manager;
How to Purchase Shares; Back Cover
Page; Additional Facts About the Fund
5A .................................. Financial Highlights
6 .................................. How to Purchase Shares; Cover
Page; Dividends, Capital Gains and
Taxes
7 .................................. Back Cover Page; How to Purchase
Shares; Shareholder Services
8 .................................. How to Redeem Shares
9 .................................. None
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Item No. Location/Caption in Statement
of Form N-1A of Additional Information
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10 .................................. Cover Page
11 .................................. Table of Contents
12 .................................. Not Applicable
13 .................................. Investment Objective, Policies
and Restrictions; Portfolio Turnover
14 .................................. Management of the Fund
15 .................................. Description of the Trust
16 .................................. Management of the Fund--Investment
Advisory and Other Services
17 .................................. Portfolio Transactions and
Brokerage
18 .................................. Description of the Trust
19 .................................. How to Buy Shares; Net Asset
Value and Public Offering Price;
Shareholder Services
20 .................................. Income Dividends, Capital Gain
Distributions and Tax Status
21 .................................. Not Applicable
22 .................................. Advertising and Performance
Information
23 .................................. Financial Statements
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PART A.
Prospectus for CGM Mutual Fund is omitted
--------------
Prospectuses for CGM Realty Fund,
CGM Fixed Income Fund, and CGM American Tax Free Fund
follow
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CGM REALTY FUND
CGM Realty Fund (the "Fund") is a diversified mutual fund and a series of
CGM Trust (the "Trust"), a registered, open-end, no-load management investment
company. The Fund's investment objective is above-average income and long-
term growth of capital. The Fund intends to pursue its objective by investing
primarily in equity securities of companies in the real estate industry. The
Fund seeks to provide a yield in excess of the yield of the Standard and
Poor's 500 Composite Index (the "S&P 500"). The Fund's investment manager is
Capital Growth Management Limited Partnership ("CGM" or the "Investment
Manager").
PROSPECTUS
May 1, 1996
This prospectus sets forth the information you should know before
investing in the Fund. It should be retained for future reference. A Statement
of Additional Information about the Fund dated May 1, 1996 (the "Statement")
has been filed with the Securities and Exchange Commission (the "SEC") and is
available free of charge. Write to the Trust, c/o CGM Investor Services, 222
Berkeley Street, Boston, MA 02116 or call the telephone number listed below to
obtain a Statement. The Statement contains more detailed information about the
Fund and, as amended or supplemented from time to time, is incorporated into
this prospectus by reference.
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For additional information about:
[] Account procedures and status [] New account procedures
[] Redemptions [] Prospectuses
[] Exchanges [] Performance
Call 800-343-5678 Call 800-345-4048
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TABLE OF CONTENTS
Page
Schedule of Fees ................................................... 2
Financial Highlights ............................................... 3
Investment Objective and Policies .................................. 4
Risk Factors ....................................................... 5
Investment Restrictions ............................................ 7
The Fund's Investment Manager ...................................... 7
The Portfolio Manager .............................................. 7
How to Purchase Shares ............................................. 7
Shareholder Services ............................................... 9
How to Redeem Shares ............................................... 10
Telephone Transactions ............................................. 12
Dividends, Capital Gains and Taxes ................................. 12
Pricing of Shares .................................................. 13
Performance Information ............................................ 14
Additional Facts About the Fund .................................... 14
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.
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CGM REALTY FUND
SCHEDULE OF FEES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ........................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) ........................... None
Redemption Fees* .................................................. None
Exchange Fees ..................................................... None
Annual Fund Operating Expenses, After Expense Limitation
(as a percentage of average net assets)
Management Fees, After Waiver ..................................... 0.17%
12b-1 Fees ........................................................ None
Other Expenses .................................................... 0.83%
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Total Fund Operating Expenses, After Expense Limitation ........... 1.00%
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*A wire fee (currently $5.00) will be deducted from proceeds if a shareholder
elects to transfer redemption proceeds by wire.
The purpose of this fee schedule is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly if you
invest in the Fund. CGM has voluntarily agreed, until December 31, 1996, and
thereafter until further notice to the Fund, to limit its management fees and,
if necessary, to bear certain expenses associated with operating the Fund, in
order to limit the Fund's total operating expenses to an annual rate of 1.00%
of the Fund's average net assets. The percentage shown for Management Fees
reflects current fees after such voluntary limitation. For the fiscal year
ended December 31, 1995, without the voluntary expense limitation, the
Management Fees, Other Expenses, and Total Fund Operating Expenses as a
percentage of average net assets would have been 0.85%, 0.83% and 1.68%,
respectively. For additional information about the Fund's fees and expenses,
please see "The Fund's Investment Manager" and the Statement.
The following example illustrates the approximate expenses that you would
incur on a $1,000 investment over the following periods, assuming a 5% annual
rate of return and redemption at the end of each period.
CUMULATIVE
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$10 $32 $55 $122
Please keep in mind that the example shown above is hypothetical and
assumes that the current fee limitation and expense reimbursement will remain
in effect. The information above should not be considered a representation of
past or future return or expenses; the actual return and expenses may be more
or less.
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CGM REALTY FUND
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the indicated period)
These financial highlights have been examined by Price Waterhouse LLP,
independent accountants. The table below should be read in conjunction
with the financial statements and the notes thereto, which, together with
the Report of Independent Accountants thereon, are included in the Fund's
Annual Report and incorporated by reference into the Statement. In
addition to the highlights set forth below, further information about the
performance of the Fund is contained in the Annual Report and the
Statement, which may be obtained from the Trust free of charge.
FOR THE PERIOD
FOR THE MAY 13, 1994(C)
YEAR ENDED THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1994
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Net asset value at beginning
of period ................... $ 9.71 $ 10.00
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Net investment income (after
waiver and reimbursement)(a) 0.54 0.31
Dividends from net investment
income ...................... (0.54) (0.23)
Distributions from tax return
of capital ................. (0.14) (0.08)
Net realized and unrealized
gain (loss) on investments .. 1.32 (0.29)
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Net increase (decrease) in
net asset value ............. 1.18 (0.29)
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Net asset value at end of
period ................... $10.89 $ 9.71
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Total Return (%) (b) ....... 19.8 0.4(d)
Ratios:
Operating expenses to
average net assets (%) ..... 1.00 1.00(d)
Operating expenses to
average net assets before
expense limitation (%) ... 1.68 2.00(d)
Net income to average net
assets (%) ................. 5.51 7.40(d)
Portfolio turnover (%) ..... 85 47(d)
Net assets at end of period
(in thousands) ............. $47,694 $34,277
(a) Fees waived and expenses
reimbursed amounted to . $ 0.07 $ 0.04
(b) The total return would
have been lower had
management fees and
certain expenses not
been waived or
reimbursed during the
period.
(c) Commencement of operations.
(d) Computed on an annualized basis.
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<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is above-average income and long-term
growth of capital. The Fund intends to pursue its objective by investing
primarily in equity securities of companies in the real estate industry. The
Fund seeks to provide a yield in excess of the yield of the S&P 500. There are
no assurances the Fund will achieve its objective and the Fund may change its
objective without shareholder approval.
At least 65% of the Fund's total assets will be invested, under normal
conditions, in equity securities of companies in the real estate industry. A
company is considered in the real estate industry if construction, ownership,
management, financing and sales of residential, commercial or industrial real
estate account for not less than 50% of its gross revenues or net profits.
Companies in the real estate industry include the following: real estate
investment trusts that own properties or make or invest in construction,
development or long-term mortgage loans; brokers or real estate developers;
and companies with significant real estate holdings including but not limited
to hotel chains, supermarkets and mining, lumber and paper companies. Equity
securities in which the Fund may invest include common and preferred stocks,
convertible bonds and warrants.
Up to 35% of the Fund's total assets may be invested in securities of
companies outside the real estate industry. The Fund may invest this portion
of its assets in equity securities or fixed-income securities, including
investment grade securities and, with respect to up to 25% of the Fund's total
assets, lower quality securities which have speculative characteristics and
are subject to special risks. See "Risk Factors -- Non-Investment Grade Risk"
and Appendix for a description of securities ratings. Fixed-income securities
include notes, bonds, preferred stocks, certain asset-backed securities and
money market instruments, including repurchase agreements. Fixed-income
securities are subject to credit risk (the risk that the obligor will default
in the payment of principal and/or interest) and interest rate risk (the risk
that the market value of the securities will change as a result of changes in
market rates of interest). The Fund's investments are also subject to the
market risks inherent in all securities.
REAL ESTATE INVESTMENT TRUSTS
A real estate investment trust ("REIT") is a corporation, or a business
trust that would otherwise be taxed as a corporation, which meets the
definitional requirements of the Internal Revenue Code of 1986, as amended
(the "Code"). The Code permits a qualifying REIT to deduct dividends paid,
thereby effectively eliminating corporate level federal income tax and making
the REIT a pass-through vehicle for federal income tax purposes. To meet the
definitional requirements of the Code, a REIT must, among other things, invest
substantially all of its assets in interests in real estate (including
mortgages and other REITs) or cash and government securities, derive most of
its income from rents from real property or interest on loans secured by
mortgages on real property, and distribute to shareholders annually 95% or
more of its otherwise taxable income.
REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership
or leasehold ownership of land and buildings and derives its income primarily
from rental income. An equity REIT may also realize capital gains (or losses)
by selling real estate properties in its portfolio that have appreciated (or
depreciated) in value. A mortgage REIT invests primarily in mortgages on real
estate, which may secure construction, development or long-term loans. A
mortgage REIT generally derives its income primarily from interest payments on
the credit it has extended. A hybrid REIT combines the characteristics of
equity REITs and mortgage REITs, generally by holding both ownership interests
and mortgage interests in real estate. It is anticipated, although not
required, that under normal circumstances a majority of the Fund's investments
in REITs will consist of equity REITs.
Equity REITs may be further characterized as operating companies or
financing companies. To the extent that an equity REIT provides operational
and management expertise to the properties held in its portfolio, the REIT
generally exercises some degree of control over the number and identity of
tenants, the terms of their tenancies, the acquisition, construction, repair
and maintenance of properties and other operational issues. A mortgage REIT or
an equity REIT that provides financing rather than operational and management
expertise to the properties in its portfolio will generally not have control
over the operations that are conducted on the real estate in which the REIT
has an interest. It is anticipated, although not required, that under normal
circumstances a majority of the Fund's equity REIT investments will consist of
securities issued by operating companies.
TEMPORARY DEFENSIVE POLICY
For temporary defensive purposes, the Fund may invest, without limitation,
in securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"); certificates of deposit,
demand and time deposits and bankers' acceptances of banks whose deposits are
insured by the Federal Deposit Insurance Corporation and have assets of at
least $1 billion, including U.S. branches of foreign banks and foreign
branches of U.S. banks; prime commercial paper, including master demand notes;
and repurchase agreements secured by U.S. Government Securities.
REPURCHASE AGREEMENTS
Up to 25% of the Fund's total assets may be invested in repurchase
agreements entered into with banks and primary dealers in U.S. Government
Securities pursuant to which the Fund buys a security at one price and
simultaneously agrees to sell it back at a specified date and higher price.
Should the counterparty in the repurchase agreement declare bankruptcy or
otherwise default on its obligation, the Fund could experience difficulties and
delays in recovering cash and a possible loss if the value of the security
decreases in the interim or as a result of such difficulties and delays.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities.
Securities that may be resold without registration pursuant to Rule 144A may
be treated as liquid for these purposes, subject to the supervision and
oversight of the Board of Trustees, in accordance with guidelines established
by the Board of Trustees to determine whether there is a readily available
market for such securities. These securities may include securities issued by
certain REITs that are not publicly traded.
PORTFOLIO TURNOVER
The Fund's objective is above-average income and long-term growth of
capital and the Fund does not purchase securities with the intention of
engaging in short-term trading. The Fund, however, will sell any particular
security and reinvest proceeds when it is deemed prudent by the Investment
Manager, regardless of the length of the holding period. This policy may
result in higher securities transaction costs. To the extent that this policy
results in gains on investments, the Fund will make distributions to its
shareholders, which may accelerate the shareholders' tax liabilities. See
"Dividends, Capital Gains and Taxes."
RISK FACTORS
REAL ESTATE AND REIT RISK
CGM Realty Fund is not intended to constitute a complete investment
program. The Fund invests primarily in companies in the real estate industry
and, therefore, may be subject to risks associated with the direct ownership
of real estate, such as decreases in real estate values, overbuilding,
increased competition and other risks related to local or general economic
conditions, increases in operating costs and property taxes, changes in zoning
laws, casualty or condemnation losses, possible environmental liabilities,
regulatory limitations on rent and fluctuations in rental income. Equity REITs
generally experience these risks directly through fee or leasehold interests,
whereas mortgage REITs generally experience these risks indirectly through
mortgage interests, unless the mortgage REIT forecloses on the underlying real
estate.
REITs in which CGM Realty Fund invests may be affected by changes in
underlying real estate values, which may have an exaggerated effect to the
extent that REITs in which the Fund invests may concentrate investments in
particular geographic regions or property types. Additionally, rising interest
rates may cause investors in REITs to demand a higher annual yield from future
distributions, which may in turn decrease market prices for equity securities
issued by REITs. Rising interest rates also generally increase the costs of
obtaining financing, which could cause the value of the Fund's investments to
decline. During periods of declining interest rates, certain mortgage REITs
may hold mortgages that the mortgagors elect to prepay, which prepayment may
diminish the yield on securities issued by such mortgage REITs. In addition,
mortgage REITs may be affected by the ability of borrowers to repay when due
the debt extended by the REIT and equity REITs may be affected by the ability
of tenants to pay rent.
Certain REITs have relatively small market capitalization, which may tend
to increase the volatility of the market price of securities issued by such
REITs. Furthermore, REITs are dependent upon specialized management skills,
have limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. By investing in REITs
indirectly through CGM Realty Fund, a shareholder will bear not only his
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs. REITs depend generally on their ability to generate
cash flow to make distributions to shareholders.
NON-INVESTMENT GRADE RISK
The Fund may invest up to 25% of its total assets in securities rated
non-investment grade. Securities rated non-investment grade (lower than Baa by
Moody's Investor Services Inc. ("Moody's") or lower than BBB by Standard and
Poors Corporation ("S&P")) are sometimes referred to as "high yield" or "junk"
bonds. Such securities may include both debt securities (including asset-backed
securities) and preferred stock. See the Appendix for further information about
"Non-Investment Grade Risk." During the fiscal year ended December 31, 1995,
the dollar-weighted average of securities rated below Baa by Moody's or BBB by
S&P amounted to less than 5% of the Fund's total assets. Investors should
consider the following risks associated with high yield, high risk securities
before investing in the Fund.
High yield securities may be regarded as predominantly speculative with
respect to the issuer's continuing ability to make principal and interest
payments. Analysis of the creditworthiness of issuers of high yield securities
may be more complex than for issuers of higher quality debt securities, and
the ability of a Fund to achieve its investment objective may, to the extent
of its investment in high yield securities, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were investing in
higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to
interest-rate changes than more highly rated investments, but more sensitive
to adverse economic downturns or individual corporate developments. Yields on
high yield securities will fluctuate. If the issuer of high yield securities
defaults, the Fund may incur additional expenses to seek recovery.
The secondary markets on which high yield securities are traded may be
less liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which the Fund
could sell a particular high yield security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in
the creditworthiness of the issuer, and could adversely affect and cause large
fluctuations in the daily net asset value of the Fund's shares. Adverse
publicity and investor perceptions may decrease the values and liquidity of
high yield securities.
It is reasonable to expect any recession to severely disrupt the market
for high yield securities, have an adverse impact on the value of such
securities, and adversely affect the ability of the issuers of such securities
to repay principal and pay interest thereon. New laws and proposed new laws
may adversely impact the market for high yield securities.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental restrictions, which may not
be changed without the approval of shareholders. Certain other fundamental and
non-fundamental restrictions are set forth in the Statement. The Fund may not:
[] With respect to 75% of its total assets, purchase more than 10% of the
outstanding voting securities of any one issuer or invest more than 5% of
the value of its total assets in the securities of any one issuer, except
the U.S. Government, its agencies and instrumentalities; or
[] Borrow money, except that it may borrow from banks in an amount not to
exceed one-third of the value of its total assets and may borrow for
temporary purposes from entities other than banks in an amount not to
exceed 5% of the value of its total assets.
THE FUND'S INVESTMENT MANAGER
The Fund's investment manager is Capital Growth Management Limited
Partnership, One International Place, Boston, Massachusetts 02110. CGM, an
investment advisory firm founded in 1989, manages eight mutual fund portfolios
and advisory accounts for other clients. The general partner of CGM is a
corporation controlled equally by Robert L. Kemp and G. Kenneth Heebner, who are
trustees and officers of the Fund.
In addition to selecting and reviewing the Fund's investments, CGM
provides executive and other personnel for the management of the Fund. The
Trust's Board of Trustees supervises CGM's conduct of the affairs of the Fund.
Until December 31, 1996, and thereafter until further notice to the Fund,
CGM has voluntarily agreed to limit its management fees and, if necessary, to
bear certain expenses associated with operating the Fund, in order to limit
the Fund's total operating expenses to an annual rate of 1.00% of the Fund's
average net assets. Without these waivers and reimbursements, the investment
management fee would be 0.85% on the first $500,000,000 and 0.75% on amounts
in excess of $500,000,000. In 1995, the Fund paid 0.17% of its average annual
net assets in management fees to CGM.
THE PORTFOLIO MANAGER
G. Kenneth Heebner is the manager of CGM Realty Fund. In 1989, Mr. Heebner
founded CGM with Robert L. Kemp. Prior to establishing the new company, Mr.
Heebner managed mutual fund portfolios at Loomis, Sayles & Company,
Incorporated. He currently manages CGM Capital Development Fund and CGM Mutual
Fund, and with Janice H. Saul, co-manages CGM Fixed Income Fund.
HOW TO PURCHASE SHARES
The Trust sells shares of the Fund directly to investors without any sales
load. You may make an initial purchase of Fund shares by submitting a
completed application form and payment to:
The CGM Funds
P.O. Box 449
Boston, Massachusetts 02117-0449
The minimum initial investment is $2,500 for regular accounts and $1,000
for retirement plans (see "Shareholder Services -- Retirement Plans") and
accounts set up under the Uniform Gifts to Minors Act ("UGMA") or the Uniform
Transfers to Minors Act ("UTMA"). Subsequent investments must be at least $50.
See "Shareholder Services" below for further information about minimum
investments in certain other circumstances.
As of the date of this Prospectus, shares of the Fund are not available to
persons in South Dakota.
All investments made by check should be in U.S. dollars and made payable
to CGM Realty Fund. Third party checks (i.e. checks not payable to CGM Realty
Fund) are generally not accepted and checks drawn on credit card accounts will
not be accepted. The Trust reserves the right to reject any third party checks
and checks drawn on credit card accounts.
After accepting an order, the Trust forwards the application and payment
to the CGM Shareholder Services Department ("CGM Shareholder Services") of
Boston Financial Data Services, Inc. ("BFDS"), which is the shareholder
servicing agent for State Street Bank and Trust Company ("State Street Bank").
CGM Shareholder Services then opens an account, applies the payment to the
purchase of full and fractional shares, and mails a statement of the account
confirming the transaction.
After your account has been established, you may send subsequent
investments at any time directly to the shareholder servicing agent at the
following address:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The remittance for any subsequent investment must be accompanied by either
the Additional Investment Stub detached from a statement of account, or a note
containing sufficient information to identify the account, i.e., the Fund
name, your account number, your name and social security number.
Subsequent investments may also be made by federal funds wire. Instruct
your bank to wire federal funds to State Street Bank and Trust Company, ABA
#011000028. The text of the wire should read as follows: "DDA 99046336,
$ Amount, STATE ST BOS ATTN Mutual Funds. Credit CGM Realty Fund, Shareholder
Name, Shareholder Account Number." Your bank may charge you a fee for
transmitting funds by wire.
The Trust reserves the right to reject any purchase order, including
orders in connection with exchanges, for any reason the Trust, in its sole
discretion, deems appropriate. Although the Trust does not anticipate that it
will do so, the Trust reserves the right to suspend, change or withdraw the
offering of shares of the Fund.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust (in the case of an
initial investment) or by CGM Shareholder Services (in the case of subsequent
investments).
If you wish transactions in your account to be effected by another person
under a power of attorney from you, special rules apply. Please contact the
Trust or CGM Shareholder Services for details.
An investor will not receive any certificates for shares unless the
investor requests them in writing from CGM Shareholder Services. The Trust's
system for recording investments eliminates the problems of handling and
safekeeping certificates.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services as more fully described
in the Statement. Explanations and forms are available from the Trust.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of money market funds
currently distributed by New England Funds, L.P. ("Money Market Funds"). You
may also exchange shares for shares of CGM Mutual Fund, CGM Fixed Income Fund
or CGM American Tax Free Fund. Additionally, you may exchange shares for
shares of CGM Capital Development Fund, but only if you were a shareholder on
September 24, 1993, and have remained a shareholder in the CGM Capital
Development Fund continuously since that date. CGM Capital Development Fund
shares are not generally available to other persons except in special
circumstances that have been approved by, or under the authority of, the Board
of Trustees of that Fund.
All exchanges may be made without charge. You may make an exchange by
written instruction or, if a written authorization for telephone exchanges is
on file with CGM Shareholder Services, you may call 800-343-5678. See
"Telephone Transactions." Exchanges must be for amounts of at least $1,000.
Under certain circumstances, before an exchange can be made, additional
documents may be required to verify the authority or legal capacity of the
person seeking the exchange. If you wish to make an exchange into a new
account, the exchange must satisfy the applicable minimum initial investment
requirements. Exchange requests cannot be revoked once they have been received
in good order.
Investors should not view the exchange privilege as a means for taking
advantage of short-term swings in the market, and the Fund limits the number
of exchanges each shareholder may make to four exchanges per account (or two
round trips) per calendar year. Monthly automatic exchanges from the Money
Market Funds to the Fund are exempt from this restriction. The Trust also
reserves the right to prohibit exchanges during the first 15 days following an
investment in the Fund. The Trust may terminate or change the terms of the
exchange privilege. In general, shareholders will receive notice of any
material change to the exchange privilege at least 60 days prior to the
change. For federal income tax purposes, an exchange constitutes a sale of
shares, which may result in a capital gain or loss.
SYSTEMATIC WITHDRAWAL PLAN
If the value of your account is at least $10,000, you may have periodic
cash withdrawals automatically paid to you or any person you designate. If
checks are returned to the Fund as "undeliverable" or remain uncashed for more
than six months, the plan will be cancelled. Undeliverable or uncashed checks
shall be cancelled and such amounts shall be reinvested in the Fund at the per
share net asset value determined as of the date of cancellation of such
checks.
AUTOMATIC INVESTMENT PLAN ("AIP")
Once your account has been established, voluntary monthly investments of
at least $50 may be made automatically by pre-authorized withdrawals from your
checking account. Debits from savings banks and credit unions generally are
not acceptable. Additional information about this Plan is set forth in the
Statement and also in Sections 7 and 9 of the Account Application.
RETIREMENT PLANS
The Fund's shares may be purchased by certain types of tax-deferred
retirement plans. CGM makes available retirement plan forms and plan documents
for IRAs, SEP-IRAs, 403(b)(7) custodial accounts, and money purchase pension
and profit sharing plans ("CGM Retirement Plans").
SHAREHOLDER REPORTS
Shareholders will receive the Fund's financial statements and a summary of
the Fund's investments at least semiannually. The Fund intends to consolidate
mailings of annual, semiannual, and quarterly reports to households having
multiple accounts with the same address of record and to furnish a single copy
of each report to that address. Mailing of prospectuses and proxy statements
will not be consolidated and if a report is included in such mailings, each
shareholder will receive a separate copy. You may request additional reports
by notifying the Fund in writing, or by calling the Trust.
Shareholders will receive statements confirming all purchases,
redemptions, and changes of address. You may call CGM Shareholder Services and
request a duplicate statement for the current year without charge. A fee may
be charged for any duplicate information requested for prior years.
HOW TO REDEEM SHARES
You can redeem all or part of your shares in the Fund in three different
ways: by sending a written request for a check or wire representing the
redemption proceeds, by making a telephone request for redemption by check
(provided that the amount to be redeemed is not more than $25,000 and the
check is being sent to you at your record address, which has not changed in
the prior three months) or by making a telephone request for redemption
proceeds to be wired to a bank that you have predesignated. The redemption
price will always be the net asset value per share next determined after the
redemption request is received by CGM Shareholder Services in good order
(including any necessary documentation). Necessary documentation may include,
in certain circumstances, documents verifying the authority or legal capacity
of the person seeking to redeem shares. Redemption requests cannot be revoked
once they have been received in good order.
If you elect to redeem shares in writing, send your written request to:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The written request must include the name of the Fund, your account number,
the exact name(s) in which your shares are registered, the number of shares or
the dollar amount to be redeemed and mailing or wire instructions. All owners
of shares must sign the request in the exact name(s) in which the shares are
registered (which appear(s) on your confirmation statement) and should
indicate any special capacity in which they are signing (such as trustee or
custodian or on behalf of a partnership, corporation or other entity). If you
are signing in a special capacity, you may wish to contact CGM Shareholder
Services in advance to determine whether additional documentation will be
required before you send a redemption request.
Redemptions from CGM Retirement Plans for which State Street Bank is the
trustee must contain additional information. Please contact CGM Shareholder
Services for instructions and forms. Complete information, including tax
withholding instructions, must be included in your redemption request.
If you are redeeming shares worth more than $25,000 or requesting that the
proceeds check be made out to someone other than the registered owner(s) or be
sent to an address other than your record address (or sent to your record
address if such address has been changed within the previous three months),
you must have your signature guaranteed by an "eligible guarantor institution"
as defined in the rules under the Securities Exchange Act of 1934 (including a
bank, broker, dealer, credit union, national securities exchange, registered
securities association, clearing agency or savings association, but not a
notary public).
If you hold certificates representing your investment, you must enclose
the certificates and a properly completed redemption form or stock power. You
bear the risk of loss of such certificates; consequently you may wish to send
your certificates by registered mail.
If you elect to redeem shares by telephone, call CGM Shareholder Services
directly at 800-343-5678. See "Telephone Transactions." Telephone redemptions
are not available for CGM Retirement Plans. When you make a redemption request
by telephone, you may choose to receive redemption proceeds either by having a
check mailed to the address of record on the account, provided the address has
not changed for three months and you are redeeming $25,000 or less, or by having
a wire sent to a bank account you have previously designated.
Telephone redemptions by check are available to all shareholders of the
Fund automatically and no special application is necessary. You may select the
telephone redemption wire service when you fill out your initial application
or you may select it later by completing the Service Options Form (with a
signature guarantee), available from the Trust or CGM Shareholder Services.
A telephone redemption request must be received by CGM Shareholder
Services prior to the close of the New York Stock Exchange (the "Exchange").
If you telephone your request to CGM Shareholder Services after the Exchange
closes or on a day when the Exchange is not open for business, the Trust
cannot accept your request and a new one will be necessary.
Wire redemptions by telephone may be made only if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member or
such System. If your account is with a savings bank, it must have only one
correspondent bank that is a member of the Federal Reserve System. A wire fee
(currently $5) will be deducted from the proceeds. If you decide to change the
bank account to which proceeds are to be wired, you must send in this change
on the Service Options Form with a signature guarantee.
Proceeds resulting from a written or regular telephone redemption request
will normally be mailed to you within seven days after receipt of your request
in good order. Telephone wire redemption proceeds will normally be wired to your
bank within seven days following receipt of a proper redemption request. If you
purchased your Fund shares by check (or through your AIP) and elect to redeem
shares within 15 days of such purchase, you may experience delays in receiving
redemption proceeds. The Trust will generally postpone sending your redemption
proceeds from such investment until the Trust can verify that your check (or AIP
investment) has been or will be collected. There will be no such delay for
redemptions following investments paid for by federal funds wire or by bank
cashier's check, certified check or treasurer's check. If checks representing
redemption proceeds are returned "undeliverable" or remain uncashed for six
months, such checks shall be cancelled and such proceeds shall be reinvested in
the Fund at the per share net asset value determined as of the date of
cancellation of such checks.
The Fund may not suspend the right of redemption, or postpone payment for
more than seven days, except when the Exchange is closed for other than
weekends or holidays, when trading on the Exchange is restricted, during an
emergency (as determined by the SEC) that makes it impracticable for the Fund
to dispose of its securities or to determine fairly the value of its net
assets, or during any other period permitted by the SEC for the protection of
investors.
Because the expense of maintaining small accounts is disproportionately
high, the Fund may close accounts with 20 shares or less, and mail the
proceeds to the shareholder. Shareholders who are affected by this policy will
be notified of the Fund's intention to close the account and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to CGM Retirement Plans and UGMA/UTMA
accounts.
TELEPHONE TRANSACTIONS
You may initiate three types of transactions by telephone:
[] Telephone Exchanges
[] Telephone Redemptions By Wire
[] Telephone Redemptions By Check
The terms and provisions for each of these services are explained fully in the
preceding sections. Once a telephone transaction request has been placed, it
cannot be cancelled.
The Telephone Exchange privilege and/or Telephone Redemptions By Wire
privilege must be elected by you when you fill out your initial application or
you may select either option later by completing the Service Options Form
(with a signature guarantee) available from the Trust or CGM Shareholder
Services. The Telephone Redemptions By Check privilege is available to
shareholders of the Fund automatically, and no special application is
necessary.
The telephone redemption privileges are not available for IRAs, SEP-IRAs,
403(b)(7) custodial accounts or for money purchase pension and profit sharing
accounts under a CGM Retirement Plan (in which State Street Bank is the
trustee).
The Fund will employ reasonable procedures to confirm that instructions
received by telephone (including instructions with respect to changes in
addresses) are genuine, such as requesting personal identification information
that appears on your account application and recording the telephone
conversation. You will bear the risk of loss due to unauthorized or fraudulent
instructions regarding your account, although the Fund may be liable if it
does not employ reasonable procedures.
DIVIDENDS, CAPITAL GAINS AND TAXES
The Fund intends to declare and pay quarterly dividends consisting of
substantially all net investment income. Any capital gains distributions will
normally be made in December (after applying any available capital loss
carryovers) but may be made more frequently as deemed advisable by the Board
of Trustees. The Fund's dividend and capital gains distributions may be
reinvested in additional shares or received in cash. Certain restrictions may
apply to participants in CGM Retirement Plans.
If you elect to receive distributions in cash and checks are returned
"undeliverable" or remain uncashed for six months, your cash election will be
changed automatically and your future dividend and capital gains distributions
will be reinvested in the Fund at the per share net asset value determined as of
the date of payment of the distribution. In addition, following such six month
period, any undeliverable or uncashed checks shall be cancelled and such amounts
reinvested in the Fund at the per share net asset value determined as of the
date of cancellation of such checks.
The Fund intends to qualify annually as a "regulated investment company"
under the Internal Revenue Code. To qualify, the Fund must meet certain
income, distribution and diversification requirements. In any year in which
the Fund so qualifies it generally will not be subject to federal income or
excise tax to the extent that its taxable income is distributed to
shareholders.
The distributions received by the Fund from its investments may, for
federal income tax purposes, consist of ordinary income, long-term capital
gains, or a return of capital. The characterization of these distributions to
the Fund may, in turn, affect the tax treatment of the Fund's distributions to
its shareholders. Dividends and distributions are taxable to shareholders in
the same manner whether received in cash or reinvested in additional shares of
the Fund.
Dividends paid by the Fund from net investment income, including
dividends, interest and net short-term capital gains, will be taxable to
shareholders as ordinary income. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital losses)
which are designated by the Fund as capital gains distributions are taxable as
long-term capital gains, regardless of the length of time shareholders have
owned shares in the Fund. To the extent that the Fund makes a distribution in
excess of its current and accumulated earnings and profits, the distribution
will be treated first as a tax-free return of capital, reducing the tax basis
in a shareholder's shares, and then, to the extent the distribution exceeds
such basis, as a taxable gain to be realized upon sale of such shares.
Distributions that the Fund receives from a REIT, and dividends of the
Fund attributable to such distributions, will not constitute "dividends" for
purposes of the dividends-received deduction applicable to corporate
shareholders.
A distribution will be treated as paid by the Fund and received by its
shareholders on December 31 of the current calendar year if it is declared by
the Fund in October, November, or December of that year with a record date in
such a month and paid by the Fund in January of the subsequent year.
Any dividends or distributions paid shortly after a purchase of shares
will have the effect of reducing the per share net asset value of the shares
by the amount of the dividends or distributions. Although in effect a return
of capital, these distributions are subject to taxes, even if their effect is
to reduce the per share net asset value below a shareholder's cost. The Fund
will notify you annually as to the tax status of dividend and capital gains
distributions paid by the Fund.
The sale or other disposition of shares of the Fund, including a
redemption of shares or an exchange of shares into another fund, is a taxable
event and may result in a capital gain or loss which will be long-term or
short-term, depending upon the shareholder's holding period for the shares.
Dividend distributions, capital gains distributions, and capital gains or
losses from redemptions and exchanges may be subject to state and local taxes.
In certain states, a portion of the Fund's income derived from certain direct
U.S. Government obligations may be exempt from state and local taxes. The Fund
will indicate each year the portion of the Fund's income, if any, that is
derived from such obligations.
The Fund is required to withhold a portion of taxable dividends, capital
gains distributions, and redemptions paid to individuals and certain other
classes of shareholders if they fail to furnish the Fund with their correct
taxpayer identification number and certain certifications regarding their tax
status, or if they are otherwise subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against a shareholder's normal federal income tax liability. For additional
information about withholding, please see the Statement.
BFDS, the shareholder servicing agent, will send you and the Internal
Revenue Service an annual statement detailing federal tax information,
including information about dividends and distributions paid to you during the
preceding year. If you redeem or exchange shares in any year, following the
end of the year, you will receive a statement providing the cost basis and
gain or loss of each share lot that you sold during such year. Your CGM
account cost basis will be calculated using the "single category average cost
method," which is one of the four calculation methods allowed by the IRS. Be
sure to keep these statements as permanent records. A fee may be charged for
any duplicate information that you request.
The tax discussion set forth above is included for general information
only. Shareholders and prospective investors should consult their own tax
advisers concerning the tax consequences of an investment in the Fund.
PRICING OF SHARES
The share price or "net asset value" per share of the Fund is computed
daily by dividing the total value of the investments and other assets of the
Fund, less any liabilities, by the total outstanding shares of the Fund. The
net asset value per share of the Fund is determined as of the close of the
regular trading session of the Exchange on each day the Exchange is open for
trading. Portfolio securities are generally valued at their market value. In
certain cases, market value may be determined on the basis of information
provided by a pricing service approved by the Board of Trustees. Instruments
with maturities of sixty days or less are valued at amortized cost, which
approximates market value. Other assets and securities which are not readily
marketable will be valued in good faith at fair value using methods determined
by the Board of Trustees. The valuation of portfolio securities is more fully
described in the Statement.
PERFORMANCE INFORMATION
The Fund may include yield and total return information in advertisements
or other written sales material. The Fund will show its average annual total
return for the most recent one-year period and the life of the Fund through
the end of the most recent calendar quarter. Total return is measured by
comparing the value of an investment in the Fund at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming automatic reinvestment of all dividends and capital gains
distributions). The Fund may also show total return over other periods on an
aggregate basis for the period presented.
Yield is computed in accordance with the SEC's standardized formula by
dividing the adjusted net investment income per share earned during a recent
thirty-day period by the maximum offering price of a Fund share on the last
day of the period. The Fund may also present one or more distribution rates in
its sales literature. These rates will be determined by annualizing the Fund's
distributions from net investment income and net short-term capital gains over
a recent twelve-month, three-month, or thirty-day period and dividing that
amount by the net asset value on the last day of such period.
The Fund may compare its performance to that of recognized financial
indices or groups of mutual funds. It may also include its ranking among other
mutual funds or its rating as published by mutual fund ranking services or
major financial publications. All performance information is based on past
results and is not an indication of likely future performance.
ADDITIONAL FACTS ABOUT THE FUND
[] The Trust was organized in 1986 as a Massachusetts business trust and is
authorized to issue an unlimited number of full and fractional shares in
multiple series. The Trust currently has four series: CGM Mutual Fund (a
successor to Loomis-Sayles Mutual Fund), CGM Fixed Income Fund, CGM American
Tax Free Fund, and CGM Realty Fund (which commenced operations on May 13,
1994).
[] When a shareholder invests in the Fund, the shareholder acquires freely
transferable shares of beneficial interest that entitle the shareholder to
receive dividends and to cast one vote at shareholder meetings for each
share owned. On matters affecting the Fund, shares of the Fund vote
separately from shares of other series of the Trust, except as otherwise
required by law.
[] The investment objective, investment practices and other non-fundamental
policies of the Fund can be changed without shareholder approval. If there
is a change in the Fund's investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their current
financial position and needs.
<PAGE>
APPENDIX
RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair 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 risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during 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 of
maintenance of other terms of the contract over any long period of time may be
small.
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.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. PREFERRED STOCK RATINGS:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of convertible preferred
stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than the aaa
and aa classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative
elements, and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
DESCRIPTION OF STANDARD & POOR'S CORPORATION CORPORATE BOND AND PREFERRED
STOCK RATINGS:
AAA -- Securities rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA -- Securities rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A -- Securities rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than securities in higher
rated categories.
BBB -- Securities rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit 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 securities in this category than for securities in higher rated
categories.
BB, B and CCC -- Securities rated BB, B and CCC are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB represents
the lowest degree of speculation and CCC the highest degree of speculation.
While such securities will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB -- Securities rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BBB- rating.
B -- Securities rated B have a greater vulnerability to default but
currently have 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 B or BB- rating.
CCC -- Securities rated CCC have a currently identifiable vulnerability to
default, and are 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, they are 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.
Plus (+) or Minus (-): The ratings from A to CCC may be modified by the
addition of a plus or minus sign to show relative standing within major rating
categories.
<PAGE>
INVESTMENT ADVISER CGM
Capital Growth Management
Limited Partnership REALTY FUND
One International Place
Boston, MA 02110 Prospectus & Application
May 1, 1996
TRANSFER AND DIVIDEND PAYING AGENT
AND CUSTODIAN OF ASSETS A No-Load Fund
State Street Bank and Trust Company
Boston, MA 02102
SHAREHOLDER SERVICING AGENT FOR
STATE STREET BANK AND TRUST COMPANY
Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, MA 02266
RFP96
[FENCER LOGO]
<PAGE>
CGM AMERICAN TAX FREE FUND
CGM FIXED INCOME FUND
CGM American Tax Free Fund and CGM Fixed Income Fund (each the "Fund" and
together, the "Funds") are diversified mutual funds and series of CGM Trust
(the "Trust"), a registered, open-end, no-load management investment company.
Each Fund's investment manager is Capital Growth Management Limited
Partnership ("CGM" or the "Investment Manager").
The primary investment objective of CGM AMERICAN TAX FREE FUND is to
provide high current income exempt from federal income tax. The Fund's
secondary investment objective is capital appreciation. CGM American Tax Free
Fund may not be an appropriate investment for retirement plans and similar
accounts.
The investment objective of CGM FIXED INCOME FUND is to maximize total
return by investing in debt securities and preferred stock that provide
current income, capital appreciation or a combination of both income and
appreciation.
PROSPECTUS
May 1, 1996
This prospectus sets forth the information you should know before investing
in either Fund. It should be retained for future reference. A Statement of
Additional Information about the Funds dated May 1, 1996 (the "Statement") has
been filed with the Securities and Exchange Commission (the "SEC") and is
available free of charge. Write to the Trust, c/o CGM Investor Services, 222
Berkeley Street, Boston, MA 02116 or call the telephone number listed below to
obtain a Statement. The Statement contains more detailed information about the
Fund and, as amended or supplemented from time to time, is incorporated into
this prospectus by reference.
- --------------------------------------------------------------------------------
For additional information about:
[] Account procedures and status [] New account procedures
[] Redemptions [] Prospectuses
[] Exchanges [] Performance
Call 800-343-5678 Call 800-345-4048
- --------------------------------------------------------------------------------
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.
<PAGE>
TABLE OF CONTENTS
Page
Schedule of Fees .......................................................... 3
Financial Highlights: CGM American Tax Free Fund .......................... 4
Financial Highlights: CGM Fixed Income Fund ............................... 5
Investment Objectives and Policies of CGM American Tax Free Fund .......... 6
Investment Objective and Policies of CGM Fixed Income Fund ................ 8
Risk Factors .............................................................. 10
Investment Restrictions ................................................... 14
The Funds' Investment Manager ............................................. 14
The Portfolio Managers .................................................... 14
How to Purchase Shares .................................................... 15
Shareholder Services ...................................................... 16
How to Redeem Shares ...................................................... 17
Telephone Transactions .................................................... 19
Dividends, Capital Gains and Taxes ........................................ 19
Pricing of Shares ......................................................... 21
Performance Information ................................................... 22
Additional Facts About the Funds .......................................... 22
<PAGE>
SCHEDULE OF FEES
CGM AMERICAN CGM FIXED
TAX FREE FUND INCOME FUND
------------- ----------
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............ None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price) .. None None
Redemption Fees* ............................... None None
Exchange Fees .................................. None None
Annual Fund Operating Expenses, After Waiver and Reimbursements
(as a percentage of average net assets)
Management Fees, After Waiver .................. 0% 0%
12b-1 Fees ..................................... None None
Other Expenses, After Reimbursements ........... 0% 0.85%
--- -----
Total Fund Operating Expenses, After Waiver and
Reimbursements ................................. 0% 0.85%
- ----------
*A wire fee (currently $5.00) will be deducted from proceeds if a shareholder
elects to transfer redemption proceeds by wire.
The purpose of this fee schedule is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly if you
invest in the Funds. For additional information about the Funds' fees and
expenses, please see "The Funds' Investment Manager" and the Statement.
CGM has voluntarily agreed, until December 31, 1996, and thereafter until
further notice to CGM AMERICAN TAX FREE FUND, to waive its management fees and
bear all of the expenses of the Fund. The percentages shown for Management
Fees and Other Expenses reflect current fees after such voluntary waiver and
reimbursements. For the fiscal year ended December 31, 1995, without the
voluntary waiver and reimbursements, the Management Fees, Other Expenses and
Total Fund Operating Expenses as a percentage of average net assets would have
been 0.60%, 1.99% and 2.59%, respectively.
CGM has voluntarily agreed, until December 31, 1996, and thereafter until
further notice to CGM FIXED INCOME FUND, to waive its management fees and, if
necessary, to bear certain expenses associated with operating the Fund, in
order to limit the Fund's total operating expenses to an annual rate of 0.85%
of the Fund's average net assets. The percentages shown for Management Fees
and Other Expenses reflect current fees after such voluntary waiver and
reimbursements. For the fiscal year ended December 31, 1995, without the
voluntary waiver and reimbursements, the Management Fees, Other Expenses and
Total Fund Operating Expenses as a percentage of average net assets would have
been 0.55%, 0.98% and 1.53%, respectively.
The following examples illustrate the approximate expenses that you would
incur on a $1,000 investment over the following periods, assuming a 5% annual
rate of return and redemption at the end of each period.
<TABLE>
<CAPTION>
CGM AMERICAN TAX FREE FUND CGM FIXED INCOME FUND
CUMULATIVE CUMULATIVE
- ----------------------------------------------------------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
$0 $0 $0 $0 $9 $27 $47 $105
</TABLE>
Please keep in mind that the examples shown above are hypothetical and
assume that current waivers and expense reimbursements will remain in effect.
The information above should not be considered a representation of past or
future return or expenses; the actual return and expenses may be more or less.
<PAGE>
- --------------------------------------------------------------------------------
CGM AMERICAN TAX FREE FUND
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the indicated periods)
These financial highlights have been examined by Price Waterhouse LLP,
independent accountants. The table below should be read in conjunction with the
financial statements and the notes thereto, which, together with the Report of
Independent Accountants thereon, are included in the Fund's Annual Report and
incorporated by reference into the Statement. In addition to the highlights set
forth below, further information about the performance of the Fund is contained
in the Annual Report and the Statement, which may be obtained from the Trust
free of charge.
FOR THE
YEAR ENDED FOR THE PERIOD
DECEMBER 31, NOVEMBER 10, 1993(c)
-------------------- THROUGH
1995 1994 DECEMBER 31, 1993
---- ---- ---------------------
For a share of the Fund
outstanding throughout each
period:
Net asset value at the
beginning of period ....... $ 8.83 $10.25 $10.00
------ ------
Net investment income (after
waiver and reimbursements) 0.61 0.58 0.04
Dividends from net investment
income .................... (0.61) (0.58) (0.04)
Net realized and unrealized
gain (loss) on investments 0.94 (1.42) 0.25
------ ------ ------
Net increase (decrease) in
net asset value ........... 0.94 (1.42) 0.25
------ ------ ------
Net asset value at end of
period .................... $ 9.77 $ 8.83 $10.25
====== ====== ======
Total Return (%) (b) ........ 18.0 -8.2 21.8(d)
Ratios:
Operating expenses to average
net assets (%) ............. 0 0 0
Operating expenses to average
net assets before waiver (%) 2.59 2.42 3.59(d)
Net income to average net
assets (%) ................ 6.50 6.39 4.95(d)
Portfolio turnover (%) ...... 125 169 0
Net assets at end of period
(in thousands) ............ $11,855 $10,150 $4,786
(a) Fees waived and expenses
reimbursed amounted to .. $ 0.24 $ 0.22 $ 0.03
(b) The total return would have been lower had the total fees and
expenses not been waived or reimbursed during the period.
(c) Commencement of operations.
(d) Computed on an annualized basis.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
CGM FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the indicated periods)
These financial highlights have been examined by Price Waterhouse LLP,
independent accountants. The table below should be read in conjunction with the
financial statements and the notes thereto, which, together with the Report of
Independent Accountants thereon, are included in the Fund's Annual Report and
incorporated by reference into the Statement. In addition to the highlights set
forth below, further information about the performance of the Fund is contained
in the Annual Report and the Statement, which may be obtained from the Trust
free of charge.
FOR THE
YEAR ENDED FOR THE PERIOD
DECEMBER 31, MARCH 17, 1992(c)
---------------------------- THROUGH
1995 1994 1993 DECEMBER 31, 1992
---- ---- ---- -----------------
For a share of the Fund
outstanding throughout
each period:
Net asset value at the
beginning of period ... $ 9.57 $11.17 $10.26 $10.00
------ ------ ------ ------
Net investment income
(after waiver and
reimbursements) (a) ... 0.70 0.73 0.67 0.50
Dividends from net
investment income ..... (0.70) (0.73) (0.67) (0.49)
Net realized and
unrealized gain (loss)
on investments ........ 1.84 (1.60) 1.23 0.40
Distributions from net
realized gain ......... -- -- (0.32) (0.13)
Distributions from
paid-in capital ....... -- -- -- (0.02)
------ ------ ------ ------
Net increase (decrease)
in net asset value .... 1.84 (1.60) 0.91 0.26
------ ------ ------ ------
Net asset value at the
end of period ......... $11.41 $ 9.57 $11.17 $10.26
====== ====== ====== ======
Total Return (%) (b) .... 27.3 -8.0 18.9 11.7(d)
Ratios:
Operating expenses to
average net assets (%) 0.85 0.85 0.85 0.85(d)
Operating expenses to
average net assets
before expense
limitation (%) ........ 1.53 1.46 2.02 3.21(d)
Net income to average net
assets (%) ............ 6.46 7.00 6.30 7.29(d)
Portfolio turnover (%) .. 148 129 149 212(d)
Net assets at end of
period (in thousands) . $31,793 $28,672 $32,883 $9,467
(a) Fees waived and
expenses reimbursed
amounted to ......... $ 0.07 $ 0.06 $ 0.12 $ 0.16
(b) The total return would have been lower had management fees and certain
expenses not been waived or reimbursed during the period.
(c) Commencement of operations.
(d) Computed on an annualized basis.
- --------------------------------------------------------------------------------
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF
CGM AMERICAN TAX FREE FUND
CGM American Tax Free Fund's primary objective is to provide high current
income exempt from federal income tax. The Fund's secondary objective is capital
appreciation. There are no assurances that the Fund will achieve its objectives
and the Fund may change its objectives without shareholder approval or prior
notice.
CGM American Tax Free Fund will seek to achieve its objectives by investing
primarily in investment grade securities that are exempt from federal income
tax. At least 75% of the Fund's assets will be invested in securities rated at
the time of purchase Baa, MIG-2, Prime-2 or higher by Moody's Investors Service,
Inc. ("Moody's"), or BBB, SP-2, A-2 or better by Standard & Poor's Corporation
("S&P"), or, if not rated by Moody's or S&P at the time of purchase, determined
to be of comparable quality by the Investment Manager. Securities rated BBB by
S&P or Baa by Moody's are regarded as having an adequate capacity to pay
interest and repay principal, but such securities also have speculative
characteristics and changes in economic conditions and other circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal.
Up to 25% of the Fund's assets may be invested in lower quality securities,
which have speculative characteristics and are subject to special risks. See
"Risk Factors -- Non-Investment Grade Risk." See Appendix A to this Prospectus
for a full description of credit ratings.
In an effort to enhance return, CGM American Tax Free Fund intends to take
advantage of pricing inefficiencies between individual issues and groups of
securities that may occur. As a fundamental policy, under normal market
conditions, the Fund will invest at least 80% of its net assets in securities,
the interest from which is, in the opinion of counsel to the issuer, exempt
from federal income tax and excluded from the calculation of the federal
alternative minimum tax for individuals.
CGM American Tax Free Fund will not invest more than 25% of its total
assets in any one industry. Governmental issuers of tax-exempt securities are
not considered part of any industry. However, tax-exempt securities backed
only by the assets and revenues of nongovernmental users may, for this
purpose, be deemed to be issued by such nongovernmental users, and the 25%
limitation would apply to such obligations. The Fund may invest more than 25%
of its total assets in a broader segment of the tax-exempt market, such as
revenue obligations of hospitals and other healthcare facilities, housing
agency revenue obligations or airport revenue obligations. The Fund may also
invest more than 25% of its total assets in securities relating to any one or
more states (including the District of Columbia), territories or United States
possessions or any of their political subdivisions.
TAX-EXEMPT SECURITIES
Tax-exempt securities are debt obligations issued by states (including the
District of Columbia), territories and possessions of the United States and
their political subdivisions, agencies and instrumentalities, or by multistate
agencies or authorities to obtain funds for various public purposes, including
projects to construct or rebuild schools, hospitals, roads, utilities and
transportation systems throughout the United States. These securities are
commonly classified as general obligation bonds, revenue bonds and notes.
General obligation bonds are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest. Revenue
bonds are payable from the revenue derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise tax or
other specific revenue source, but not from the general taxing power. Some
revenue bonds are structured as municipal lease obligations or equipment
purchase contracts. Industrial development bonds are revenue bonds that
generally do not carry a pledge of the credit of the issuing municipality, but
generally are guaranteed by the corporate entity on whose behalf they are
issued. Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Tax-exempt securities may
bear fixed, floating or variable rates of interest, which are determined in
some instances by formulas under which the security's interest rate will
change directly or inversely relative to changes in interest rates or an
index, or multiples thereof, in many cases subject to a maximum and a minimum.
Certain tax-exempt securities are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated from
the related security and purchased and sold independently.
PUT BONDS
CGM American Tax Free Fund may invest in tax-exempt securities (including
securities with variable interest rates) which may be redeemed or sold back
(put) to the issuer of the security or a third party at face value prior to
stated maturity. Such securities will normally trade as if maturity is the
earlier put date, even though stated maturity is longer.
FLOATING AND VARIABLE RATE SECURITIES
CGM American Tax Free Fund may purchase floating and variable rate notes
and bonds, which are tax-exempt obligations ordinarily having stated
maturities in excess of one year, but which permit the holder to demand
payment of principal at any time or at specified intervals. Variable rate
demand notes include master demand notes, which are obligations that permit
the Fund to invest fluctuating amounts that may change daily without penalty
pursuant to direct arrangements between the Fund, as lender, and the borrower.
The interest rates on these obligations fluctuate from time to time.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Use of letters of credit or other
support arrangements will not adversely affect the tax-exempt status of these
obligations. Because these obligations are direct lending arrangements between
the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no 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, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. The
Investment Manager, on behalf of the Fund, will consider on an ongoing basis
the creditworthiness of the issuers of the floating and variable rate demand
obligations in the Fund's portfolio.
MUNICIPAL LEASE OBLIGATIONS
CGM American Tax Free Fund may invest in lease obligations or installment
purchase contract obligations, which are instruments supported by lease
payments made by a municipality ("municipal lease obligations"). Although
municipal lease obligations do not normally constitute general obligations of
the municipality, a lease obligation is ordinarily backed by the
municipality's agreement to make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses, which
provide that the municipality has no obligation to make lease or installment
purchase payments in later years unless money is appropriated in the future.
Municipal lease obligations are a relatively new form of financing and the
market for such obligations is still developing and is less liquid than other
markets for tax-exempt securities. Municipal lease obligations may be
determined to be liquid (for purposes of complying with the Fund's investment
restrictions) in accordance with procedures adopted by the Board of Trustees.
PORTFOLIO TURNOVER
There is no limitation on the dollar-weighted average maturity of CGM
American Tax Free Fund's portfolio and the maturity may be shortened or
lengthened depending upon the Investment Manager's outlook for interest rates.
Although CGM American Tax Free Fund does not purchase securities with the
intention of engaging in short-term trading, the Fund will sell any particular
security and reinvest proceeds when it is deemed prudent by management,
regardless of the length of the holding period. This policy may result in
higher securities transactions costs. To the extent that this policy results
in gains on investments, the Fund will make distributions to its shareholders,
which may accelerate the shareholders' tax liabilities. See "Dividends,
Capital Gains and Taxes."
TEMPORARY DEFENSIVE POLICY
For temporary defensive purposes, CGM American Tax Free Fund may invest,
without limitation, in securities issued or guaranteed by the U.S. Government,
or any agency or instrumentality thereof ("U.S. Government Securities");
certificates of deposit, demand and time deposits and bankers' acceptances of
banks whose deposits are insured by the Federal Deposit Insurance Corporation
and have assets of at least $1 billion, including U.S. branches of foreign
banks and foreign branches of U.S. banks; prime commercial paper, including
master demand notes; and repurchase agreements secured by U.S. Government
Securities.
INVESTMENT OBJECTIVE AND POLICIES OF
CGM FIXED INCOME FUND
CGM Fixed Income Fund's objective is to maximize total return by investing
in debt securities and preferred stocks that provide current income, capital
appreciation or a combination of both income and appreciation. There are no
assurances that the Fund will achieve its objective and the Fund may change its
objective without shareholder approval.
CGM Fixed Income Fund generally seeks to attain its objective by investing
in securities that are believed by the Investment Manager to be undervalued.
The Fund's flexible investment policy allows it to invest in fixed-income
securities and variable-rate securities, including preferred stocks, with
varying maturities and varying qualities ranging from the highest quality to
non-investment grade.
CGM Fixed Income Fund will invest primarily in investment grade debt
securities rated at the time of purchase a minimum of Baa by Moody's or BBB by
S&P, in preferred stocks rated at the time of purchase a minimum of Baa by
Moody's or BBB by S&P, and in debt securities not rated by Moody's or S&P at
the time of purchase, but which the Investment Manager believes to be of
comparable quality.
CGM Fixed Income Fund may also invest less than 35% of its assets in
securities that are not rated at least Baa (baa, in the case of preferred
stocks) by Moody's or BBB by S&P or, if not rated by Moody's or S&P, are
believed by the Investment Manager to be of comparable quality. Lower quality
securities purchased by the Fund will generally be limited to securities rated
B (b, in the case of preferred stocks) or better by Moody's or S&P, at the
time of purchase. In addition, the Fund may invest not more than 10% of its
total assets in securities rated at the time of purchase Caa (caa, in the case
of preferred stocks) by Moody's or CCC by S&P if, in the opinion of the
Investment Manager, the financial condition of the issuer or the protection
afforded to a particular security is stronger than would otherwise be
indicated by the rating. See "Risk Factors -- Non-Investment Grade Risk." See
Appendix A to this Prospectus for a full description of credit ratings.
FIXED INCOME AND VARIABLE RATE SECURITIES
CGM Fixed Income Fund may invest in a variety of fixed-income and
variable-rate securities issued by corporations, municipalities, the U.S.
Government and its instrumentalities, and foreign and multinational
institutions, corporations and governments. These securities include bonds,
debentures, notes, equipment trust certificates, asset-backed securities,
mortgage-related securities, preferred stocks and money market instruments
such as commercial paper, Treasury bills, time deposits, bankers' acceptances
and repurchase agreements. Interest payments on such securities may be paid
out as additional securities (commonly referred to as "payment-in-kind
securities") or as cash, or deferred to a future date not to exceed maturity
(commonly referred to as "zero coupon"). Such securities may also have
conversion features. Under normal circumstances, the Fund will invest at least
65% of its total assets in fixed-income securities.
CONVERTIBLE SECURITIES
CGM Fixed Income Fund may also invest in convertible securities, bonds and
common stocks (or attached warrants) sold as a unit, and preferred stocks.
Convertible securities are securities, such as bonds, notes, debentures or
preferred stocks, which may be converted at a stated price within a specified
period of time into a specified number of shares of common stock of the same
or a different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-
convertible debt securities. While providing an income stream (generally
higher in yield than the income from a common stock but lower than that of a
non-convertible debt security), a convertible security may also afford an
investor the opportunity, through its conversion feature, to participate in
the capital appreciation of the common stock. However, investors ordinarily
pay a premium to obtain such conversion feature.
In general, the market value of a convertible security is the higher of
its "investment value" (i.e., its value as a fixed-income or variable-rate
security) or its "conversion value" (i.e., the value of the underlying
security if the security is converted). To the extent that a convertible
security is a fixed-income security, its market value generally increases when
interest rates decline and generally decreases when interest rates rise.
However, the price of a convertible security also is influenced by the market
value of the security's underlying security, often common stock. Thus, the
price of a convertible security generally increases as the market value of the
underlying security increases, and generally decreases as the market value of
the underlying security declines.
CGM Fixed Income Fund may, from time to time, own stock as a result of the
conversion of a convertible security or the exercise of a warrant.
UNDERVALUED SECURITIES
CGM Fixed Income Fund may invest in undervalued securities, which are
securities that have market prices that are lower than the prices that the
Investment Manager judges to be their true value. Undervaluation may result
from temporary dislocations in the market, market misperceptions of risk,
yield curve movements and cyclical and secular changes in the economy.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities. In
general, securities that may be resold without registration pursuant to Rule
144A will be treated as liquid for these purposes, in accordance with
guidelines established by the Board of Trustees to determine whether there is
a readily available market for such securities.
BORROWING
Although CGM Fixed Income Fund is permitted to borrow amounts (including
obligations under reverse repurchase agreements) aggregating up to 33.3% of
the value of its total assets, the Fund does not intend to borrow for purposes
of leveraging its portfolio. Under ordinary circumstances, the Fund will
borrow only for temporary purposes in amounts not to exceed 5% of the value of
its total assets. At any time that the Fund's borrowings (including
obligations under reverse repurchase agreements) exceed 5% of the value of its
total assets, the Fund will not purchase or acquire any additional investment
securities.
PORTFOLIO TURNOVER
Although CGM Fixed Income Fund's objective is total return and the Fund
does not purchase securities with the intention of engaging in short-term
trading, the Fund will sell any particular security and reinvest the proceeds
when it is deemed prudent by management, regardless of the length of the
holding period. This policy may result in higher securities transactions
costs. To the extent that this policy results in gains on investments, the
Fund will make distributions to its shareholders, which may accelerate the
shareholders' tax liabilities. See "Dividends, Capital Gains and Taxes."
TEMPORARY DEFENSIVE POLICY
For temporary defensive purposes, CGM Fixed Income Fund may invest,
without limitation, in U.S. Government Securities; certificates of deposit,
demand and time deposits and bankers' acceptances of banks whose deposits are
insured by the Federal Deposit Insurance Corporation and have assets of at
least $1 billion, including U.S. branches of foreign banks and foreign
branches of U.S. banks; prime commercial paper, including master demand notes;
and repurchase agreements secured by U.S. Government Securities.
RISK FACTORS
INTEREST RATE RISK
Securities purchased by CGM American Tax Free Fund and CGM Fixed Income
Fund will be subject to interest rate risk. Interest rate risk is the
potential for a decline in prices of fixed-income securities due to rising
interest rates. In general, prices of fixed-income securities move inversely
with interest rates. If interest rates rise, prices of fixed-income securities
generally fall; if interest rates fall, prices of fixed-income securities
generally rise. In addition, for a given change in interest rates, longer-
maturity securities normally fluctuate more in price (gaining or losing more
in value) than shorter-maturity securities. To compensate investors for this
risk, longer-maturity securities generally offer higher yields than shorter-
maturity securities, all other factors (including credit quality) being equal.
The Funds' flexible investment policies allow them to invest in securities
with varying maturities.
EVENT RISK
Event risk is the possibility that corporate securities will suffer a
decline in credit quality and market value when the issuer undergoes a
corporate restructuring. Corporate restructurings, such as mergers,
acquisitions, leveraged buyouts or similar events, often can be financed by a
significant expansion of a company's outstanding debt. As a result of the
added debt burden, the credit quality and market value of a firm's existing
bonds may decline sharply.
CREDIT RISK
Credit risk is the possibility that an issuer will fail to make timely
payments of interest or principal. In general, the lower the credit quality of
a security, the higher the yield and the higher the risk, all other factors
(such as maturity) being equal. In determining the credit quality of a tax-
exempt security, it is necessary to consider the possibility that legislative
changes affecting the taxing and spending authority of a municipality will
affect the ability of the municipality to make payments of principal and
interest on its obligations. Investment policies of the Funds allow them to
invest in securities with credit quality ranging from the highest (Aaa or aaa
by Moody's or AAA by S&P) to as low as Caa or caa by Moody's or CCC by S&P if,
in the opinion of the Investment Manager, the financial condition of the
issuer or the protection afforded to a particular security is stronger than
would otherwise be indicated by the rating. The Funds will generally not
purchase securities rated below B or b by Moody's or B by S&P. In addition,
the Funds may not invest more than 10% of their total assets at the time of
purchase in securities rated Caa or caa by Moody's or CCC by S&P. See Appendix
A to this Prospectus for a full description of credit ratings for the
investments held by CGM American Tax Free Fund and CGM Fixed Income Fund
during the previous fiscal year.
NON-INVESTMENT GRADE RISK
Securities rated non-investment grade (lower than Baa or baa by Moody's or
lower than BBB by S&P) are sometimes referred to as "high yield" or "junk"
bonds. See Appendix A for further information about securities ratings.
Investors should consider the following risks associated with high yield
securities before investing in either of the Funds.
High yield securities may be regarded as predominantly speculative with
respect to the issuer's continuing ability to make principal and interest
payments. Analysis of the creditworthiness of issuers of high yield securities
may be more complex than for issuers of higher quality debt securities, and
the ability of the Funds to achieve their investment objectives may, to the
extent of their investments in high yield securities, be more dependent upon
such creditworthiness analysis than would be the case if the Funds were
investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to
interest-rate changes than more highly rated investments, but more sensitive
to adverse economic downturns or individual corporate developments. Yields on
a high yield security will fluctuate. If the issuer of high yield securities
defaults, the Funds may incur additional expenses to seek recovery.
The secondary markets on which high yield securities are traded may be
less liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which the Funds
could sell a particular high yield security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in
the credit worthiness of the issuer, and could adversely affect and cause
large fluctuations in the daily net asset value of the Funds' shares. Adverse
publicity and investor perceptions may decrease the value and liquidity of
high yield securities.
It is reasonable to expect any recession to severely disrupt the market
for high yield securities, have an adverse impact on the value of such
securities, and adversely affect the ability of the issuers of such securities
to repay principal and pay interest thereon. New laws and proposed new laws
may adversely impact the market for high yield securities.
WHEN-ISSUED SECURITIES RISK
CGM American Tax Free Fund and CGM Fixed Income Fund each may purchase
some debt securities on a "when-issued" basis, which means that it may be as
long as 60 days after purchase before the securities are delivered to the
Fund. Payment and interest terms, however, are fixed at the time the purchaser
enters into the commitment. The Funds do not pay for when-issued securities or
start earning interest on them until the contractual settlement date. At the
time of settlement, the market value of the security may be more or less than
the purchase price. A segregated account of each Fund consisting of cash, cash
equivalents, U.S. Government Securities or other high quality liquid debt
securities at least equal at all times to the amount of when-issued securities
held by the particular Fund will be established and maintained at the Funds'
custodian bank.
FOREIGN SECURITIES RISK
CGM Fixed Income Fund may invest up to 20% of its net assets at the time
of purchase in debt securities and preferred stocks issued by institutions,
corporations and governments established by or in one or more foreign
countries, which may be developed or undeveloped countries. Such foreign
securities will otherwise satisfy the limitations and restrictions applicable
to the Fund, including the Fund's policies regarding credit quality. In making
foreign investments, the Fund will also give appropriate consideration to the
following factors, among others.
Because some foreign securities CGM Fixed Income Fund may acquire are
purchased with and payable in currencies of foreign countries, the value of
these assets as measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and exchange control regulations.
Certain currency exchange expenses may be incurred when the Fund changes
investments from one country to another.
Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly,
volume and liquidity in most foreign securities markets are less than in U.S.
markets and, at times, volatility of prices can be greater than in the United
States. There may be less government supervision and regulation of securities
exchanges, brokers and listed companies. The issuers of some of these
securities, such as foreign bank obligations, may be subject to less stringent
or different regulations than those governing U.S. issuers. In addition, there
may be less publicly available information about a foreign issuer, and foreign
issuers are not subject to uniform accounting and financial reporting
standards, practices and requirements comparable to those applicable to U.S.
issuers. Further, it may be more difficult to obtain current information about
corporate actions by foreign issuers of portfolio securities that affect the
prices of such securities.
Foreign securities are also subject to additional risks of possible
adverse political and economic developments, possible seizure or
nationalization of foreign deposits and possible adoption of governmental
restrictions, which might adversely affect the payment of principal and
interest on the foreign securities or might restrict the payment of principal
and interest to investors located outside the country of the issuer, whether
from currency blockage or otherwise. CGM Fixed Income Fund's ability and
decisions to purchase and sell portfolio securities may be affected by laws or
regulations relating to the convertibility and repatriation of assets.
Some foreign securities may be subject to transfer taxes levied by foreign
governments, and the income received by CGM Fixed Income Fund from sources
within foreign countries may be reduced by withholding and other taxes imposed
by such countries. The Fund will also incur higher custody costs in connection
with foreign securities.
MORTGAGE-RELATED SECURITIES AND
ASSET-BACKED SECURITIES RISK
CGM Fixed Income Fund may invest in mortgage-related securities and asset-
backed securities. Mortgage-related securities are represented by pools of
mortgage loans or loans assembled for sale to investors by various governmental
agencies, such as the Government National Mortgage Association, and
government-related organizations, such as the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, as well as by
private issuers, such as commercial banks, savings and loan institutions,
financial corporations, mortgage bankers and private mortgage insurance
companies. Asset-backed securities are pass-through securities backed by
non-mortgage assets, including automobile loans, credit card receivables and
consumer receivables. Although certain mortgage-related and asset-backed
securities are guaranteed by a third party or otherwise similarly secured, the
market value of the security, which may fluctuate, and the yield are not so
secured. If CGM Fixed Income Fund purchases a mortgage-related or an
asset-backed security at a premium, all or part of the premium may be lost if
there is a decline in the market value of the security, whether resulting from
changes in interest rates or prepayments in the underlying mortgage collateral.
As with other interest-bearing securities, the prices of such securities
are inversely affected by changes in interest rates. However, although the
value of a mortgage-related or asset-backed security may decline when interest
rates rise, the converse is not necessarily true, because in periods of
declining interest rates the mortgages or assets underlying the security may
be more likely to be prepaid. For this and other reasons, a mortgage-related
or asset-backed security's stated maturity may be shortened by unscheduled
prepayments on the underlying mortgages or assets and, therefore, it is not
possible to predict accurately the security's return. Such prepayments may
expose CGM Fixed Income Fund to a lower rate of return on reinvestment. To the
extent that such mortgage-related securities are held by the Fund, the
prepayment right of the mortgagors may limit the increase in net asset value
of the Fund because the value of the mortgage-related securities held by the
Fund may not appreciate as rapidly as the price of other debt securities.
CGM Fixed Income Fund may also invest in stripped mortgage-related
securities often referred to as IO (interest-only) and PO (principal-only)
securities. IO and PO securities are formed by separating the principal and
interest payments of a mortgage-related security to create two or more classes
of securities with different characteristics than the underlying security. IOs
receive all of the coupon interest from mortgage-related securities and can be
high yielding securities, while POs receive all of the principal payments from
mortgage-related securities and are seldom high yielding securities. IOs and
POs are extremely sensitive to changes in both interest rates and prepayment
rates.
Because an IO receives only the interest payments of an underlying
mortgage-related security, an increase in prepayments (due to lower interest
rates) will result in less interest being paid to the IO investor. The
decrease in interest payments will cause the value of the IO to decline as
most other bonds increase in value. A decline in prepayments (due to higher
interest rates), however, will result in increased interest being paid to the
IO investor. The increase in interest payments will generally result in a
higher value for the IO security. PO securities, on the other hand, are zero
coupon securities, as they receive no interest, but do receive all principal
payments of an underlying mortgage-related security. The value of these
securities will increase as prepayments increase, particularly if interest
rates are declining. Like zero coupon securities, PO securities are extremely
volatile securities, which increase in value as interest rates decline and/or
prepayments increase and decline when rates increase and/or prepayments
decline.
IO and PO securities that are issued by the U.S. Government or its
agencies and instrumentalities and are backed by fixed-rate mortgages may be
treated as liquid for purposes of investment restrictions applicable to
investments in illiquid securities, in accordance with guidelines established
by the Board of Trustees, to determine whether there is a readily available
market for such securities. All other IO and PO securities will be treated as
illiquid for purposes of applicable investment restrictions.
ZERO COUPON, DEFERRED INTEREST AND
PAYMENT-IN-KIND SECURITIES RISK
There may be special tax considerations associated with investing in
securities structured as deferred interest, zero coupon or payment-in-kind
securities. CGM Fixed Income Fund records the interest on these securities as
income even though it receives no cash interest until each security's maturity
date. The Fund will be required to distribute all or substantially all such
amounts annually and may have to obtain the cash to do so by selling
securities. Thus, to meet cash distribution obligations, the Fund may be
required to liquidate a portion of its assets, which it would otherwise
continue to hold, at a disadvantageous time. These distributions will be
taxable to shareholders as ordinary income.
In the case of securities structured as deferred interest, zero coupon or
payment-in-kind securities, the market prices of such securities are affected
to a greater extent by interest rate changes, and therefore tend to be more
volatile than securities which pay interest periodically and in cash.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following fundamental restrictions, which may
not be changed without the approval of shareholders. Certain other fundamental
and non-fundamental restrictions are set forth in the Statement. Each Fund may
not:
[] purchase any securities which would cause more than 25% of the market value
of its total assets at the time of such purchase to be invested in the
securities of one or more issuers having their principal business
activities in the same industry, provided that there is no limit with
respect to investments in U.S. Government Securities;
[] borrow money, except that it may borrow from banks in an amount not to
exceed one- third of the value of its total assets and may borrow for
temporary purposes from entities other than banks in an amount not to
exceed 5% of the value of its total assets; or
[] with respect to 75% of its total assets, purchase more than 10% of the
outstanding voting securities of any one issuer or invest more than 5% of
the value of its total assets in the securities of any one issuer, except
the U.S. Government, its agencies and instrumentalities.
THE FUNDS' INVESTMENT MANAGER
Each Fund's investment manager is Capital Growth Management Limited
Partnership, One International Place, Boston, Massachusetts 02110. CGM, an
investment advisory firm founded in 1989, manages eight mutual fund portfolios
and advisory accounts for other clients. The general partner of CGM is a
corporation controlled equally by Robert L. Kemp and
G. Kenneth Heebner, who are trustees and officers of the Funds.
In addition to selecting and reviewing each Fund's investments, CGM
provides executive and other personnel for the management of the Funds. The
Trust's Board of Trustees supervises CGM's management of the affairs of the
Funds.
Until December 31, 1996, and thereafter until further notice to CGM
American Tax Free Fund, CGM has voluntarily agreed to waive its management
fees and bear all of the expenses of CGM American Tax Free Fund. Without this
waiver and these reimbursements, the investment management fee would be 0.60%
on the first $500,000,000, 0.55% on the next $500,000,000, and 0.45% on
amounts in excess of $1 billion. Similarly, until December 31, 1996, and
thereafter until further notice to CGM Fixed Income Fund, CGM has voluntarily
agreed to waive fees and to reimburse CGM Fixed Income Fund for expenses to
the extent the Fund's expenses exceed 0.85% of the Fund's average annual net
assets. Without this waiver and these reimbursements, the investment
management fee would be 0.55% on the first $200,000,000, 0.45% on the next
$300,000,000, and 0.35% on amounts in excess of $500,000,000.
THE PORTFOLIO MANAGERS
The portfolio manager for CGM American Tax Free Fund is Janice H. Saul,
who is an officer of the Fund. Prior to joining CGM, Ms. Saul was employed as
a portfolio manager by Loomis, Sayles & Company, Incorporated ("Loomis
Sayles") and by Scudder, Stevens and Clark.
CGM Fixed Income Fund's investment portfolio is co-managed by G. Kenneth
Heebner and Janice H. Saul, officers of the Fund's Investment Manager. Mr.
Heebner is responsible for the Fund's investments that are convertible into
equity securities and Ms. Saul has primary responsibility for managing the
Fund's debt securities.
Mr. Heebner, who is a vice president and trustee of CGM Trust, also
manages the investment portfolios of CGM Mutual Fund, CGM Capital Development
Fund and CGM Realty Fund. Prior to March 1, 1990, Mr. Heebner managed the CGM
Capital Development Fund and CGM Mutual Fund in his capacity as vice president
and director of Loomis Sayles.
HOW TO PURCHASE SHARES
The Trust sells shares of the Funds directly to investors without any
sales load. You may make an initial purchase of shares of each Fund by
submitting a completed application form and payment to:
The CGM Funds
P. O. Box 449
Boston, Massachusetts 02117-0449
The minimum initial investment in each Fund is $2,500 for regular accounts
and $1,000 for retirement accounts (see "Shareholder Services -- Retirement
Plans") and accounts set up under the Uniform Gifts to Minors Act ("UGMA") or
the Uniform Transfers to Minors Act ("UTMA"). Subsequent investments in each
Fund must be at least $50. See "Shareholder Services" below for further
information about minimum investments in certain other circumstances.
All investments made by check should be in U.S. dollars and made payable
to CGM American Tax Free Fund or CGM Fixed Income Fund (as applicable). Third
party checks (i.e. checks payable to anyone other than CGM American Tax Free
Fund or CGM Fixed Income Fund) are generally not accepted and checks drawn on
credit card accounts will not be accepted. The Trust reserves the right to
reject any third party checks and checks drawn on credit card accounts.
After accepting an order, the Trust forwards the application and payment
to the CGM Shareholder Services Department ("CGM Shareholder Services") of
Boston Financial Data Services, Inc. ("BFDS"), which is the shareholder
servicing agent for State Street Bank and Trust Company ("State Street Bank").
CGM Shareholder Services then opens an account, applies the payment to the
purchase of full and fractional shares, and mails a statement of the account
confirming the transaction.
After your account has been established for each Fund, you may send
subsequent investments in such Fund at any time directly to the shareholder
servicing agent at the following address:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P. O. Box 8511
Boston, Massachusetts 02266-8511
The remittance for any subsequent investment must be accompanied by either
the Additional Investment Stub detached from a statement of account, or a note
containing sufficient information to identify the account, i.e., the Fund
name, your account number, your name and social security number.
Subsequent investments may also be made by federal funds wire. Instruct
your bank to wire federal funds to State Street Bank and Trust Company, ABA
#011000028. The text of the wire should read as follows: "DDA 99046336
$ Amount, STATE ST BOS ATTN Mutual Funds. Credit CGM American Tax Free Fund or
CGM Fixed Income Fund (as applicable), Shareholder Name, Shareholder Account
Number." Your bank may charge you a fee for transmitting funds by wire.
The Trust reserves the right to reject any purchase order, including
orders in connection with exchanges, for any reason the Trust, in its sole
discretion, deems appropriate. Although the Trust does not anticipate that it
will do so, the Trust reserves the right to suspend, change or withdraw the
offering of shares of any Fund.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust (in the case of your
initial investment) or by CGM Shareholder Services (in the case of subsequent
investments).
If you wish transactions in your account to be effected by another person
under a power of attorney from you, special rules apply. Please contact the
Trust or CGM Shareholder Services for details.
An investor will not receive any certificates for shares unless the
investor requests them in writing from CGM Shareholder Services. The Trust's
system for recording investments eliminates the problems of handling and
safekeeping certificates.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services as more fully described
in the Statement. Explanations and forms are available from the Trust.
EXCHANGE PRIVILEGE
Shares of either Fund may be exchanged for shares of money market funds
currently distributed by New England Funds, L.P. ("Money Market Funds"). You
may also exchange shares for shares of CGM American Tax Free Fund or CGM Fixed
Income Fund (as applicable), CGM Mutual Fund or CGM Realty Fund. Additionally,
you may exchange shares for shares of CGM Capital Development Fund, but only
if you were a shareholder on September 24, 1993 and have remained a
shareholder in the CGM Capital Development Fund continuously since that date.
CGM Capital Development Fund shares are not generally available to other
persons except in special circumstances that have been approved by, or under
the authority of, the Board of Trustees of that Fund as described in the
Statement. CGM Realty Fund shares are not available in South Dakota as
described in the prospectus for CGM Realty Fund.
All exchanges may be made without charge. You may make an exchange by
written instruction or, if a written authorization for telephone exchanges is on
file with CGM Shareholder Services, you may call 800-343-5678. See "Telephone
Transactions." Exchanges must be for amounts of at least $1,000. Under certain
circumstances, before an exchange can be made, additional documents may be
required to verify the authority or legal capacity of the person seeking the
exchange. If you wish to make an exchange into a new account, the exchange must
satisfy the applicable minimum initial investment requirements. Exchange
requests cannot be revoked once they have been received in good order.
Investors should not view the exchange privilege as a means for taking
advantage of short-term swings in the market, and each Fund limits the number
of exchanges each shareholder may make to four exchanges per account (or two
round trips) per calendar year. Monthly automatic exchanges from the Money
Market Funds to the Funds are exempt from this restriction. The Trust also
reserves the right to prohibit exchanges during the first 15 days following an
investment in a particular Fund. The Trust may terminate or change the terms
of the exchange privilege. In general, shareholders will receive notice of any
material change to the exchange privilege at least 60 days prior to the
change. For federal income tax purposes, an exchange constitutes a sale of
shares, which may result in a capital gain or loss.
SYSTEMATIC WITHDRAWAL PLAN
If the value of your account is at least $10,000, you may have periodic
cash withdrawals automatically paid to you or any person you designate. If
checks are returned to any Fund as "undeliverable" or remain uncashed for more
than six months, the plan will be cancelled. Undeliverable or uncashed checks
shall be cancelled and such amounts shall be reinvested in the applicable Fund
at the per share net asset value determined as of the date of cancellation of
such checks.
AUTOMATIC INVESTMENT PLAN ("AIP")
Once your account has been established for a particular Fund, voluntary
monthly investments of at least $50 may be made automatically by pre-
authorized withdrawals from your checking account. Debits from savings banks
and credit unions generally are not acceptable. Additional information about
this Plan is set forth in the Statement and also in Sections 7 and 9 of the
Account Application.
RETIREMENT PLANS
CGM American Tax Free Fund may not be an appropriate investment for: IRA
accounts, SEP-IRA accounts, 403(b)(7) custodial accounts, qualified profit
sharing plans, or qualified money purchase pension plans.
CGM Fixed Income Fund's shares may be purchased by certain types of tax-
deferred retirement plans. CGM makes available retirement plan forms and plan
documents for IRAs, SEP-IRAs, 403(b)(7) custodial accounts, and money purchase
pension and profit sharing plans ("CGM Retirement Plans").
SHAREHOLDER REPORTS
Shareholders of each Fund will receive that Fund's financial statements
and a summary of the Fund's investments at least semiannually. The Funds
intend to consolidate mailings of annual, semiannual and quarterly reports to
households having multiple accounts with the same address of record and to
furnish a single copy of each report to that address. Mailing of prospectuses
and proxy statements will not be consolidated, and, if a report is included in
such mailings, each shareholder will receive a separate copy. You may request
additional reports by notifying either Fund in writing, or by calling the
Trust. Shareholders will receive statements confirming all purchases,
redemptions and changes of address. You may call CGM Shareholder Services and
request a duplicate statement for the current year without charge. A fee may
be charged for any duplicate information requested for prior years.
HOW TO REDEEM SHARES
You can redeem all or part of your shares in either Fund in three
different ways: by sending a written request for a check or wire representing
the redemption proceeds, by making a telephone request for redemption by check
(provided that the amount to be redeemed is not more than $25,000 and the
check is being sent to you at your record address, which has not changed in
the prior three months) or by making a telephone request for redemption
proceeds to be wired to a bank that you have predesignated. The redemption
price will always be the net asset value per share next determined after the
redemption request is received by CGM Shareholder Services in good order
(including any necessary documentation). Necessary documentation may include,
in certain circumstances, documents verifying the authority or legal capacity
of the person seeking to redeem shares. Redemption requests cannot be revoked
once they have been received in good order.
If you elect to redeem shares in writing, send your written request to:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The written request must include the name of the particular Fund, your account
number, the exact name(s) in which your shares are registered, the number of
shares or the dollar amount to be redeemed and mailing or wire instructions.
All owners of shares must sign the request in the exact name(s) in which the
shares are registered (which appear(s) on your confirmation statement) and
should indicate any special capacity in which they are signing (such as
trustee or custodian or on behalf of a partnership, corporation or other
entity). If you are signing in a special capacity, you may wish to contact CGM
Shareholder Services in advance to determine whether additional documentation
will be required before you send a redemption request.
Redemptions from CGM Retirement Plans for which State Street Bank is the
trustee must contain additional information. Please contact CGM Shareholder
Services for instructions and forms. Complete information, including tax
withholding instructions, must be included in your redemption request.
If you are redeeming shares worth more than $25,000 or requesting that the
proceeds check be made out to someone other than the registered owner(s) or be
sent to an address other than your record address (or sent to your record
address if such address has been changed within the previous three months),
you must have your signature guaranteed by an "eligible guarantor institution"
as defined in the rules under the Securities Exchange Act of 1934 (including a
bank, broker, dealer, credit union, national securities exchange, registered
securities association, clearing agency or savings association, but not a
notary public).
If you hold certificates representing your investment, you must enclose
the certificates and a properly completed redemption form or stock power. You
bear the risk of loss of such certificates; consequently you may wish to send
your certificates by registered mail.
If you elect to redeem shares by telephone, call CGM Shareholder Services
directly at 800-343-5678. See "Telephone Transactions." Telephone redemptions
are not available for CGM Retirement Plans. When you make a redemption request
by telephone, you may choose to receive redemption proceeds either by having a
check mailed to the address of record on the account, provided the address has
not changed for three months and you are redeeming $25,000 or less, or by
having a wire sent to a bank account you have previously designated.
Telephone redemptions by check are available to all shareholders of the
Funds automatically and no special application is necessary. You may select
the telephone redemption wire service when you fill out your initial
application or you may select it later by completing the Service Options Form
(with a signature guarantee), available from the Trust or CGM Shareholder
Services.
A telephone redemption request must be received by CGM Shareholder
Services prior to the close of the New York Stock Exchange (the "Exchange").
If you telephone your request to CGM Shareholder Services after the Exchange
closes or on a day when the Exchange is not open for business, the Trust
cannot accept your request and a new one will be necessary.
Wire redemptions by telephone may be made only if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member of
such System. If your account is with a savings bank, it must have only one
correspondent bank that is a member of the Federal Reserve System. A wire fee
(currently $5) will be deducted from the proceeds. If you decide to change the
bank account to which proceeds are to be wired, you must send in this change
on the Service Options Form with a signature guarantee.
Proceeds resulting from a written or regular telephone redemption request
will normally be mailed to you within seven days after receipt of your request
in good order. Telephone wire redemption proceeds will normally be wired to
your bank within seven days following receipt of a proper redemption request.
If you purchased your shares of a Fund by check (or through your AIP) and
elect to redeem shares within 15 days of such purchase, you may experience
delays in receiving redemption proceeds. The Trust will generally postpone
sending your redemption proceeds from such investment until the Trust can verify
that your check (or AIP investment) has been or will be collected. There will
be no such delay for redemptions following investments paid for by federal
funds wire or by bank cashier's check, certified check or treasurer's check.
If checks representing redemption proceeds are returned "undeliverable" or
remain uncashed for six months, such checks shall be cancelled and such
proceeds shall be reinvested in the applicable Fund at the per share net asset
value determined as of the date of cancellation of such checks.
No Fund may suspend the right of redemption, or postpone payment for more
than seven days, except when the Exchange is closed for other than weekends or
holidays, when trading on the Exchange is restricted, during an emergency (as
determined by the SEC) that makes it impracticable for that Fund to dispose of
its securities or to determine fairly the value of its net assets, or during
any other period permitted by the SEC for the protection of investors.
Because the expense of maintaining small accounts is disproportionately
high, each Fund may close accounts with 20 shares or less and mail the
proceeds to the shareholder. Shareholders who are affected by this policy will
be notified of a Fund's intention to close the account and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to CGM Retirement Plans and UGMA/UTMA
accounts.
TELEPHONE TRANSACTIONS
You may initiate three types of transactions by telephone:
[] Telephone Exchanges
[] Telephone Redemptions By Wire
[] Telephone Redemptions By Check
The terms and provisions for each of these services are explained fully in the
preceding sections. Once a telephone transaction request has been placed, it
cannot be cancelled.
The Telephone Exchange privilege and/or Telephone Redemptions By Wire
privilege must be elected by you when you fill out your initial application
for each Fund or you may select them later by completing the Service Options
Form (with a signature guarantee) available from the Trust or CGM Shareholder
Services. The Telephone Redemptions By Check privilege is available to
shareholders of each Fund automatically and no special application is
necessary.
The telephone redemption privileges are not available for IRAs, SEP-IRAs,
403(b)(7) custodial accounts or for money purchase pension and profit sharing
accounts under a CGM Retirement Plan (in which State Street Bank is the
trustee).
Each Fund will employ reasonable procedures to confirm that instructions
received by telephone (including instructions with respect to changes in
addresses) are genuine, such as requesting personal identification information
that appears on your account application and recording the telephone
conversation. You will bear the risk of loss due to unauthorized or fraudulent
instructions regarding your account, although each Fund may be liable if
reasonable procedures are not employed.
DIVIDENDS, CAPITAL GAINS AND TAXES
CGM American Tax Free Fund and CGM Fixed Income Fund each intends to qualify
annually as a "regulated investment company" under the Internal Revenue Code. To
qualify, each Fund must meet certain income, distribution and diversification
requirements. In any year in which a Fund so qualifies, it generally will not be
subject to federal income or excise tax to the extent that its taxable income is
distributed to shareholders.
Each Fund intends to declare and pay monthly dividends consisting of
substantially all of its net investment income. A Fund's dividend and capital
gains distributions may be reinvested in additional shares or received in
cash, although certain restrictions may apply to participants in CGM
Retirement Plans. If you elect to receive distributions in cash and checks are
returned "undeliverable" or remain uncashed for six months, your cash election
will be changed automatically and your future dividend and capital gains
distributions will be reinvested in the same Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition,
following such six-month period, any undeliverable or uncashed checks will be
cancelled and such amounts shall be reinvested in the same Fund at the per
share net asset value determined as of the date of cancellation of such
checks.
Dividends paid by a Fund from net taxable investment income, including
dividends, interest and net short-term gains, will be taxable to shareholders
as ordinary income. For corporate investors, no portion of dividends paid by
either Fund is expected to qualify for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) are taxable as long-term
capital gains, regardless of the length of time shareholders have owned shares
in the Fund. To the extent that a Fund makes a distribution in excess of its
current and accumulated earnings and profits, the distribution will be treated
first as a tax-free return of capital, reducing the tax basis in a
shareholder's shares, and then, to the extent the distribution exceeds such
basis, as a taxable gain to be realized upon sale of such shares. Taxable
dividends and distributions are taxable to shareholders of a Fund in the same
manner whether received in cash or reinvested in additional Fund shares.
CGM American Tax Free Fund anticipates that a substantial portion of its
investment income will be tax-exempt interest income. Dividends paid by the
Fund from net tax-exempt interest income will be excluded from a shareholder's
gross income for federal income tax purposes. Shareholders who are recipients
of Social Security benefits should be aware that exempt interest dividends
received from the Fund are includable in their "modified adjusted gross
income" for purposes of determining the amount of such Social Security
benefit, if any, that is required to be included in their gross income. The
exemption of certain dividends from federal income tax does not necessarily
result in exemption under the income tax laws of any state or local taxing
authority. Shareholders should consult their own tax advisers about the status
of dividends and distributions of CGM American Tax Free Fund in their own
states and localities.
If a shareholder of CGM American Tax Free Fund receives an exempt-interest
dividend with respect to any share and redeems or exchanges such share before
holding it for more than six months, any loss on the redemption or exchange
will be disallowed to the extent of such exempt-interest dividend. Similarly,
if a shareholder of the Fund receives a distribution taxable as a long-term
capital gain with respect to any share and redeems or exchanges such share
before holding it for more than six months, any loss on the redemption or
exchange (not otherwise disallowed as attributable to an exempt-interest
dividend) will be treated as a long-term capital loss to the extent of the
long-term capital gain recognized on such distribution.
CGM American Tax Free Fund may invest in private activity bonds. Interest
on private activity bonds issued after August 7, 1986, although generally
excludable from gross income for federal income tax purposes, may be subject
to the federal alternative minimum tax ("AMT"). AMT is imposed on taxpayers
who utilize to a significant degree certain tax deductions and exclusions
(known as "items of tax preference"). Interest from private activity bonds is
an item of tax preference that is included with items of income from certain
other sources in calculating if a taxpayer is subject to AMT in the amount
thereof. Shareholders should consult their own tax advisers regarding the
potential applicability of AMT to them.
If CGM Fixed Income Fund invests in foreign securities, it may be subject
to foreign withholding taxes on income earned on such securities and may be
unable to pass through to shareholders foreign tax credits and deductions with
respect to such taxes.
A distribution will be treated as paid by a Fund and received by its
respective shareholders on December 31 of the current calendar year if it is
declared in October, November, or December of that year with a record date in
such a month and paid in January of the subsequent year.
Any dividends or distributions paid shortly after a purchase of shares
will have the effect of reducing the per share net asset value of the shares
by the amount of the dividends or distributions. Although in effect a return
of capital, these distributions (if derived from taxable investment income or
net capital gains) are subject to tax, even if their effect is to reduce the
per share net asset value below a shareholder's cost. Each Fund will notify
you annually as to the tax status of dividend and capital gains distributions
paid by the Fund.
The sale or other disposition of shares of a Fund, including a redemption
of shares or an exchange of shares into another fund, is a taxable event and
may result in a capital gain or loss which will be long-term or short-term,
generally depending upon the shareholder's holding period for the shares.
Each Fund is required to withhold a portion of taxable dividends, capital
gains distributions, and redemptions paid to individuals and certain other
classes of shareholders if they fail to furnish the Fund with their correct
taxpayer identification numbers and certain certifications regarding their tax
status, or if they are otherwise subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against a shareholder's normal federal income tax liability. For additional
information about withholding, please see the Statement.
BFDS, the shareholder servicing agent, will send you and the Internal
Revenue Service an annual statement detailing federal tax information,
including information about dividends and distributions paid to you during the
preceding year. If you redeem or exchange shares in any year, following the
end of a year, you will receive a statement providing the cost basis and gain
or loss of each share lot that you sold in each year. Your CGM account cost
basis will be calculated using the "single category average cost method,"
which is one of the four calculation methods allowed by the IRS. Be sure to
keep these statements as permanent records. A fee may be charged for any
duplicate information that you request.
Dividend distributions, capital gains distributions, and capital gains or
losses from redemptions and exchanges may also be subject to state and local
taxes. In certain states, a portion of each Fund's income derived from certain
direct U.S. Government obligations may be exempt from state and local taxes.
Each year, each Fund will indicate the portion of its income, if any, that is
derived from such obligations.
The tax discussion set forth above is included for general information
only. Shareholders and prospective investors should consult their own tax
advisers concerning the tax consequences of an investment in each Fund.
PRICING OF SHARES
The share price or "net asset value" per share of each Fund is computed
daily by dividing the total value of the investments and other assets of the
Fund, less any liabilities, by the total outstanding shares of the Fund. The
net asset value per share of each Fund is determined as of the close of the
regular trading session of the Exchange on each day the Exchange is open for
trading. Portfolio securities are generally valued at their market value. In
certain cases, market value may be determined on the basis of information
provided by a pricing service approved by the Board of Trustees. Instruments
with maturities of 60 days or less are valued at amortized cost, which
approximates market value. Other assets and securities which are not readily
marketable will be valued in good faith at fair value using methods determined
by the Board of Trustees. The valuation of portfolio securities is more fully
described in the Statement.
PERFORMANCE INFORMATION
The Funds may include yield and total return information in advertisements
or other written sales material. Each Fund will show its average annual total
return for the most recent one-year period and the life of the Fund through
the end of the most recent calendar quarter. Total return is measured by
comparing the value of an investment in the Fund at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming automatic reinvestment of all dividends and capital gains
distributions). Each Fund may also show total return over other periods on an
aggregate basis for the period presented.
Yield is computed in accordance with the SEC's standardized formula by
dividing the adjusted net investment income per share earned during a recent
thirty-day period by the maximum offering price of a Fund share on the last
day of the period. Each Fund may also present one or more distribution rates
in its sales literature. These rates will be determined by analyzing the
Fund's distributions from net investment income and net short-term capital
gains over a recent twelve-month, three-month or thirty-day period and
dividing that amount by the net asset value on the last day of such period.
CGM American Tax Free Fund may also utilize tax equivalent yields with
adjustments for assumed income tax rates. Tax equivalent yield is calculated
by determining the pre-tax yield which, after being taxed at a stated rate,
would be equivalent to a stated yield calculated as described above. See
Appendix B for illustrations of this yield.
Each Fund may compare its performance to that of recognized financial
indices or groups of mutual funds. It may also include its ranking among other
mutual funds or its rating as published by mutual fund ranking services or
major financial publications. Each Fund may also compare its performance to
that of money market funds and other investments, such as certificates of
deposit, and may refer to standard measures of performance for such
investments, including the Bank Rate Monitor and data published by the Federal
Reserve System. Investors should note that, although each Fund may experience
better returns and higher yields than money market funds and other
investments, the Funds do not seek to maintain stable net asset values. Thus,
particularly during periods of rising interest rates, the per share net asset
value of each Fund may decrease while the principal value of such other
investments will not change. In addition, unlike certificates of deposit,
shares of the Fund are not insured by the FDIC or any other entity. All
performance information is based on past results and is not an indication of
likely future performance.
ADDITIONAL FACTS ABOUT THE FUNDS
[] The Trust was organized in 1986 as a Massachusetts business trust and is
authorized to issue an unlimited number of full and fractional shares in
multiple series. The Trust currently has four series: CGM Mutual Fund (a
successor to Loomis-Sayles Mutual Fund), CGM Fixed Income Fund, CGM American
Tax Free Fund and CGM Realty Fund (which commenced operations on May 13,
1994).
[] When a shareholder invests in either Fund, the shareholder acquires freely
transferable shares of beneficial interest that entitle the shareholder to
receive dividends and to cast one vote at shareholder meetings for each
share owned. On matters affecting any particular Fund, shares of the Fund
vote separately from shares of other series of the Trust, except as
otherwise required by law.
[] The investment objective, investment practices and other non-fundamental
policies of either Fund can be changed without shareholder approval. If
there is a change in either Fund's investment objective, shareholders should
consider whether the particular Fund remains an appropriate investment in
light of their current financial position and needs.
<PAGE>
APPENDIX A
RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair 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 risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during 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 of
maintenance of other terms of the contract over any long period of time may be
small.
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.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOANS RATINGS:
MIG 1/VMIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased 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.
S.G. -- This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. PREFERRED STOCK RATINGS:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of convertible preferred
stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative
elements, and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
DESCRIPTION OF STANDARD & POOR'S CORPORATION CORPORATE BOND AND PREFERRED
STOCK RATINGS:
AAA -- Securities rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA -- Securities rated AA have a very strong capacity to pay interest and
repay principal, and differ from the higher rated issues only in small degree.
A -- Securities rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than securities in higher
rated categories.
BBB -- Securities rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit 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 securities in this category than for securities in higher rated
categories.
BB, B and CCC -- Securities rated BB, B and CCC are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB represents
the lowest degree of speculation and CCC the highest degree of speculation.
While such securities will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB -- Securities rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BBB- rating.
B -- Securities rated B have a greater vulnerability to default but
currently have 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 B or BB- rating.
CCC -- Securities rated CCC have a currently identifiable vulnerability to
default, and are 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.
Plus (+) or Minus (-): The ratings from A to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF STANDARD & POOR'S CORPORATION MUNICIPAL NOTES RATINGS:
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due 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 that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
-- Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
NOTE RATING SYMBOLS ARE AS FOLLOWS:
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
A note 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 to
S&P 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.
PORTFOLIO COMPOSITION
The table below provides a summary of ratings assigned to securities in
the portfolios of CGM American Tax Free Fund and CGM Fixed Income Fund.
Consistent with each Fund's policy, if a security is rated by both Moody's and
S&P, the higher rating is used for purposes of classifying the security. These
figures are dollar-weighted averages of month-end portfolio holdings during
the fiscal year ended December 31, 1995, presented as a percentage of total
investments (excluding short-term investments and, in the case of CGM Fixed
Income Fund, warrants). These percentages are historical and are not
necessarily indicative of the quality of current or future portfolio holdings,
which may vary.
DOLLAR-WEIGHTED AVERAGE
---------------------------------
CGM CGM
AMERICAN FIXED
MOODY'S S&P TAX FREE INCOME
RATING OR RATING FUND FUND
- ------------------------------------------------------------------------------
Aaa/Aa/A or AAA/AA/A 55.5% 25.6%
- ------------------------------------------------------------------------------
Baa or BBB 26.1% 41.2%
- ------------------------------------------------------------------------------
Ba or BB 18.4% 9.1%
- ------------------------------------------------------------------------------
B or B 0.0% 24.1%
- ------------------------------------------------------------------------------
Caa or CCC 0.0% 0.0%
- ------------------------------------------------------------------------------
The dollar-weighted average of securities not rated by either Moody's or S&P
amounted to 17.0% for CGM American Tax Free Fund and 10.8% for CGM Fixed
Income Fund. Such securities may include securities rated by other nationally
recognized rating organizations, as well as unrated securities. Unrated
securities are not necessarily lower quality securities.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B
CGM AMERICAN TAX FREE FUND
TAXABLE EQUIVALENT YIELD TABLE
A FULLY TAXABLE INVESTMENT
TO WOULD HAVE TO PAY YOU:
MATCH A ----------------------------------------------------------------------------------
TAX-FREE ASSUMING A ASSUMING A ASSUMING A ASSUMING A
YIELD MARGINAL TAX MARGINAL TAX MARGINAL TAX MARGINAL TAX
OF: RATE OF 28% RATE OF 31% RATE OF 36% RATE OF 39.6%
------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
2.00% 2.78% 2.90% 3.13% 3.31%
3.00% 4.17% 4.35% 4.69% 4.97%
4.00% 5.56% 5.80% 6.25% 6.62%
5.00% 6.94% 7.25% 7.81% 8.28%
6.00% 8.33% 8.70% 9.38% 9.93%
</TABLE>
----------------------------------------
This table is a hypothetical illustration and should not be considered an
indication of CGM American Tax Free Fund's performance.
The assumed marginal tax rates are not necessarily the highest possible marginal
tax rates, nor are they the lowest rates. These rates were picked as exemplary
rates that may apply to many taxpayers.
<PAGE>
INVESTMENT ADVISER
Capital Growth Management CGM
Limited Partnership AMERICAN
One International Place TAX FREE FUND
Boston, MA 02110
TRANSFER AND DIVIDEND PAYING AGENT
AND CUSTODIAN OF ASSETS CGM
State Street Bank and Trust Company FIXED INCOME
Boston, MA 02102 FUND
SHAREHOLDER SERVICING AGENT FOR
STATE STREET BANK AND TRUST COMPANY
Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, MA 02266 Prospectus & Application
May 1, 1996
No-Load Funds
AFP96
[FENCER LOGO]
<PAGE>
PART B.
Statement of Additional
Information for CGM Mutual Fund is omitted
--------------
Statements of Additional Information for CGM Realty Fund,
CGM Fixed Income Fund, and CGM American Tax Free Fund
follow
<PAGE>
CGM REALTY FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
This Statement of Additional Information (the "Statement") is not a
prospectus. This Statement relates to the CGM Realty Fund Prospectus dated May
1, 1996 (the "Prospectus"), and should be read in conjunction therewith. A copy
of the Prospectus may be obtained from CGM Trust, c/o The CGM Funds Investor
Services Division, P.O. Box 449, Boston, Massachusetts 02117 (Telephone:
800-345-4048).
RSAI96
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INTRODUCTION................................................................ 1
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS............................. 1
PORTFOLIO TURNOVER.......................................................... 6
MANAGEMENT OF THE FUND...................................................... 7
INVESTMENT ADVISORY AND OTHER SERVICES...................................... 9
Advisory Agreement................................................. 9
Custodial Arrangements............................................. 11
Independent Accountants............................................ 11
Other Arrangements................................................. 11
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 11
DESCRIPTION OF THE TRUST.................................................... 12
Shareholder Rights................................................. 13
Shareholder and Trustee Liability.................................. 14
HOW TO BUY SHARES........................................................... 15
ADVERTISING AND PERFORMANCE INFORMATION..................................... 15
Calculation of Total Return........................................ 15
Calculation of Yield............................................... 16
Performance Comparisons............................................ 16
NET ASSET VALUE AND PUBLIC OFFERING PRICE................................... 18
SHAREHOLDER SERVICES........................................................ 19
Open Accounts...................................................... 19
Systematic Withdrawal Plans ("SWP")................................ 19
Exchange Privilege................................................. 20
Automatic Investment Plans ("AIP")................................. 21
Retirement Plans................................................... 21
Address Changes.................................................... 22
REDEMPTIONS................................................................. 22
Redeeming by Telephone............................................. 23
Check Sent to the Record Address................................... 23
Proceeds Wired to a Predesignated Bank............................. 23
All Redemptions.................................................... 23
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS................ 24
FINANCIAL STATEMENTS........................................................ 26
<PAGE>
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
CGM Realty Fund (the "Fund") is organized as a separate series of
shares of CGM Trust (the "Trust"). The Trust is a Massachusetts business trust
established under the laws of Massachusetts by an Agreement and Declaration of
Trust (the "Declaration of Trust") dated January 16, 1986, as amended. The Trust
is a successor in interest to Loomis-Sayles Mutual Fund. On March 1, 1990, the
Trust's name was changed from "Loomis-Sayles Mutual Fund" to "CGM Mutual Fund"
to reflect the assumption by Capital Growth Management Limited Partnership
("CGM" or the "Investment Manager") of investment advisory responsibilities with
respect to the Trust. On December 20, 1991, the Trust's name was changed to CGM
Trust.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment objective is above-average income and long-term
growth of capital. The Fund intends to pursue its objective by investing
primarily in equity securities of companies in the real estate industry.
At least 65% of the Fund's total assets will be invested under normal
conditions in equity securities of companies in the real estate industry. A
company is considered in the real estate industry if construction, ownership,
management, financing and sales of residential, commercial or industrial real
estate accounts for not less than 50% of its gross revenues or net profits.
Investments that the Fund makes in companies with significant real estate
holdings (but not otherwise in the real estate industry) will be considered to
be investments in the real estate industry for purposes of evaluating compliance
with the Fund's investment restrictions. The Fund's total investment in
companies possessing such significant real estate holdings within any particular
industry will not exceed 25% of the market value of the Fund's total assets.
Up to 35% of the Fund's total assets may be invested in securities of
companies outside the real estate industry. The Fund may invest this portion of
its assets in equity securities or fixed income securities, including investment
grade securities and, with respect to up to 25% of the Fund's total assets,
lower quality securities (securities rated lower than Baa by Moody's Investors
Service, Inc. or lower than BBB by Standard and Poor's Corporation). Certain
risks associated with investments in lower quality securities are described in
the Prospectus.
The Fund may not:
(1) Borrow money, except that it may borrow from banks in an amount not
to exceed 1/3 of the value of its total assets and may borrow for temporary
purposes from entities other than banks in an amount not to exceed 5% of the
value of its total assets;
(2) Issue any senior securities, except as permitted by the terms of
any exemptive order or similar rule issued by the Securities and Exchange
Commission (the "SEC") relating to multiple classes of shares of beneficial
interest of the Trust, and provided further that collateral arrangements with
respect to forward contracts, futures contracts, short sales or options,
including deposits of initial and variation margin, shall not be considered to
be the issuance of a senior security for purposes of this restriction;
(3) Act as an underwriter of securities issued by other persons, except
insofar as the Fund may be deemed an underwriter in connection with the
disposition of securities;
(4) Purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to be invested in
the securities of one or more issuers having their principal business activities
in the same industry, provided that there is no limit with respect to
investments in the real estate industry and in securities issued by the U.S.
Government, its agencies and instrumentalities;
(5) Purchase or sell real estate, except that the Fund may invest in
securities of companies that deal in real estate or are engaged in the real
estate business, including real estate investment trusts, and securities secured
by real estate or interests therein and the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of such securities;
(6) Purchase or sell commodities or commodity futures contracts, except
that the Fund may invest in financial futures contracts, options thereon and
similar instruments;
(7) Make loans to other persons except (a) through the lending of
securities held by it, (b) through the use of repurchase agreements, and (c) by
the purchase of debt securities in accordance with its investment policies;
(8) With respect to 75% of its total assets, purchase more than 10% of
the outstanding voting securities of any one issuer or invest more than 5% of
the value of its total assets in securities of any one issuer, except the U.S.
Government, its agencies or instrumentalities;
(9) Purchase "illiquid" securities, including repurchase agreements
maturing in more than seven days and options traded "over the counter," if, as a
result, more than 10% of the Fund's net assets would then be invested in such
securities;
(10) Purchase securities issued by companies which, including their
predecessors, have been in operation for less than 3 years, if, as a result,
more than 5% of the Fund's total assets would then be invested in such
securities, except that the Fund may purchase securities issued by a real estate
investment trust in operation for less than 3 years if the sponsor of such real
estate investment trust has been in operation for at least 3 years;
(11) Purchase or retain securities of any issuer if the officers,
directors or trustees of the Fund and the adviser thereof who individually own
more than 1/2 of 1% of the securities of such issuer together own beneficially
more than 5% of such securities;
(12) Acquire or retain securities of any investment company, except
that the Fund may (a) acquire securities of closed-end investment companies up
to the limits permitted by applicable law, provided such acquisitions are in the
open market and there is no commission or profit to a dealer or sponsor other
than the customary broker's commission, and (b) acquire securities of any
investment company as part of a merger, consolidation or similar transaction;
(13) Sell securities short or maintain a short position unless, at all
times that a short position is open, the Fund owns an equal amount of such
securities or securities convertible into or exchangeable for, without payment
of any further consideration, securities of the same issue as, and equal in
amount to, the securities sold short (which sales are commonly referred to as
"short sales against the box");
(14) Invest in puts, calls, straddles, spreads or any combination
thereof, except that the Fund may (a) purchase put and call options on
securities and securities indexes, and (b) write covered put and call options on
securities and securities indexes, provided that the aggregate value of the
securities underlying the calls or obligations underlying the puts determined as
of the date the options are sold shall not exceed 25% of the Fund's net assets
and, provided further that (i) the securities underlying such options are within
the investment policies of the Fund and (ii) at the time of such investment, the
value of the Fund's aggregate investment in such securities does not exceed 5%
of the Fund's total assets;
(15) Invest in oil, gas or other mineral exploration programs,
development programs or leases, except that the Fund may purchase publicly
traded securities of companies engaging in whole or in part in such activities;
(16) Invest in real estate limited partnerships, except that the Fund
may purchase publicly traded securities issued by real estate investment trusts;
(17) Pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(18) Purchase securities on margin, except short-term credits as are
necessary for the purchase and sale of securities, provided that the deposit or
payment of initial or variation margin in connection with futures contracts or
related options will not be deemed to be a purchase on margin;
(19) Invest in warrants, if at the time of such investment (a) more
than 5% of the value of the Fund's net assets would be invested in warrants or
(b) more than 2% of the value of the Fund's net assets would be invested in
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange (and for this purpose, warrants attached to securities will be
deemed to have no value); and
(20) Invest more than 15% of the value of its net assets in restricted
securities of all types (including securities which are eligible for resale
pursuant to Rule 144A, Regulation S or other exemptive provisions under the
Securities Act of 1933).
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in such percentage resulting from a change in the
values of assets will not constitute a violation of such restriction.
The investment restrictions numbered 1 through 8 have been adopted by
the Trust as fundamental policies of the Fund. Under the Investment Company Act
of 1940, as amended (the "1940 Act"), a fundamental policy may not be changed
without the vote of a majority of the outstanding voting securities of the Fund,
as defined under the 1940 Act. "Majority" means the lesser of (1) 67% or more of
the shares present at a meeting of shareholders of the Fund, if the holders of
more than 50% of the outstanding shares of the Fund are present or represented
by proxy, or (2) more than 50% of the outstanding shares of the Fund. Investment
restrictions numbered 9 through 20 above are non-fundamental and may be changed
at any time by vote of a majority of the Trust's Board of Trustees.
Although the Fund has the ability to invest in REITs without regard to
the expected duration of the REIT, the Fund does not presently intend to invest
in REITs with finite lives without first notifying its shareholders and
supplying further information in the Prospectus. Finite-life REITs may entail
special risks, such as the risk that shareholders will elect to continue the
REIT indefinitely or the risk that the REIT will liquidate and make
distributions of capital returns at any time.
Although the Fund has the ability to invest in financial futures
contracts and options thereon, to invest in puts, calls and warrants, to acquire
securities of closed-end investment companies, to sell securities short against
the box and to loan portfolio securities, the Fund has no current intention of
doing so without first notifying its shareholders and supplying further
information in the Prospectus.
Restricted securities eligible for resale to "qualified institutional
buyers" pursuant to Rule 144A under the Securities Act of 1933, as amended, may
be determined to be liquid by the Investment Manager under guidelines approved
by the Board of Trustees. In its determination of liquidity with respect to such
securities, the Investment Manager will consider the following factors, among
others: (1) the frequency of trades and quotes for the security, (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers, (3) dealer undertakings to make a market in the security,
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). The foregoing investment practice could
have the effect of increasing the level of illiquidity in the Fund to the extent
that qualified institutional buyers become uninterested in purchasing the
securities. Restricted securities that are so determined to be liquid shall
remain subject to investment restriction number 20 above, although they will no
longer be subject to investment restriction number 9.
The Fund may invest up to 25% of its total assets in repurchase
agreements. A repurchase agreement is an instrument under which the purchaser
acquires ownership of a security and obtains a simultaneous commitment from the
seller (a bank or, to the extent permitted by the 1940 Act, a recognized
securities dealer) to repurchase the security at an agreed-upon price and date
(usually seven days or less from the date of original purchase). The resale
price is in excess of the purchase price and reflects an agreed-upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
the Fund the opportunity to earn a return on temporarily available cash at
minimal market risk. While the underlying security may be a bill, certificate of
indebtedness, note or bond issued by an agency, authority or instrumentality of
the U.S. Government, the obligation of the seller is not guaranteed by the U.S.
Government and there is a risk that the seller may fail to repurchase the
underlying security. In such event, the Fund would attempt to exercise rights
with respect to the underlying security, including possible disposition in the
market. However, the Fund may be subject to various delays and risks of loss,
including (1) possible declines in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (2) possible
reduced levels of income and lack of access to income during this period, and
(3) inability to enforce rights and the expenses involved in attempted
enforcement.
The Fund may enter into reverse repurchase agreements with banks or
broker-dealers. Reverse repurchase agreements involve the sale of a security
held by the Fund and its agreement to repurchase the instrument at a stated
price, date and interest payment. Reverse repurchase agreements may be
considered to be borrowings by the Fund and entail additional risks such as the
occurrence of interest expenses and fluctuations in the Fund's net asset value.
In connection with entering into reverse repurchase agreements, a segregated
account of the Fund consisting of cash, cash equivalents, U.S. Government
securities or other high quality liquid debt securities with an aggregate value
at all times sufficient to repurchase the securities, or equal to the proceeds
received upon the sale plus accrued interest, will be established with the
Fund's custodian bank.
The Fund may invest in mortgage-related securities and asset-backed
securities. Mortgage- related securities are represented by pools of mortgage
loans or loans assembled for sale to investors by various governmental agencies,
such as the Government National Mortgage Association, and government-related
organizations, such as the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation, as well as by private issuers, such as
commercial banks, savings and loan institutions, financial corporations,
mortgage bankers and private mortgage insurance companies. Asset-backed
securities are pass-through securities backed by non-mortgage assets, including
automobile loans, credit card receivables and consumer receivables. Although
certain mortgage-related and asset-backed securities are guaranteed by a third
party or otherwise similarly secured, the market value of the security, which
may fluctuate, and the yield are not so secured. If the Fund purchases a
mortgage-related or an asset-backed security at a premium, all or part of the
premium may be lost if there is a decline in the market value of the security,
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral.
As with other interest-bearing securities, the prices of such
securities are inversely affected by changes in interest rates. However,
although the value of a mortgage-related or asset-backed security may decline
when interest rates rise, the converse is not necessarily true, because in
periods of declining interest rates the mortgages or assets underlying the
security may be more likely to be prepaid. For this and other reasons, a
mortgage-related or asset-backed security's stated maturity may be shortened by
unscheduled prepayments on the underlying mortgages or assets and, therefore, it
is not possible to predict accurately the security's return. Such prepayments
may expose the Fund to a lower rate of return on reinvestment. To the extent
that such mortgage-related securities are held by the Fund, the prepayment right
of the mortgagors may limit the increase in net asset value of the Fund because
the value of the mortgage-related securities held by the Fund may not appreciate
as rapidly as the price of other debt securities.
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
Although the Fund's objective is long-term growth and above-average
income and the Fund does not purchase securities with the intention of engaging
in short term trading, the Fund will sell any particular security and reinvest
proceeds when it is deemed prudent by the Investment Manager, regardless of the
length of the holding period. This policy may result in higher securities
transaction costs. To the extent that this policy results in gains on
investments, the Fund will make distributions to its shareholders, which may
accelerate the shareholders' tax liabilities for realized gains and may result
in the distribution of short-term capital gains taxable as ordinary income. See
"Income Dividends, Capital Gains Distributions and Tax Status." The Fund's
portfolio turnover rate for each full or partial year of its operation is set
forth in the Prospectus in the table entitled "Financial Highlights."
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
PETER O. BROWN -- Trustee;
30 Douglas Road, Rochester, NY; Partner, Harter, Secrest & Emery;
formerly Executive Vice President and Chief Operating Officer, The
Glenmede Trust Company; formerly Senior Vice President, Chase Lincoln
First Bank, N.A.
NICHOLAS J. GRANT -- Trustee;
77 Massachusetts Avenue, Cambridge, MA; Professor of Metallurgy and
Materials Science, Massachusetts Institute of Technology.
G. KENNETH HEEBNER* -- Trustee and Vice President;
Employee, CGM; formerly Vice President and Director, Loomis, Sayles
and Company, Incorporated ("Loomis Sayles").
ROBERT L. KEMP* -- Trustee and President;
Employee, CGM; formerly President and Director, Loomis Sayles.
ROBERT B. KITTREDGE -- Trustee;
21 Sturdivant Street, Cumberland Foreside, ME; Retired; formerly Vice
President, General Counsel and Director, Loomis Sayles.
LAURENS MACLURE -- Trustee;
183 Sohier Street, Cohasset, MA; Retired; formerly President and Chief
Executive Officer, New England Deaconess Hospital.
JAMES VAN DYKE QUEREAU, JR. -- Trustee;
59 Annewood Lane, Wayne, PA; Managing Partner, Stratton Management
Company; formerly Institutional Managing Partner, Loomis Sayles.
J. BAUR WHITTLESEY -- Trustee;
1521 Locust Street, Philadelphia, PA; Attorney.
KATHLEEN S. HAUGHTON -- Vice President;
222 Berkeley Street, Boston, MA 02116; Employee -- Investor Services
Division, CGM; formerly Vice President, Boston Financial Data
Services, Inc.
- --------
* Trustees deemed "interested persons" of the Fund, as defined under the
1940 Act.
<PAGE>
LESLIE A. LAKE -- Vice President and Secretary;
Employee -- Office Administrator, CGM; formerly Office Administrator,
Capital Growth Management Division of Loomis Sayles.
MARTHA I. MAGUIRE -- Vice President;
Employee -- Funds Marketing, CGM; formerly marketing communications
consultant (self-employed); formerly Sales Promotion Consultant.
MARY L. STONE -- Assistant Vice President;
Employee -- Coordinator, Mutual Fund Recordkeeping, CGM; formerly
Coordinator, Mutual Fund Recordkeeping, Loomis Sayles.
FRANK N. STRAUSS -- Treasurer;
222 Berkeley Street, Boston, MA 02116; Employee -- Chief Financial
Officer, CGM; formerly Vice President of Fund Accounting, Freedom
Capital Management Corporation and Assistant Vice President, The Boston
Company, Inc.
W. DUGAL THOMAS -- Vice President;
Employee -- Director of Marketing, CGM; formerly Director of
Marketing, Loomis Sayles.
Each of the Fund's trustees is also a trustee of one or more other
investment companies for which CGM acts as investment manager. Except as
indicated above, the address of each trustee and officer of the Fund affiliated
with CGM is One International Place, Boston, Massachusetts 02110.
As of March 31, 1996, the officers and trustees of the Fund owned
beneficially approximately 1.0% of the outstanding shares of the Fund.
The Fund pays no compensation to its officers or to the trustees listed
above who are interested persons of the Fund. Officers and trustees receive no
pension or retirement benefits paid from Fund expenses. The following table sets
forth the compensation paid by the Trust to its trustees for the year ended
December 31, 1995:
<TABLE>
<CAPTION>
Pension Total
or Retirement Estimated Compensation From
Aggregate Benefits Accrued Annual Registrant and
Name of Compensation as Part of Fund Benefit Upon Fund Complex
Trustee From Trust Expenses Retirement Paid to Trustees(a)
- -------- ------------ ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Peter O. Brown $22,000 None None $32,000
Nicholas J. Grant 26,500 None None 38,000
G. Kenneth Heebner None None None None
Robert L. Kemp None None None None
Robert B. Kittredge 22,000 None None 32,000
Laurens Maclure 22,000 None None 32,000
James Van Dyke Quereau, Jr. 22,000 None None 32,000
J. Baur Whittlesey 22,000 None None 32,000
- ----------
(a) The Fund Complex is comprised of two Trusts with a total of five funds.
</TABLE>
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INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------------------------------------------------
Advisory Agreement CGM serves as investment manager of the Fund under
an advisory agreement dated April 28, 1994. Under the advisory agreement, CGM
manages the investment and reinvestment of assets of the Fund and generally
administers its affairs, subject to supervision by the Board of Trustees of the
Trust. CGM furnishes, at its own expense, all necessary office supplies,
facilities and equipment, services of executive and other personnel of the Fund
and certain administrative services. For these services, CGM is compensated at
the annual percentage rate of 0.85% of the first $500 million of the Fund's
average daily net asset value, and 0.75% of such value in excess of $500
million. CGM has voluntarily agreed, until December 31, 1996, and thereafter
until further notice to the Fund, to limit its management fees and, if
necessary, to bear certain expenses associated with operating the Fund, in order
to limit the Fund's total operating expenses to an annual rate of 1.0% of the
Fund's average net assets. For the period from May 13, 1994 (commencement of
operations) through December 31, 1994 and for the fiscal year ended 1995 the
investment advisory fees that would have been payable to CGM in respect of
services rendered to the Fund amounted to $113,421 and $333,264, respectively.
As a result of such limitation, the Fund paid no investment advisory fee to CGM
for such 1994 period and $65,432 for 1995.
On December 29, 1995, the shareholders of the Fund approved a proposed
new advisory agreement between the Fund and CGM. The proposed advisory agreement
does not change the terms of the existing advisory agreement and does not change
the operations or management of the Fund. Shareholders were asked to approve the
proposed advisory agreement in connection with a change of control of CGM that
might be deemed to occur as a result of the proposed merger of New England
Mutual Life Insurance Company into Metropolitan Life Insurance Company. The
proposed advisory agreement will not be executed and will not become effective
until this merger is consummated, which the Fund understands is currently
scheduled to occur during the third quarter of 1996. The proposed advisory
agreement provides that it will continue in effect for an initial term of two
years from the date of execution unless otherwise terminated.
The Fund pays the compensation of its trustees who are not partners,
directors, officers or employees of CGM or its affiliates (other than registered
investment companies); registration, filing, and other fees in connection with
requirements of regulatory authorities; all charges and expenses of its
custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; all taxes and fees payable to governmental agencies; the
cost of any certificates representing shares of the Fund; the expenses of
meetings of the shareholders and trustees of the Fund; the charges and expenses
of the Fund's legal counsel; interest, including on any borrowings by the Fund;
the cost of services, including services of counsel, required in connection with
the preparation of, and the costs of printing registration statements and
prospectuses relating to the Fund, including amendments and revisions thereto,
annual, semiannual, and other periodic reports of the Fund, and notices and
proxy solicitation material furnished to shareholders of the Fund or regulatory
authorities, to the extent that any such materials relate to the Fund or its
shareholders; and the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses. Under the advisory
agreement, if the total of all ordinary business expenses of the Fund for any
fiscal year exceeds the lowest applicable limitation (based on percentage of
average net assets or income) prescribed by any state in which shares of the
Fund are qualified for sale, the total fee otherwise due CGM is reduced by the
amount of such excess, and if after giving effect to such reduction such total
continues to exceed such limitation, CGM pays such excess, unless such reduction
of payment would result in the inability of the Fund to qualify as a regulated
investment company under applicable tax law. At the date of this Statement, the
lowest applicable net asset percentage limitation on the Fund's total ordinary
expenses (including investment advisory fees, but excluding taxes, portfolio
brokerage commissions and interest) was 2.5% of the first $30 million of average
annual net assets, 2% of the next $70 million of such assets and 1.5% of the
remaining average annual net assets. As a result of the limitations described
above, the Fund's actual total operating expenses are currently limited to 1.0%
of its average net assets on an annual basis.
CGM also acts as investment adviser to CGM Capital Development Fund,
CGM Mutual Fund, CGM Fixed Income Fund and CGM American Tax Free Fund and three
other mutual fund portfolios. CGM also provides investment advice to other
institutional clients.
Certain officers and trustees of the Fund also serve as officers,
directors or trustees of other investment companies advised by CGM. The other
investment companies and clients served by CGM sometimes invest in securities in
which the Fund also invests. If the Fund and such other investment companies or
clients advised by CGM desire to buy or sell the same portfolio securities at
the same time, purchases and sales will be allocated to the extent practicable
on a pro rata basis in proportion to the amounts desired to be purchased or sold
for each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of the
securities which the Fund purchases or sells. In other cases, however, it is
believed that these practices may benefit the Fund. It is the opinion of the
trustees that the desirability of retaining CGM as adviser for the Fund
outweighs the disadvantages, if any, which might result from these practices.
Custodial Arrangements State Street Bank and Trust Company ("State
Street Bank"), Boston, Massachusetts 02102, is the Fund's custodian. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to the Fund and, in such capacity, is the registered owner of
securities held in book entry form belonging to the Fund. Upon instruction,
State Street Bank receives and delivers cash and securities of the Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of the Fund and calculates the total
net asset value, total net income, and net asset value per share of the Fund on
each business day.
Independent Accountants The Fund's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse LLP conducts an annual audit of the Fund's financial statements,
assists in the preparation of the Fund's federal and state income tax returns
and consults with the Fund as to matters of accounting and federal and state
income taxation. The information concerning financial highlights in the
Prospectus, and the financial statements incorporated by reference into this
Statement, have been so included in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Other Arrangements Certain office space, facilities, equipment and
administrative services for the Fund and other mutual funds under the investment
management of the CGM organization are furnished by CGM. In addition, CGM
provides bookkeeping, accounting, auditing, financial recordkeeping and related
clerical services for which it is entitled to be reimbursed by the Fund based on
the cost of providing these services. As a result of the expense provisions
described above, CGM received no reimbursement by the Fund for any of such costs
in 1994 and for services rendered to the Fund for fiscal year 1995, CGM was
reimbursed by the Fund for $12,300 of such expenses.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
In placing orders for the purchase and sale of portfolio securities for
the Fund, CGM always seeks the best price and execution. Transactions in
unlisted securities will be carried out through broker-dealers who make the
primary market for such securities unless, in the judgment of CGM, a more
favorable price can be obtained by carrying out such transactions through other
brokers.
CGM selects only brokers it believes are financially responsible, will
provide efficient and effective services in executing, clearing and settling an
order and will charge commission rates which, when combined with the quality of
the foregoing services, will produce the best price and execution for the
transaction. This does not necessarily mean that the lowest available brokerage
commission will be paid. However, the commissions are believed to be competitive
with generally prevailing rates. CGM will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. The Fund will not
pay a broker a commission at a higher rate than is otherwise available for the
same transaction in recognition of the value of research services provided by
the broker or in recognition of the value of any other services provided by the
broker which do not contribute to the best price and execution of the
transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker which CGM believes will provide the best price and execution
for a transaction. These research services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce CGM's expenses. Such services may be used by CGM in servicing
other client accounts and in some cases may not be used with respect to the
Fund. Receipt of services or products other than research from brokers is not a
factor in the selection of brokers. In 1995, brokerage transactions of the Fund
aggregating $57,777,780 were allocated to brokers providing research services
and $209,050 in commissions were paid on these transactions. During 1994 and
1995, the Fund paid total brokerage fees of $542,648 and $269,950, respectively.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE TRUST
- --------------------------------------------------------------------------------
The Declaration of Trust of the Trust currently permits the trustees to
issue an unlimited number of shares of beneficial interest of separate series of
the Trust. Interests in the portfolio described in the Prospectus and in this
Statement are represented by shares of the Fund. Each share of the Fund
represents an interest in such series which is equal to and proportionate with
the interest represented by each other share. The shares of the Fund do not have
any preemptive rights. Upon liquidation of the portfolio, shareholders of the
Fund are entitled to share pro rata in the net assets of such portfolio
available for distribution to shareholders. The Declaration of Trust also
permits the trustees to charge shareholders directly for custodial, transfer
agency and servicing expenses. The trustees have no present intention of making
such direct charges.
The Declaration of Trust also permits the trustees, without shareholder
approval, to create one or more additional series or classes of shares or to
reclassify any or all outstanding shares as shares of particular series or
classes, with such preferences and rights and eligibility requirements as the
trustees may designate. While the trustees have no current intention to exercise
the power to establish separate classes of the existing series of the Fund, it
is intended to allow them to provide for an equitable allocation of the impact
of any future regulatory requirements, which might affect various classes of
shareholders differently. The trustees may also, without shareholder approval,
merge two or more existing series.
Shareholder Rights
On March 31, 1996, there were 5,808,109 shares of the Fund outstanding.
On that date, State Street Bank, acting as trustee for various retirement
plans and individual retirement accounts, owned 868,034 shares--about 15% of
the total. In almost all cases, State Street Bank does not have the power to
vote or to dispose of the shares except at the direction of the beneficial
owner.
Shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held) and may vote (to the extent
provided herein) in the election of trustees of the Trust and the termination of
the Fund and on other matters submitted to the vote of shareholders. There will
normally be no meetings of shareholders for the purpose of electing trustees,
except that in accordance with the 1940 Act (i) the Trust will hold a
shareholders' meeting for the election of trustees at such time as less than a
majority of the trustees holding office have been elected by shareholders, and
(ii) if the appointment of a trustee to fill a vacancy in the Board of Trustees
would result in less than two-thirds of the trustees having been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten or more shareholders of record who have been such
for at least six months and who hold in the aggregate shares equal to at least
the lesser of (i) $25,000 in net asset value or (ii) 1% of the outstanding
shares, stating that shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to demand a
meeting to consider removal of a trustee, the Trust will either provide access
to a list of shareholders or disseminate appropriate materials (at the expense
of the requesting shareholders). Except as set forth above, the trustees shall
continue to hold office and may appoint successor trustees. Voting rights are
not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the holders of the outstanding shares of the
Trust except (i) to change the Trust's name or to cure technical problems in the
Declaration of Trust and (ii) to establish, designate or modify new and existing
series or subseries of Trust shares or other provisions relating to Trust shares
in response to applicable laws or regulations. The shareholders of the Fund
shall not be entitled to vote on matters exclusively affecting any other series,
such matters including, without limitation, the adoption of or change in the
investment objectives, policies or restrictions of the series and the approval
of the investment advisory contracts of the series. Similarly, no shareholders
of any other series shall be entitled to vote on any such matters exclusively
affecting the Fund. In particular, the phrase "majority of the outstanding
voting securities of the Fund" as used in this Statement shall refer only to the
shares of the Fund.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust;
however, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or trustees. The Declaration of Trust provides for indemnification out of Fund
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote since it
is limited to circumstances in which the disclaimer is inoperative and the Fund
itself would be unable to meet its obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the trustees and officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in or not opposed to the best interests of the Trust. No officer
or trustee may be indemnified against any liability to the Trust or the Trust's
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
All persons dealing with the Fund must look only to the assets of the
Fund for the enforcement of any claims against the Fund and no other series of
the Trust assumes any liability for obligations entered into on behalf of the
Fund.
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HOW TO BUY SHARES
- --------------------------------------------------------------------------------
The procedures for purchasing shares of the Fund are summarized in the
Prospectus under "How to Purchase Shares." Shares of the Fund are not available
to persons in South Dakota.
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ADVERTISING AND PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Calculation of Total Return
The Fund may include total return information in advertisements or
written sales material. Total return is a measure of the change in value of an
investment in the Fund over the period covered, which assumes that any dividends
or capital gains distributions are automatically reinvested in the Fund rather
than paid to the investor in cash. The formula for total return used by the Fund
includes three steps:
(1) adding to the total number of shares purchased by a
hypothetical $1,000 investment in the Fund all additional shares that
would have been purchased if all dividends and distributions paid or
distributed during the period had been automatically reinvested;
(2) calculating the value of the hypothetical initial
investment as of the end of the period by multiplying the total number
of shares owned at the end of the period by the net asset value per
share on the last trading day of the period; and
(3) dividing this account value for the hypothetical investor
by the amount of the initial investment, and annualizing the result for
periods of less than one year.
For the one-year period ended December 31, 1995, and for the period
from inception (May 13, 1994) through December 31, 1995, the average annual
total return of the Fund was 19.8% and 11.8%, respectively. If CGM had not
agreed to fee limitations and expense provisions described above, the Fund's
total return for such periods would have been lower.
In computing performance information for the Fund, no adjustment will
be made for a shareholder's tax liability on taxable dividends and capital gains
distributions.
Calculation of Yield
The Fund may use yield information in advertisements or written sales
material. The Fund's yield is based on a recent 30 day period, and is determined
in accordance with the SEC's standardized formula by:
(1) calculating the aggregate dividends and adjusted interest
earned during that period, net of recurring expenses accrued for the
period; and
(2) dividing that amount by the product of (A) the average
daily number of shares outstanding during the period and (B) the
maximum offering price per share on the last day of the period (less
any earned income expected to be declared as a dividend shortly
thereafter).
The result is annualized, assuming a quarterly compounding, to
determine the Fund's yield. Interest earned during the period will be adjusted
to reflect amortization of any premium or discount from par on the Fund's fixed
income securities (other than obligations backed by mortgages or other assets),
using the market value for these securities on the last day of the period, or,
for securities purchased during the period, using actual cost. The Fund's yield
will vary from time to time depending upon market conditions, the composition of
the Fund's portfolio and operating expenses of the Fund. The 30-day yield of the
Fund for the period ended December 31, 1995, was 6.64%.
Performance Comparisons
Total return may be used to compare the performance of the Fund against
certain widely acknowledged standards or indices for stock and bond market
performance or against the U.S. Bureau of Labor Statistics' Consumer Price
Index.
The Standard & Poor's 500 Composite Index (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 400 industrial, 60 transportation and 40 financial services
concerns.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
No brokerage commissions or other fees are factored into the values of
the S&P 500 and the Dow Jones Industrial Average.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of change, over time, in the prices of
goods and services in major expenditure groups.
Lipper Analytical Services, Inc., an independent service that monitors
the performance of over 4,700 mutual funds, calculates total return for those
funds grouped by investment objective. From time to time, the Fund may include
its ranking among mutual funds tracked by Lipper in advertisements or sales
literature.
Morningstar, Inc. ("Morningstar") is an independent mutual fund ranking
service. Morningstar proprietary ratings reflect historical risk-adjusted
performance and are subject to change every month. Funds with at least three
years of performance history are assigned ratings from one star (lowest) to five
stars (highest). Morningstar ratings are calculated from the funds' three-,
five-, and ten-year average annual returns (when available) and a risk factor
that reflects the fund performance relative to three-month Treasury bill monthly
returns. Funds' returns are adjusted for fees and sales loads. Ten percent of
the funds in an investment category receive five stars, 22.5% receive four
stars, 35% receive three stars, 22.5% receive two stars, and the bottom 10%
receive one star. From time to time, the Fund may include its ranking among
mutual funds tracked by Morningstar in advertisements or sales literature.
Value Line, Inc. ("Value Line"), an independent mutual fund ranking
service reviews the performance of 2,000 mutual funds. In ranking mutual funds,
Value Line uses two indicators: a Risk Rank to show the total level of risk a
fund has assumed and an Overall Rank measuring various performance criteria
taking risk into account. Funds are ranked from 1 to 5, with 1 the highest
Overall Rank (the best risk-adjusted performance) and the best Risk Rank (the
least risky). From time to time, the Fund may include ranking information
provided by Value Line in advertisements and sales literature.
The Fund may compare its total return or yield or both to that of the
National Association of Real Estate Investment Trusts' (NAREIT) Equity REIT
Index.
From time to time, articles about the Fund regarding performance,
rankings and other characteristics of the Fund and information about persons
responsible for its portfolio management may appear in national publications and
major metropolitan newspapers including, but not limited to, The Wall Street
Journal, The Boston Globe and Forbes, Fortune, and Money magazines. In
particular, some or all of these publications may publish their own rankings or
performance reviews of mutual funds, including the Fund. References to or
reprints of such articles may be used in the Fund's promotional literature.
Mr. Heebner has continuously managed the Fund since its inception on
May 13, 1994.
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NET ASSET VALUE AND PUBLIC OFFERING PRICE
- --------------------------------------------------------------------------------
The method for determining the public offering price and net asset
value per share is summarized in the Prospectus under "Pricing of Shares."
The net asset value of a share of the Fund is determined by dividing
the Fund's total net assets (the excess of its assets over its liabilities) by
the total number of shares outstanding and rounding to the nearest cent. Such
determination is made as of the close of normal trading on the New York Stock
Exchange on each day on which the Exchange is open for unrestricted trading, and
no less frequently than once daily on each day during which there is sufficient
trading in the Fund's portfolio securities that the value of the Fund's shares
might be materially affected. During the 12 months following the date of this
Statement, the New York Stock Exchange is expected to be closed on the following
holidays: Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas
Day, New Year's Day, Presidents' Day, and Good Friday.
Securities which are traded over-the-counter or on a stock exchange
will be valued according to the broadest and most representative market based on
the last reported sale price for securities listed on a national securities
exchange (or on the NASDAQ National Market System) or, if no sale was reported
and in the case of over-the-counter securities not so listed, the last reported
bid price. U.S. Government securities are valued at the most recent quoted price
on the date of valuation.
For equity securities, it is expected that the broadest and most
representative market will ordinarily be either (i) a national securities
exchange, such as the New York Stock Exchange or American Stock Exchange, or
(ii) the NASDAQ National Market System. For corporate bonds, notes, debentures
and other fixed-income securities, it is expected that the broadest and most
representative market will ordinarily be the over-the-counter market.
Fixed-income securities may, however, be valued on the basis of prices provided
by a pricing service approved by the Board of Trustees when such prices are
believed to reflect the fair market value of such securities. The prices
provided by the pricing service may be determined based on valuations for
normal, institutional-size trading units of such securities using market
information, transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders.
Instruments with maturities of sixty days or less are valued at amortized cost,
which approximates market value. Other assets and securities which are not
readily marketable will be valued in good faith at fair value using methods
determined by the Board of Trustees.
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SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Open Accounts
A shareholder's investment in the Fund is credited to an open account
maintained for the shareholder by the CGM Shareholder Services Department ("CGM
Shareholder Services") of Boston Financial Data Services, Inc. ("BFDS"), the
shareholder servicing agent for State Street Bank. The address is: CGM
Shareholder Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
Certificates representing shares are issued only upon written request
to CGM Shareholder Services but are not issued for fractional shares. Following
each transaction in the account, a shareholder will receive an account statement
disclosing the current balance of shares owned and the details of recent
transactions that have taken place during the year. After the close of each
fiscal year, CGM Shareholder Services will send each shareholder a statement
providing federal tax information on dividends and distributions paid to the
shareholder during the year. The year-end statement should be retained as a
permanent record. Shareholders will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates problems of handling and safekeeping, and the
cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are borne by the Fund,
and no direct charges are made to shareholders. Although the Fund has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
Systematic Withdrawal Plans ("SWP")
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $50 or more from the
account of a shareholder provided that the account has a value of at least
$10,000 at the time the plan is established.
Payments will be made either to the shareholder or to any other person
or entity designated by the shareholder. If payments are issued to an individual
other than the registered owner(s) and/or mailed to an address other than the
address of record, a signature guarantee will be required on the SWP
application. Shares to be included in a Systematic Withdrawal Plan must be held
in an Open Account rather than certificated form. Income dividends and capital
gain distributions will be reinvested at the net asset value determined as of
the close of the New York Stock Exchange on the record date for the dividend or
distribution. If withdrawal checks are returned to the Fund as "undeliverable"
or remain uncashed for more than six months the shareholder's Systematic
Withdrawal Plan will be cancelled, such undeliverable or uncashed checks will be
cancelled and such amounts reinvested in the Fund at the per share net asset
value determined as of the date of cancellation of the checks.
Since withdrawal payments represent in whole or in part proceeds from
the liquidation of shares, the shareholder should recognize that withdrawals may
reduce and possibly exhaust the value of the account, particularly in the event
of a decline in net asset value. Accordingly, the shareholder should consider
whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn
are appropriate in the circumstances. The Trust makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
Exchange Privilege
A shareholder may exchange shares of the Fund for shares of CGM Mutual
Fund, CGM Fixed Income Fund, CGM American Tax Free Fund, New England Cash
Management Trust, New England Tax Exempt Money Market Trust or CGM Capital
Development Fund; however, shares of CGM Capital Development Fund may be
exchanged for only if you were a shareholder on September 24, 1993, and have
continuously remained a shareholder in the CGM Capital Development Fund since
that date. CGM Capital Development Fund shares are not generally available to
other persons except in special circumstances that have been approved by, or
under the authority of, the Board of Trustees of CGM Capital Development Fund.
The special circumstances currently approved by the Board of Trustees of CGM
Capital Development Fund are limited to the offer and sale of shares of such
fund to the following additional persons: trustees of CGM Capital Development
Fund, employees of the Investment Manager and counsel to such fund and the
Investment Manager. The value of shares exchanged must be at least $1,000 and
all exchanges are subject to the minimum investment requirements of the fund
into which the exchange is being made. This option is summarized in the
Prospectus under "Shareholder Services--Exchange Privilege." Exchange requests
cannot be revoked once they have been received in good order. The Trust reserves
the right to terminate or limit the privilege of a shareholder who makes more
than four exchanges (or two round trips) per year and to prohibit exchanges
during the first 15 days following an investment in the Fund. A shareholder may
exercise the exchange privilege only when the fund into which shares will be
exchanged is registered or qualified in the state in which such shareholder
resides.
Exchanges may be effected by (i) a telephone request to CGM Shareholder
Services at 800-343-5678, provided a special authorization form is on file with
the Trust, or (ii) a written exchange request to BFDS accompanied by an account
application for the appropriate fund. The Trust reserves the right to modify
this exchange privilege without prior notice, except as otherwise required by
law or regulation.
For federal income tax purposes, an exchange constitutes a sale of
shares, which may result in a capital gain or loss.
Automatic Investment Plans ("AIP")
Once initial investment minimums have been satisfied (see "How to
Purchase Shares" in the Prospectus), a shareholder may participate in an
Automatic Investment Plan, pursuant to which the Fund debits $50.00 or more on
or about the same date each month from a shareholder's checking account and
transfers the proceeds into the shareholder's Fund account. To participate, a
shareholder must authorize the Fund and its agents to initiate Automated
Clearing House ("ACH") debits against the shareholder's designated account at a
bank or other financial institution. Debits from savings banks and credit unions
generally are not acceptable. Debits from savings accounts will not be accepted
under any circumstances. Shareholders receive a confirmation of each purchase of
Fund shares, and each deduction from a shareholder's bank account will appear on
the shareholder's monthly bank statement. If a shareholder elects to redeem Fund
shares purchased under the AIP within 15 days of such purchase, the shareholder
may experience delays in receiving redemption proceeds. See "All Redemptions."
Once a shareholder enrolls in the AIP, the Fund and its agents are
authorized to initiate ACH debits against the shareholder's account payable to
the order of The CGM Funds. Such authority remains in effect until revoked by
the shareholder, and, until the Fund actually receives such notice of
revocation, the Fund is fully protected in initiating such debits. Participation
in the AIP may be terminated by sending written notice to CGM Shareholder
Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511, or by calling
800-343-5678 more than 14 days prior to the next scheduled debit date. The Fund
may immediately terminate a shareholder's participation in the AIP in the event
that any item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify the AIP at any time.
Retirement Plans
Under "Shareholder Services--Retirement Plans" the Prospectus refers to
several retirement plans. These include tax deferred money purchase pension or
profit sharing plans, as well as SEP-IRAs, IRAs and 403(b)(7) custodial accounts
established under retirement plans sponsored by CGM. These plans may be funded
with shares of the Fund.
For participants under age 59 1/2, all income dividends and capital
gain distributions of plan participants must be reinvested. Plan documents and
further information can be obtained from the Trust by writing or calling the
Trust as indicated on the cover of this Statement.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
Address Changes
Shareholders can request to change their record address either by
telephone or in writing (by mail or delivery service, but not by facsimile) in
accordance with the policies and procedures of the Trust. After an address
change is made, no telephone or written redemption requests will be honored for
three months unless the registered owner's signature is guaranteed on the
request. Written requests for a change of address may be mailed to: CGM
Shareholder Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
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REDEMPTIONS
- --------------------------------------------------------------------------------
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by an eligible guarantor institution in accordance with procedures
established by the Trust. Signature guarantees by notaries public are not
acceptable.
The procedures provide that an "eligible guarantor institution" means
any of the following: banks (as defined in ss. 3(a) of the Federal Deposit
Insurance Act (the "FDIA") [12 U.S.C. ss. 1813(a)]); brokers, dealers, municipal
securities brokers, government securities dealers and government securities
brokers, as those terms are defined under the Securities Exchange Act of 1934
(the "Act"); credit unions (as defined in ss. 19(b)(1)(A) of the Federal Reserve
Act [12 U.S.C. ss. 461(b)]); national securities exchanges, registered
securities associations and clearing agencies, as those terms are defined under
the Act; and savings associations (as defined in ss. 3(b) of the FDIA [12 U.S.C.
ss. 1813(b)]). However, as noted in the Prospectus, a signature guarantee will
not be required if the proceeds of the redemption do not exceed $25,000, and the
proceeds check is made payable to the registered owner(s) and mailed to the
record address, which has not changed in the prior three months. If the record
address has changed within the prior three months, a signature guarantee will be
required. This policy applies to both written and telephone redemption requests.
Redeeming by Telephone
There are two ways to redeem by telephone. In either case, a
shareholder should call 800-343-5678 prior to 4:00 p.m. (Eastern time). Requests
made after that time or on a day when the New York Stock Exchange is not open
for business cannot be accepted. Telephone redemptions are not available for
IRAs, SEP-IRAs, 403(b)(7) custodial accounts or money purchase pension and
profit sharing plans under a CGM retirement plan where State Street Bank is the
trustee.
Check Sent to the Record Address
A shareholder may request that a check be sent to the record address on
the account, provided that the address has not changed for the last three months
and the shareholder is redeeming $25,000 or less. The check will be made payable
to the registered owner(s) of the account.
If checks representing redemption proceeds are returned "undeliverable"
or remain uncashed for six months, such checks shall be cancelled and such
proceeds shall be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such checks.
Proceeds Wired to a Predesignated Bank
A shareholder may request that the redemption proceeds be wired to the
bank selected on the Fund application or subsequently on the Service Options
Form available from the Trust or BFDS. A nominal wire fee, currently $5.00, is
deducted from the proceeds. When selecting the service, a shareholder must
designate a bank account to which the redemption proceeds should be wired. Any
change in the bank account so designated may be made by furnishing BFDS a
completed Service Options Form with a signature guarantee. Whenever the Service
Options Form is used, the shareholder's signature must be guaranteed as
described above. Telephone redemptions may be made only if an investor's bank is
a member of the Federal Reserve System or has a correspondent bank that is a
member of the System. If the account is with a savings bank, it must have only
one correspondent bank that is a member of the System.
All Redemptions
The redemption price will be the net asset value per share next
determined after the redemption request is received by CGM Shareholder Services
in good order (including any necessary documentation). Redemption requests
cannot be revoked once they have been received in good order. Proceeds resulting
from a written redemption request will normally be mailed to you within seven
days after receipt of your request in good order. Telephone redemption proceeds
will normally be mailed or wired within seven days following receipt of a proper
redemption request. If you purchased your Fund shares by check (or through your
AIP) and elect to redeem shares within 15 days of such purchase, you may
experience delays in receiving redemption proceeds. The Trust will process your
redemption request upon receipt of a request in good order. However, the Trust
will generally postpone sending your redemption proceeds from such investment
until it can verify that your check (or AIP investment) has been or will be
collected. Under ordinary circumstances, the Trust cannot verify collection of
individual checks (or AIP investments)and may therefore automatically hold
proceeds from redemptions requested during the 15 day period following such
investment for a total of up to seven days. There will be no such automatic
delay following investments paid for by federal funds wire or by bank cashier's
check, certified check or treasurer's check although the Trust may in any case
postpone payment of redemption proceeds for up to seven days.
The Trust will normally redeem shares for cash; however, the Trust
reserves the right to pay the redemption price wholly in kind or partly in kind
and partly in cash if the board of trustees of the Trust determines it to be
advisable in the interest of the remaining shareholders. If portfolio securities
are distributed in lieu of cash, the shareholder will normally incur brokerage
commissions upon subsequent disposition of any such securities. However, the
Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Trust is obligated to redeem shares solely in cash for any shareholder
during any 90-day period up to the lesser of $250,000 or 1% of the total net
asset value of the Fund at the beginning of such period.
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gain or
loss. See "Income Dividends, Capital Gains Distributions and Tax Status."
Because the expense of maintaining small accounts is disproportionately
high, the Trust may close accounts with 20 shares or less and mail the proceeds
to the shareholder. Shareholders who are affected by this policy will be
notified of the Trust's intention to close the account, and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to retirement and Uniform Gifts to Minors Act
or Uniform Transfers to Minors Act accounts.
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INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
As described in the Prospectus under "Dividends, Capital Gains
Distributions and Taxes" it is the policy of the Fund to pay quarterly, as
dividends, substantially all net investment income and to distribute annually
all net realized capital gains, if any, after offsetting any capital loss
carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the Fund based upon the net asset value determined as of
the close of the New York Stock Exchange on the record date for such dividend or
distribution. Shareholders, however, may elect to receive their income dividends
or capital gain distributions, or both, in cash. (However, if you elect to
receive capital gains in cash, your income dividends must also be received in
cash.) The election, made at the time the account is opened, may be changed by
the shareholder at any time by submitting a written request directly to CGM
Shareholder Services. In order for a change to be in effect for any dividend or
distribution, it must be received by CGM Shareholder Services on or before the
record date for such dividend or distribution. If you elect to receive
distributions in cash, and checks are returned "undeliverable" to the Fund or
remain uncashed for six months, your cash election will be automatically changed
and your future distributions will be reinvested in the Fund at the per share
net asset value determined as of the date of payment of the distribution. In
addition, following such six month period, any undeliverable or uncashed checks
will be cancelled and such amounts reinvested in the Fund at the per share net
asset value determined as of the date of cancellation of such checks.
The Fund intends to meet the requirements of the Internal Revenue Code
with respect to regulated investment companies.
The distributions received by the Fund from its investments may, for
federal income tax purposes, consist of ordinary income, long-term capital gains
or a return of capital. The characterization of these distributions to the Fund
may, in turn, affect the tax treatment of the Fund's distributions to its
shareholders. Dividends and distributions are taxable to shareholders in the
same manner whether received in cash or reinvested in additional shares of the
Fund.
Dividends paid by the Fund from net investment income, including
dividends, interest and net short-term capital gains, will be taxable to
shareholders as ordinary income. Distributions of net capital gains (the excess
of net long-term capital gains over net short-term capital losses) which are
designated by the Fund as capital gains distributions are taxable as long-term
capital gains, regardless of the length of time shareholders have owned shares
in the Fund. To the extent that the Fund makes a distribution in excess of its
current and accumulated earnings and profits, the distribution will be treated
first as a tax-free return of capital, reducing the tax basis in a shareholder's
shares, and then, to the extent the distribution exceeds such basis, as a
taxable gain to be realized upon sale of such shares.
Distributions that the Fund receives from a REIT, and dividends of the
Fund attributable to such distributions, will not constitute "dividends" for
purposes of the dividends-received deduction applicable to corporate
shareholders.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes.
The Fund is required to withhold and remit to the U.S. Treasury 31% of
all dividends from net investment income and capital gains distributions,
whether distributed in cash or reinvested in shares of the Fund, paid or
credited to any shareholder account for which an incorrect or no taxpayer
identification number has been provided or where the Fund is notified that the
shareholder has underreported income in the past (or the shareholder fails to
certify that he is not subject to withholding). In addition, the Fund will be
required to withhold and remit to the U.S. Treasury 31% of the amount of the
proceeds of any redemption of Fund shares from a shareholder account for which
an incorrect or no taxpayer identification number has been provided or where the
Fund is notified that the shareholder has underreported income in the past (or
the shareholder fails to certify that he is not subject to such withholding).
As required by federal law, detailed federal tax information is
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
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FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for the year ended December 31, 1995, included
in the Fund's Annual Report to shareholders for the year ended December 31,
1995, are incorporated herein by reference.
168099.c4
<PAGE>
CGM AMERICAN TAX FREE FUND
CGM FIXED INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
This Statement of Additional Information (the "Statement") is not a
prospectus. This Statement relates to the CGM American Tax Free Fund and CGM
Fixed Income Fund Prospectus dated May 1, 1996 (the "Prospectus"), and should be
read in conjunction therewith. A copy of the Prospectus may be obtained from CGM
Trust, c/o The CGM Funds Investor Services Division, P.O. Box 449, Boston,
Massachusetts 02117 (Telephone: 800-345-4048).
CGM AMERICAN TAX FREE FUND MAY NOT BE AN APPROPRIATE INVESTMENT FOR
RETIREMENT PLAN AND SIMILAR ACCOUNTS.
AFSAI 96
<PAGE>
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INTRODUCTION................................................................ 1
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
OF CGM AMERICAN TAX FREE FUND ..................................... 1
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
OF CGM FIXED INCOME FUND........................................... 6
PORTFOLIO TURNOVER.......................................................... 10
MANAGEMENT OF THE FUND...................................................... 11
INVESTMENT ADVISORY AND OTHER SERVICES...................................... 13
Advisory Agreement................................................. 13
Custodial Arrangements............................................. 15
Independent Accountants............................................ 15
Other Arrangements................................................. 16
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 16
DESCRIPTION OF THE TRUST.................................................... 17
Shareholder Rights................................................. 18
Shareholder and Trustee Liability.................................. 19
HOW TO BUY SHARES........................................................... 19
ADVERTISING AND PERFORMANCE INFORMATION..................................... 20
Calculation of Total Return........................................ 20
Calculation of Yield............................................... 21
Performance Comparisons............................................ 21
NET ASSET VALUE AND PUBLIC OFFERING PRICE................................... 23
SHAREHOLDER SERVICES........................................................ 24
Open Accounts...................................................... 24
Systematic Withdrawal Plans ("SWP")................................ 25
Exchange Privilege................................................. 25
Automatic Investment Plans ("AIP")................................. 26
Retirement Plans................................................... 27
Address Changes.................................................... 27
REDEMPTIONS................................................................. 27
Redeeming by Telephone............................................. 28
Check Sent to the Record Address................................... 28
Proceeds Wired to a Predesignated Bank............................. 28
All Redemptions.................................................... 29
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS................ 29
FINANCIAL STATEMENTS ....................................................... 32
<PAGE>
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INTRODUCTION
- --------------------------------------------------------------------------------
CGM American Tax Free Fund and CGM Fixed Income Fund (each the "Fund"
and, collectively, the "Funds") are each organized as separate series of shares
of CGM Trust (the "Trust"). The Trust is a Massachusetts business trust
established under the laws of Massachusetts by an Agreement and Declaration of
Trust (the "Declaration of Trust") dated January 16, 1986, as amended. The Trust
is a successor in interest to Loomis-Sayles Mutual Fund. On March 1, 1990 the
Trust's name was changed from "Loomis-Sayles Mutual Fund" to "CGM Mutual Fund"
to reflect the assumption by Capital Growth Management Limited Partnership
("CGM" or the "Investment Manager") of investment advisory responsibilities with
respect to the Trust. On December 20, 1991, the Trust's name was changed to CGM
Trust.
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INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
OF CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
CGM American Tax Free Fund's primary investment objective is to provide
high current income exempt from federal income tax. The Fund's secondary
objective is capital appreciation. There are no assurances that CGM American Tax
Free Fund will achieve its objectives.
At least 75% of CGM American Tax Free Fund's assets will be invested in
securities rated at the time of purchase Baa, MIG-2, Prime-2 or higher by
Moody's Investors Service, Inc. ("Moody's"); or BBB, SP-2, A-2 or better by
Standard and Poor's Corporation ("Standard and Poor's"); or, if not rated by
Moody's or Standard and Poor's, determined to be of comparable quality by the
Investment Manager. Up to 25% of the Fund's assets may be invested in lower
quality securities, which have speculative characteristics and are subject to
special risks described in the Prospectus.
As a fundamental policy, under normal market conditions, CGM American
Tax Free Fund will invest at least 80% of its net assets in securities, the
interest from which is, in the opinion of counsel to the issuer, exempt from
federal income tax and excluded from the calculation of the federal alternative
minimum tax for individuals.
CGM American Tax Free Fund may not:
(1) Borrow money, except that it may borrow from banks in an amount
not to exceed 1/3 of the value of its total assets and may borrow for temporary
purposes from entities other than banks in an amount not to exceed 5% of the
value of its total assets;
(2) Issue any senior securities, except as permitted by the terms of
any exemptive order or similar rule issued by the Securities and Exchange
Commission (the "SEC") relating to multiple classes of shares of beneficial
interest of the Trust, and provided further that collateral arrangements with
respect to forward contracts, futures contracts, short sales or options,
including deposits of initial and variation margin, shall not be considered to
be the issuance of a senior security for purposes of this restriction;
(3) Act as an underwriter of securities issued by other persons,
except insofar as the Fund may be deemed an underwriter in connection with the
disposition of securities;
(4) Purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to be invested in
the securities of one or more issuers having their principal business activities
in the same industry, provided that there is no limit with respect to
investments in securities issued by the U.S. Government, its agencies and
instrumentalities;
(5) Purchase or sell real estate, except that the Fund may invest in
securities of companies that deal in real estate and securities secured by real
estate or interests therein and the Fund may hold and sell real estate acquired
as a result of the Fund's ownership of such securities;
(6) Purchase or sell commodities or commodity futures contracts,
except that the Fund may invest in financial futures contracts, options thereon
and similar instruments;
(7) Make loans to other persons except (a) through the lending of
securities held by it, (b) through the use of repurchase agreements, and (c) by
the purchase of debt securities in accordance with its investment policies;
(8) With respect to 75% of its total assets, purchase more than 10% of
the outstanding voting securities of one issuer or invest more than 5% of the
value of its total assets in securities of any one issuer, except the U.S.
Government, its agencies or instrumentalities;
(9) Purchase "illiquid" securities, including repurchase agreements
maturing in more than seven days and options traded "over the counter," if, as a
result, more than 10% of the Fund's total net assets would then be invested in
such securities;
(10) Purchase securities issued by companies which, including their
predecessors, have been in operation for less than 3 years, if, as a result,
more than 5% of the Fund's total assets would then be invested in such
securities;
(11) Purchase or retain securities of any issuer if the officers,
directors or trustees of the Fund and the adviser thereof who individually own
more than 1/2 of 1% of the securities of such issuer together own beneficially
more than 5% of such securities;
(12) Acquire or retain securities of any investment company, except
that the Fund may (a) acquire securities of closed-end investment companies up
to the limits permitted by applicable law, provided such acquisitions are in the
open market and there is no commission or profit to a dealer or sponsor other
than the customary broker's commission, and (b) acquire securities of any
investment company as part of a merger, consolidation or similar transaction;
(13) Sell securities short or maintain a short position unless, at all
times that a short position is open, the Fund owns an equal amount of such
securities or securities convertible into or exchangeable for, without payment
of any further consideration, securities of the same issue as, and equal in
amount to, the securities sold short (which sales are commonly referred to as
"short sales against the box");
(14) Invest in puts, calls, straddles, spreads or any combination
thereof, except that the Fund may (a) purchase put and call options on
securities and securities indexes, and (b) write covered put and call options on
securities and securities indexes, provided that the aggregate value of the
securities underlying the calls or obligations underlying the puts determined as
of the date the options are sold shall not exceed 25% of the Fund's net assets
and, provided further that (i) the securities underlying such options are within
the investment policies of the Fund and (ii) at the time of such investment, the
value of the Fund's aggregate investment in such securities does not exceed 5%
of the Fund's total assets;
(15) Invest in oil, gas or other mineral exploration programs,
development programs or leases, except that the Fund may purchase publicly
traded securities of companies engaging in whole or in part in such activities;
(16) Invest in real estate limited partnerships, except that the Fund
may purchase publicly traded securities issued by real estate investment trusts;
(17) Pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(18) Purchase securities on margin, except short-term credits as are
necessary for the purchase and sale of securities, provided that the deposit or
payment of initial or variation margin in connection with futures contracts or
related options will not be deemed to be a purchase on margin;
(19) Invest in warrants, if at the time of such investment (a) more
than 5% of the value of the Fund's net assets would be invested in warrants or
(b) more than 2% of the value of the Fund's net assets would be invested in
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange (for this purpose, warrants attached to securities will be deemed
to have no value); and
(20) Invest more than 10% of its total assets in securities which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933, as amended.
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in such percentage resulting from a change in the
values of assets will not constitute a violation of such restriction.
The investment restrictions numbered 1 through 8 have been adopted by
the Trust as fundamental policies of CGM American Tax Free Fund. Under the
Investment Company Act of 1940 as amended (the "1940 Act"), a fundamental policy
may not be changed without the vote of a majority of the outstanding voting
securities of CGM American Tax Free Fund, as defined under the 1940 Act.
"Majority" means the lesser of (1) 67% or more of the shares present at a
meeting of shareholders of the Fund, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (2) more
than 50% of the outstanding shares of the Fund. Investment restrictions numbered
9 through 20 above are non-fundamental and may be changed at any time by vote of
a majority of the Trust's Board of Trustees.
Although CGM American Tax Free Fund has the ability to invest in
financial futures contracts and options thereon, to invest in puts, calls and
warrants, to acquire securities of closed-end investment companies, to sell
securities short against the box, to purchase publicly traded securities issued
by real estate investment trusts and to loan portfolio securities, the Fund has
no current intention of doing so without first notifying its shareholders and
supplying further information in the Prospectus.
Restricted securities eligible for resale to "qualified institutional
buyers" pursuant to Rule 144A under the Securities Act of 1933, as amended, may
be determined to be liquid by the Investment Manager under guidelines approved
by the Board of Trustees. In its determination of liquidity with respect to such
securities, the Investment Manager will consider the following factors, among
others: (1) the frequency of trades and quotes for the security, (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers, (3) dealer undertakings to make a market in the security,
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). The foregoing investment practice could
have the effect of increasing the level of illiquidity in CGM American Tax Free
Fund to the extent that qualified institutional buyers become uninterested in
purchasing the securities.
CGM American Tax Free Fund may invest up to 5% of its total assets in
repurchase agreements. A repurchase agreement is an instrument under which the
purchaser acquires ownership of a security and obtains a simultaneous commitment
from the seller (a bank or, to the extent permitted by the 1940 Act, a
recognized securities dealer) to repurchase the security at an agreed-upon price
and date (usually seven days or less from the date of original purchase). The
resale price is in excess of the purchase price and reflects an agreed upon
market rate unrelated to the coupon rate on the purchased security. Such
transactions afford CGM American Tax Free Fund the opportunity to earn a return
on temporarily available cash at minimal market risk. While the underlying
security may be a bill, certificate of indebtedness, note or bond issued by an
agency, authority or instrumentality of the U.S. Government, the obligation of
the seller is not guaranteed by the U.S. Government and there is a risk that the
seller may fail to repurchase the underlying security. In such event, CGM
American Tax Free Fund would attempt to exercise rights with respect to the
underlying security, including possible disposition in the market. However, the
Fund may be subject to various delays and risks of loss, including (1) possible
declines in the value of the underlying security during the period while the
Fund seeks to enforce its rights thereto, (2) possible reduced levels of income
and lack of access to income during this period, and (3) inability to enforce
rights and the expenses involved in attempted enforcement.
CGM American Tax Free Fund may enter into reverse repurchase agreements
with banks or broker-dealers. Reverse repurchase agreements involve the sale of
a security held by the Fund and its agreement to repurchase the instrument at a
stated price, date and interest payment. Reverse repurchase agreements may be
considered to be borrowings by the Fund and entail additional risks such as the
occurrence of interest expenses and fluctuations in the Fund's net asset value.
In connection with entering into reverse repurchase agreements, a segregated
account of the Fund consisting of cash, cash equivalents, U.S. Government
securities or other high quality liquid debt securities with an aggregate value
at all times sufficient to repurchase the securities, or equal to the proceeds
received upon the sale plus accrued interest, will be established with the
Fund's custodian bank.
CGM American Tax Free Fund may purchase municipal lease obligations. In
determining the liquidity of municipal lease obligations, the Board of Trustees
will consider the following factors: (1) the frequency of trades and quotes; (2)
the number of dealers willing to purchase or sell the security; (3) the
willingness of dealers to undertake to make a market; (4) the nature of the
marketplace trades; and (5) the likelihood that the obligation will continue to
be marketable based on the credit quality of the municipality or relevant
obligor.
While CGM American Tax Free Fund may not invest more than 25% of its
total assets in any one industry, the Fund may invest more than 25% of its total
assets in a broader segment of the tax-exempt market, such as revenue
obligations of hospitals and other healthcare facilities, housing agency revenue
obligations or airport revenue obligations. The Fund may also invest more than
25% of its total assets in securities relating to any one or more states
(including the District of Columbia), territories or United States possessions
or any of their political subdivisions.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
OF CGM FIXED INCOME FUND
- --------------------------------------------------------------------------------
CGM Fixed Income Fund's investment objective is to maximize total
return by investing in debt securities and preferred stocks that provide current
income, capital appreciation or a combination of both income and appreciation.
Under normal circumstances, CGM Fixed Income Fund will invest at least 65% of
its total assets in fixed-income securities. There are no assurances that the
Fund will achieve its objective and the Fund may change its objective without
shareholder approval
CGM Fixed Income Fund may invest up to 35% of its assets in securities
with ratings lower than Baa (baa in the case of preferred stocks) by Moody's or
BBB by Standard and Poor's. The Fund may invest up to 10% of its total assets in
securities rated at the time of purchase CAA by Moody's (caa in the case of
preferred stocks) or CCC by Standard and Poor's if, in the opinion of the
Investment Manager, the financial condition of the issuer or the protection
afforded to the particular security is stronger than would otherwise be
indicated by the rating. Risks associated with such investments are described in
the Prospectus.
CGM Fixed Income Fund may invest up to 20% of its net assets at the
time of purchase in debt securities and preferred stocks of foreign issuers.
Risks associated with such investments are described in the Prospectus.
At any time that CGM Fixed Income Fund's borrowings (including
obligations under reverse repurchase agreements) exceed 5% of the value of its
total assets, the Fund will not purchase or acquire any additional investment
securities.
CGM Fixed Income Fund may not:
(1) Borrow money, except that it may borrow from banks in an amount
not to exceed 1/3 of the value of its total assets and may borrow for temporary
purposes from entities other than banks in an amount not to exceed 5% of the
value of its total assets;
(2) Issue any senior securities, except as it may be permitted by the
terms of any exemptive order or similar rule issued by the SEC relating to
multiple classes of shares of beneficial interest of the Trust, and provided
further that collateral arrangements with respect to forward contracts, futures
contracts, short sales or options, including deposits of initial and variation
margin, shall not be considered to be the issuance of a senior security for the
purposes of this restriction;
(3) Act as an underwriter of securities issued by other persons,
except insofar as the Fund may be deemed an underwriter in connection with the
disposition of securities;
(4) Purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to be invested in
the securities of one or more issuers having their principal business activities
in the same industry, provided that there is no limit with respect to
investments in the U.S. Government, its agencies and instrumentalities;
(5) Purchase or sell real estate, except that the Fund may invest in
securities of companies that deal in real estate and securities secured by real
estate or interests therein and the Fund may hold and sell real estate acquired
as a result of the Fund's ownership of such securities;
(6) Purchase or sell commodities or commodity futures contracts,
except that the Fund may invest in financial futures contracts, options thereon
and similar instruments;
(7) Make loans to other persons except (a) through the lending of
securities held by it, (b) through the use of repurchase agreements, and (c) by
the purchase of debt securities in accordance with its investment policies;
(8) With respect to 75% of its total assets, purchase more than 10% of
the outstanding voting securities of any one issuer or invest more than 5% of
the value of its total assets in the securities of any one issuer, except the
U.S. Government, its agencies or instrumentalities;
(9) Purchase "illiquid" securities, including repurchase agreements
maturing in more than seven days and options traded "over the counter," if, as a
result, more than 10% of the Fund's total net assets would then be invested in
such securities;
(10) Purchase securities issued by companies which, including their
predecessors, have been in operation for less than 3 years, if, as a result,
more than 5% of the Fund's total assets would then be invested in such
securities, except that the Fund may purchase securities issued by a real estate
investment trust in operation for less than 3 years if the sponsor of such real
estate investment trust has been in operation for at least 3 years;
(11) Purchase or retain securities of any issuer if the officers,
directors or trustees of the Fund and the adviser thereof who individually own
more than 1/2 of 1% of the securities of such issuer together own beneficially
more than 5% of such securities;
(12) Acquire or retain securities of any investment company, except
that the Fund may (a) acquire securities of closed-end investment companies up
to the limits permitted by applicable law, provided such acquisitions are in the
open market and there is no commission or profit to a dealer or sponsor other
than the customary broker's commission, and (b) acquire securities of any
investment company as part of a merger, consolidation or similar transaction;
(13) Sell securities short or maintain a short position unless, at all
times that a short position is open, the Fund owns an equal amount of such
securities or securities convertible into or exchangeable for, without payment
of any further consideration, securities of the same issue as, and equal in
amount to, the securities sold short (which sales are commonly referred to as
"short sales against the box");
(14) Invest in puts, calls, straddles, spreads or any combination
thereof, except that the Fund may (a) purchase put and call options on
securities and securities indexes, and (b) write covered put and call options on
securities and securities indexes, provided that the aggregate value of the
securities underlying the calls or obligations underlying the puts determined as
of the date the options are sold shall not exceed 25% of the Fund's net assets
and, provided further that (I) the securities underlying such options are within
the investment policies of the Fund and (ii) at the time of such investment, the
value of the Fund's aggregate investment in such securities does not exceed 5%
of the Fund's total assets;
(15) Invest in oil, gas or other mineral exploration programs,
development programs or leases, except that the Fund may purchase publicly
traded securities of companies engaging in whole or in part in such activities;
(16) Invest in real estate limited partnerships, except that the Fund
may purchase publicly traded securities issued by real estate investment trusts;
(17) Pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(18) Purchase securities on margin, except short-term credits as are
necessary for the purchase and sale of securities, provided that the deposit or
payment of initial or variation margin in connection with futures contracts or
related options will not be deemed to be a purchase on margin; and
(19) Invest in warrants, if at the time of such investment (a) more
than 5% of the value of the Fund's net assets would be invested in warrants or
(b) more than 2% of the value of the Fund's net assets would be invested in
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange (and for this purpose, warrants attached to securities will be
deemed to have no value).
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in such percentage resulting from a change in the
values of assets will not constitute a violation of such restriction.
The investment restrictions numbered 1 through 8 have been adopted by
the Trust as fundamental policies of CGM Fixed Income Fund. Under the 1940 Act,
a fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined under the 1940 Act.
"Majority" means the lesser of (1) 67% or more of the shares present at a
meeting of shareholders of the Fund, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (2) more
than 50% of the outstanding shares of the Fund. Investment restrictions numbered
9 through 19 above are non-fundamental and may be changed at any time by vote of
a majority of the Trust's Board of Trustees.
Although CGM Fixed Income Fund has the ability to invest in financial
futures contracts and options thereon, to acquire securities of closed-end
investment companies, to sell securities short against the box, to purchase
publicly traded securities issued by real estate investment trusts and to loan
portfolio securities, the Fund has no current intention of doing so without
first notifying its shareholders and supplying further information in the
Prospectus.
Restricted securities eligible for resale to "qualified institutional
buyers" pursuant to Rule 144A under the Securities Act of 1933, as amended, and
IO and PO securities issued by the U.S. Government and its agencies and
instrumentalities and backed by fixed-rate mortgages may be determined to be
liquid by the Investment Manager under guidelines approved by the Board of
Trustees. In its determination of liquidity with respect to such securities, the
Investment Manager will consider the following factors, among others: (1) the
frequency of trades and quotes for the security, (2) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers, (3) dealer undertakings to make a market in the security, and (4)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer). The foregoing investment practice could have the effect
of increasing the level of illiquidity in CGM Fixed Income Fund to the extent
that qualified institutional buyers become uninterested in purchasing the
securities.
CGM Fixed Income Fund may invest up to 5% of its total assets in
repurchase agreements. A repurchase agreement is an instrument under which the
purchaser acquires ownership of a security and obtains a simultaneous commitment
from the seller (a bank or, to the extent permitted by the 1940 Act, a
recognized securities dealer) to repurchase the security at an agreed-upon price
and date (usually seven days or less from the date of original purchase). The
resale price is in excess of the purchase price and reflects an agreed-upon
market rate unrelated to the coupon rate on the purchased security. Such
transactions afford CGM Fixed Income Fund the opportunity to earn a return on
temporarily available cash at minimal market risk. While the underlying security
may be a bill, certificate of indebtedness, note or bond issued by an agency,
authority or instrumentality of the U.S. Government, the obligation of the
seller is not guaranteed by the U.S. Government and there is a risk that the
seller may fail to repurchase the underlying security. In such event, CGM Fixed
Income Fund would attempt to exercise rights with respect to the underlying
security, including possible disposition in the market. However, the Fund may be
subject to various delays and risks of loss, including (1) possible declines in
the value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, (2) possible reduced levels of income and lack of
access to income during this period, and (3) inability to enforce rights and the
expenses involved in attempted enforcement.
CGM Fixed Income Fund may enter into reverse repurchase agreements with
banks or broker-dealers. Reverse repurchase agreements involve the sale of a
security held by the Fund and its agreement to repurchase the instrument at a
stated price, date and interest payment. Reverse repurchase agreements may be
considered to be borrowings by the Fund and entail additional risks such as the
occurrence of interest expenses and fluctuations in the Fund's net asset value.
In connection with entering into reverse repurchase agreements, a segregated
account of the Fund consisting of cash, cash equivalents, U.S. Government
securities or other high quality liquid debt securities with an aggregate value
at all times sufficient to repurchase the securities, or equal to the proceeds
received upon the sale plus accrued interest, will be established with the
Fund's custodian bank.
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PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
Although CGM American Tax Free Fund's objective is to provide high
current income exempt from federal income tax and the Fund does not purchase
securities with the intention of engaging in short term trading, the Fund will
sell any particular security and reinvest proceeds when it is deemed prudent by
the Investment Manager, regardless of the length of the holding period. CGM
American Tax Free Fund's portfolio turnover rate for each full or partial year
of its operation is set forth in the Prospectus in the table entitled "Financial
Highlights."
Although CGM Fixed Income Fund's objective is total return and the Fund
does not purchase securities with the intention of engaging in short term
trading, the Fund will sell any particular security and reinvest proceeds when
it is deemed prudent by the Investment Manager, regardless of the length of the
holding period. CGM Fixed Income Fund's portfolio turnover rate for each full or
partial year of its operation is set forth in the Prospectus in the table
entitled "Financial Highlights."
The policies described above may result in higher securities
transaction costs. To the extent that such policies result in gains on
investments, the Funds will make distributions to their shareholders, which may
accelerate the shareholders' tax liabilities for realized gains and may result
in the distribution of short-term capital gains taxable as ordinary income. See
"Income Dividends, Capital Gains Distributions and Tax Status."
<PAGE>
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MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
PETER O. BROWN -- Trustee;
30 Douglas Road, Rochester, NY; Partner, Harter, Secrest & Emery;
formerly Executive Vice President and Chief Operating Officer, The
Glenmede Trust Company; formerly Senior Vice President, Chase Lincoln
First Bank, N.A.
NICHOLAS J. GRANT -- Trustee;
77 Massachusetts Avenue, Cambridge, MA; Professor of Metallurgy and
Materials Science, Massachusetts Institute of Technology.
G. KENNETH HEEBNER* -- Trustee and Vice President;
Employee, CGM; formerly Vice President and Director, Loomis, Sayles
and Company, Incorporated ("Loomis Sayles").
ROBERT L. KEMP* -- Trustee and President;
Employee, CGM; formerly President and Director, Loomis Sayles.
ROBERT B. KITTREDGE -- Trustee;
21 Sturdivant Street, Cumberland Foreside, ME; Retired; formerly Vice
President, General Counsel and Director, Loomis Sayles.
LAURENS MACLURE -- Trustee;
183 Sohier Street, Cohasset, MA; Retired; formerly President and Chief
Executive Officer, New England Deaconess Hospital.
JAMES VAN DYKE QUEREAU, JR. -- Trustee;
59 Annewood Lane, Wayne, PA; Managing Partner, Stratton Management
Company; formerly Institutional Managing Partner, Loomis Sayles.
J. BAUR WHITTLESEY -- Trustee;
1521 Locust Street, Philadelphia, PA; Attorney.
KATHLEEN S. HAUGHTON -- Vice President;
222 Berkeley Street, Boston, MA 02116; Employee - Investor Services
Division, CGM; formerly Vice President, Boston Financial Data
Services, Inc.
- --------
* Trustees deemed "interested persons" of the Funds, as defined under the
1940 Act.
LESLIE A. LAKE -- Vice President and Secretary;
Employee -- Office Administrator, CGM; formerly Office Administrator,
Capital Growth Management Division of Loomis Sayles.
MARTHA I. MAGUIRE -- Vice President;
Employee -- Funds Marketing, CGM; formerly marketing communications
consultant (self-employed); formerly Sales Promotion Consultant, The
New England.
JANICE H. SAUL -- Vice President;
Employee -- Senior Portfolio Manager, CGM; formerly Senior Portfolio
Manager, Loomis Sayles.
MARY L. STONE -- Assistant Vice President;
Employee -- Coordinator, Mutual Fund Recordkeeping, CGM; formerly
Coordinator, Mutual Fund Recordkeeping, Loomis Sayles.
FRANK N. STRAUSS -- Treasurer;
222 Berkeley Street, Boston, MA 02116; Employee -- Chief Financial
Officer, CGM; formerly Vice President of Fund Accounting, Freedom
Capital Management Corporation and Assistant Vice President, The
Boston Company, Inc.
W. DUGAL THOMAS -- Vice President;
Employee -- Director of Marketing, CGM; formerly Director of
Marketing, Loomis Sayles.
Each of the Fund's trustees is also a trustee of one or more other
investment companies for which CGM acts as investment manager. Except as
indicated above, the address of each trustee and officer of the Fund affiliated
with CGM is One International Place, Boston, Massachusetts 02110.
As of March 31, 1996, the officers and trustees of CGM American Tax
Free Fund owned beneficially approximately 6.1% of the outstanding shares of the
Fund, and the officers and trustees of CGM Fixed Income Fund owned beneficially
approximately 1.0% of the outstanding shares of the Fund.
The Funds pay no compensation to their officers or to the trustees
listed above who are interested persons of the Funds. Officers and trustees of
the Funds receive no pension or retirement benefits paid from expenses of the
respective Funds. The following table sets forth the compensation paid by the
Trust to its trustees for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Pension Total
or Retirement Estimated Compensation From
Aggregate Benefits Accrued Annual Registrant and
Name of Compensation as Part of Fund's Benefit Upon Fund Complex
Trustee From Trust Expenses Retirement Paid to Trustees(a)
- -------- ------------ ----------------- ------------ -------------------
<S> <C> <C> <C> <C>
Peter O. Brown $22,000 None None $32,000
Nicholas J. Grant 26,500 None None 38,000
G. Kenneth Heebner None None None None
Robert L. Kemp None None None None
Robert B. Kittredge 22,000 None None 32,000
Laurens Maclure 22,000 None None 32,000
James Van Dyke Quereau, Jr. 22,000 None None 32,000
J. Baur Whittlesey 22,000 None None 32,000
- ----------
(a) The Fund Complex is comprised of two Trusts with a total of five funds.
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------------------------------------------------
Advisory Agreement. CGM serves as investment manager of CGM American
Tax Free Fund and CGM Fixed Income Fund under advisory agreements dated November
8, 1993, and September 1, 1993, respectively. Under each advisory agreement, CGM
manages the investment and reinvestment of assets of the Funds and generally
administers their affairs, subject to supervision by the Board of Trustees of
the Trust. CGM furnishes, at its own expense, all necessary office supplies,
facilities and equipment, services of executive and other personnel of the Funds
and certain administrative services. For these services, CGM American Tax Free
Fund compensates CGM at the annual percentage rate of 0.60% of the first $500
million of the Fund's average daily net asset value, 0.55% of the next $500
million of such value and 0.45% of such value in excess of $1 billion, and CGM
Fixed Income Fund compensates CGM at the annual percentage rate of 0.55% of the
first $200 million of the Fund's average daily net asset value, 0.45% of the
next $300 million of such value and 0.35% of such value in excess of $500
million.
CGM has voluntarily agreed, until December 31, 1996, and thereafter
until further notice to CGM American Tax Free Fund, to waive its management fees
and bear all of the expenses of the Fund. For the period from the inception of
the Fund through December 31, 1993, and the fiscal years ended December 31, 1994
and 1995, the investment advisory fees that would have been payable to CGM in
respect of services rendered to CGM American Tax Free Fund amounted to $1,987,
$63,445 and $66,010, respectively. As a result of such waiver, the fund paid no
investment advisory fees to CGM during these periods.
With respect to CGM Fixed Income Fund, CGM has voluntarily agreed,
until December 31, 1996, and thereafter until further notice to the Fund, to
waive its management fees and, if necessary, to bear certain expenses associated
with operating the Fund, in order to limit the Fund's total operating expenses
to an annual rate of 0.85% of the Fund's average net assets. For the fiscal
years ended December 31, 1993, 1994 and 1995, the investment advisory fees that
would have been payable to CGM in respect of services rendered to CGM Fixed
Income Fund amounted to $114,370, $185,360 and $167,688 respectively. As a
result of such waiver, the Fund paid no investment advisory fees to CGM during
such periods.
On December 29, 1995, the shareholders of each Fund approved a proposed
new advisory agreement between the Fund and CGM. The proposed advisory agreement
does not change the terms of the existing advisory agreement and does not change
the operations or management of either Fund. Shareholders were asked to approve
the proposed advisory agreement in connection with a change of control of CGM
that might be deemed to occur as a result of the proposed merger of New England
Mutual Life Insurance Company into Metropolitan Life Insurance Company. The
proposed advisory agreement will not be executed and will not become effective
until this merger is consummated, which each Fund understands is currently
scheduled to occur during the third quarter of 1996. The proposed advisory
agreement provides that it will continue in effect for an initial term of two
years from the date of execution unless otherwise terminated.
Each Fund pays the compensation of its trustees who are not partners,
directors, officers or employees of CGM or its affiliates (other than registered
investment companies); registration, filing, and other fees in connection with
requirements of regulatory authorities; all charges and expenses of its
custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; all taxes and fees payable to governmental agencies; the
cost of any certificates representing shares of the Fund; the expenses of
meetings of the shareholders and trustees of the Fund; the charges and expenses
of the Fund's legal counsel; interest, including on any borrowings by the Fund;
the cost of services, including services of counsel, required in connection with
the preparation of, and the costs of printing registration statements and
prospectuses relating to the Fund, including amendments and revisions thereto,
annual, semiannual, and other periodic reports of the Fund, and notices and
proxy solicitation material furnished to shareholders of the Fund or regulatory
authorities, to the extent that any such materials relate to the Fund or its
shareholders; and the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses. Under each advisory
agreement, if the total of all ordinary business expenses of the Fund for any
fiscal year exceeds the lowest applicable limitation (based on percentage of
average net assets or income) prescribed by any state in which shares of the
Fund are qualified for sale, the total fee otherwise due CGM is reduced by the
amount of such excess, and if after giving effect to such reduction such total
continues to exceed such limitation, CGM pays such excess, unless such reduction
of payment would result in the inability of the Fund to qualify as a regulated
investment company under applicable tax law. At the date of this Statement, the
lowest applicable net asset percentage limitation on each Fund's total ordinary
expenses (including investment advisory fees, but excluding taxes, portfolio
brokerage commissions and interest) was 2.5% of the first $30 million of average
net assets, 2% of the next $70 million of such assets and 1.5% of the remaining
average annual net assets. As a result of the fee waivers and expense provisions
described above, CGM American Tax Free Fund pays no operating expenses. Without
such waivers and expense provisions, total operating expenses on an annual basis
would be approximately 2.59% of CGM's American Tax Free Fund's average net
assets. CGM Fixed Income Fund's actual operating expenses are currently limited
to 0.85% of its average net assets on an annual basis.
CGM also acts as investment adviser to CGM Capital Development Fund,
CGM Mutual Fund, CGM Realty Fund and three other mutual fund portfolios. CGM
also provides investment advice to other institutional clients.
Certain officers and trustees of the Funds also serve as officers,
directors or trustees of other investment companies advised by CGM. The other
investment companies and clients served by CGM sometimes invest in securities in
which the Funds also invest. If a Fund and such other investment companies or
clients advised by CGM desire to buy or sell the same portfolio securities at
the same time, purchases and sales will be allocated to the extent practicable
on a pro rata basis in proportion to the amounts desired to be purchased or sold
for each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of the
securities that each Fund purchases or sells. In other cases, however, it is
believed that these practices may benefit the Funds. It is the opinion of the
trustees that the desirability of retaining CGM as adviser for the Funds
outweighs the disadvantages, if any, that might result from these practices.
Custodial Arrangements. State Street Bank and Trust Company ("State
Street Bank"), Boston, Massachusetts 02102, is the Funds' custodian. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to each Fund and, in such capacity, is the registered owner of
securities held in book entry form belonging to each Fund. Upon instruction,
State Street Bank receives and delivers cash and securities of each Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of each Fund and calculates the
total net asset value, total net income, and net asset value per share of each
Fund on each business day.
Independent Accountants. Each Fund's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse LLP conducts an annual audit of each Fund's financial statements,
assists in the preparation of each Fund's federal and state income tax returns
and consults with each Fund as to matters of accounting and federal and state
income taxation. The information concerning financial highlights in the
Prospectus, and the financial statements incorporated by reference into this
Statement, have been so included in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Other Arrangements. Certain office space, facilities, equipment and
administrative services for each Fund and other mutual funds under the
investment management of the CGM organization are furnished by CGM. In addition,
CGM provides bookkeeping, accounting, auditing, financial recordkeeping, and
related clerical services for which it is entitled to be reimbursed by each Fund
based on the cost of providing these services. As a result of the expense
provisions described above, CGM received no reimbursement for any of such costs
in 1995.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
In placing orders for the purchase and sale of portfolio securities for
each Fund, CGM always seeks the best price and execution. Transactions in
unlisted securities will be carried out through broker-dealers who make the
primary market for such securities unless, in the judgment of CGM, a more
favorable price can be obtained by carrying out such transactions through other
brokers.
CGM selects only brokers it believes are financially responsible, will
provide efficient and effective services in executing, clearing and settling an
order and will charge commission rates which, when combined with the quality of
the foregoing services, will produce the best price and execution for the
transaction. This does not necessarily mean that the lowest available brokerage
commission will be paid. However, the commissions are believed to be competitive
with generally prevailing rates. CGM will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. The Funds will not
pay a broker a commission at a higher rate than is otherwise available for the
same transaction in recognition of the value of research services provided by
the broker or in recognition of the value of any other services provided by the
broker that do not contribute to the best price and execution of the
transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker that CGM believes will provide the best price and execution
for a transaction. These research services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce CGM's expenses. Such services may be used by CGM in servicing
other client accounts and in some cases may not be used with respect to the
Funds. Receipt of services or products other than research from brokers is not a
factor in the selection of brokers.
CGM American Tax Free Fund pays no brokerage commissions, as such. The
tax-exempt security market is typically a "dealer" market in which investment
dealers buy and sell bonds for their own accounts, rather than for customers,
and although the price of a tax-exempt security may reflect a dealer's mark-up
or mark-down, such mark-up or mark-down is not considered to be a commission. In
addition, some securities may be purchased directly from issuers.
In 1995, brokerage transactions of CGM Fixed Income Fund aggregating
$10,622,459 were allocated to brokers providing research services and $21,273 in
commissions were paid on these transactions. During such period, CGM Fixed
Income Fund paid total brokerage fees of approximately $21,273. In 1993
brokerage transactions of CGM Fixed Income Fund aggregating $9,247,346 were
allocated to brokers providing research services and $12,142 in commissions were
paid on these transactions. During such period, CGM Fixed Income Fund paid total
brokerage fees of approximately $12,142.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE TRUST
- --------------------------------------------------------------------------------
The Declaration of Trust of the Trust currently permits the trustees to
issue an unlimited number of shares of beneficial interest of separate series of
the Trust. Interests in the portfolio described in the Prospectus and in this
Statement are represented by shares of each Fund. Each share of a Fund
represents an interest in such series which is equal to and proportionate with
the interest represented by each other share. The shares of the Funds do not
have any preemptive rights. Upon liquidation of the portfolio, shareholders of
each Fund are entitled to share pro rata in the net assets of such portfolio
available for distribution to shareholders. The Declaration of Trust also
permits the trustees to charge shareholders directly for custodial, transfer
agency and servicing expenses. The trustees have no present intention of making
such direct charges.
The Declaration of Trust also permits the trustees, without shareholder
approval, to create one or more additional series or classes of shares or to
reclassify any or all outstanding shares as shares of particular series or
classes, with such preferences and rights and eligibility requirements as the
trustees may designate. While the trustees have no current intention to exercise
the power to establish separate classes of the existing series of the Fund, it
is intended to allow them to provide for an equitable allocation of the impact
of any future regulatory requirements, which might affect various classes of
shareholders differently. The trustees may also, without shareholder approval,
merge two or more existing series.
Shareholder Rights
On March 31, 1996, there were 1,227,859 shares of CGM American Tax Free
Fund outstanding.
On March 31, 1996, there were 2,830,606 shares of CGM Fixed Income
Fund outstanding. On that date, State Street Bank, acting as trustee for various
retirement plans and individual retirement accounts owned 826,867 shares - about
29% of the total. In almost all cases, State Street Bank does not have the power
to vote or dispose of the shares except at the direction of the beneficial
owner.
Shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held) and may vote (to the extent
provided herein) in the election of trustees of the Trust and the termination of
the applicable Fund and on other matters submitted to the vote of shareholders.
There will normally be no meetings of shareholders for the purpose of electing
trustees, except that in accordance with the 1940 Act (I) the Trust will hold a
shareholders' meeting for the election of trustees at such time as less than a
majority of the trustees holding office have been elected by shareholders, and
(ii) if the appointment of a trustee to fill a vacancy in the Board of Trustees
would result in less than two-thirds of the trustees having been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten or more shareholders of record who have been such
for at least six months and who hold in the aggregate shares equal to at least
the lesser of (I) $25,000 in net asset value or (ii) 1% of the outstanding
shares, stating that shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to demand a
meeting to consider removal of a trustee, the Trust will either provide access
to a list of shareholders or disseminate appropriate materials (at the expense
of the requesting shareholders). Except as set forth above, the trustees shall
continue to hold office and may appoint successor trustees. Voting rights are
not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the holders of the outstanding shares of the
Trust except (I) to change the Trust's name or to cure technical problems in the
Declaration of Trust and (ii) to establish, designate or modify new and existing
series or subseries of Trust shares or other provisions relating to Trust shares
in response to applicable laws or regulations. The shareholders of one Fund
shall not be entitled to vote on matters exclusively affecting any other series,
such matters including, without limitation, the adoption or change in the
investment objectives, policies or restrictions of the series and the approval
of the investment advisory contracts of the series. Similarly, no shareholders
of any other series shall be entitled to vote on any such matters exclusively
affecting a particular Fund. In particular, the phrase "majority of the
outstanding voting securities of the Fund" as used in this Statement shall refer
only to the shares of the applicable Fund.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust;
however, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or trustees. The Declaration of Trust provides for indemnification out of each
Fund property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which the disclaimer is
inoperative and the particular Fund itself would be unable to meet its
obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the trustees and officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in or not opposed to the best interests of the Trust. No officer
or trustee may be indemnified against any liability to the Trust or the Trust's
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
All persons dealing with a particular Fund must look only to the assets
of that Fund for the enforcement of any claims against that Fund and no other
series of the Trust assumes any liability for obligations entered into on behalf
of that Fund.
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HOW TO BUY SHARES
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The procedures for purchasing shares of the Fund are summarized in the
Prospectus under "How to Purchase Shares."
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ADVERTISING AND PERFORMANCE INFORMATION
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Calculation of Total Return
Each Fund may include total return information in advertisements or
written sales material. Total return is a measure of the change in value of an
investment in the Fund over the period covered, which assumes that any dividends
or capital gains distributions are automatically reinvested in the Fund rather
than paid to the investor in cash. The formula for total return used by the Fund
includes three steps:
(1) adding to the total number of shares purchased by a
hypothetical $1,000 investment in the Fund all additional shares that would have
been purchased if all dividends and distributions paid or distributed during the
period had been automatically reinvested;
(2) calculating the value of the hypothetical initial
investment as of the end of the period by multiplying the total number of shares
owned at the end of the period by the net asset value per share on the last
trading day of the period; and
(3) dividing this account value for the hypothetical investor
by the amount of the initial investment, and annualizing the result for periods
of less than one year.
For the one-year period ended December 31, 1995, and for the period
from inception (November 10, 1993) through December 31, 1995, CGM American Tax
Free Fund's average annual total return was 18.0% and 5.2%, respectively. If CGM
were not waiving its fee and was receiving reimbursement from CGM American Tax
Free Fund for its expenses, that Fund's total return for those periods would
have been lower.
For the one-year period ended December 31, 1995, and for the period
from inception (March 17, 1992) through December 31, 1995, the average annual
total return of CGM Fixed Income Fund was 27.3% and 11.7%, respectively. If CGM
were not limiting CGM Fixed Income Fund's expenses to 0.85% of its average net
assets, the annual total return for those periods would have been lower. In
computing performance information for CGM Fixed Income Fund, no adjustment has
been made for a shareholder's tax liability on taxable dividends and capital
gains distributions.
In computing performance information for the Funds, no adjustment has
been made for a shareholder's tax liability on taxable dividends and capital
gains distributions.
Calculation of Yield
Each Fund may include yield information in advertisements or written
sales material. Each Fund's yield is based on a recent 30 day period, and is
determined in accordance with the SEC's standardized formula by:
(1) calculating the aggregate dividends and adjusted interest
earned during that period, net of recurring expenses accrued for the period; and
(2) dividing that amount by the product of (A) the average
daily number of shares outstanding during the period and (B) the maximum
offering price per share on the last day of the period (less any earned income
expected to be declared as a dividend shortly thereafter).
The result is annualized, assuming a quarterly compounding, to
determine the Fund's yield. Interest earned during the period will be adjusted
to reflect amortization of any premium or discount from par on the Fund's fixed
income securities (other than obligations backed by mortgages or other assets),
using the market value for these securities on the last day of the period, or,
for securities purchased during the period, using actual cost. Each Fund's yield
will vary from time to time depending upon market conditions, the composition of
the Fund's portfolio and operating expenses of the Fund. CGM American Tax Free
Fund may also utilize tax equivalent yields with adjustments for assumed income
tax rates. The 30-day yields of CGM American Tax Free Fund and CGM Fixed Income
Fund for the period ended December 31, 1995, were 6.06% and 6.67%, respectively.
Performance Comparisons
Total return may be used to compare the performance of the Fund against
certain widely acknowledged standards or indices for stock and bond market
performance or against the U.S. Bureau of Labor Statistics' Consumer Price
Index.
The Standard & Poor's 500 Composite Index (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 400 industrial, 60 transportation and 40 financial services
concerns.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
No brokerage commissions or other fees are factored into the values of
the S&P 500 and the Dow Jones Industrial Average.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of change, over time, in the prices of
goods and services in major expenditure groups.
Lipper Analytical Services, Inc., an independent service that monitors
the performance of over 4,700 mutual funds, calculates total return for those
funds grouped by investment objective. From time to time, the Fund may include
its ranking among mutual funds tracked by Lipper in advertisements or sales
literature.
Morningstar, Inc. ("Morningstar") is an independent mutual fund ranking
service. Morningstar proprietary ratings reflect historical risk-adjusted
performance and are subject to change every month. Funds with at least three
years of performance history are assigned ratings from one star (lowest) to five
stars (highest). Morningstar ratings are calculated from the funds' three-,
five-, and ten-year average annual returns (when available) and a risk factor
that reflects the fund performance relative to three-month Treasury bill monthly
returns. Funds' returns are adjusted for fees and sales loads. Ten percent of
the funds in an investment category receive five stars, 22.5% receive four
stars, 35% receive three stars, 22.5% receive two stars, and the bottom 10%
receive one star. From time to time, the Funds may include their respective
rankings among mutual funds tracked by Morningstar in advertisements or sales
literature.
Value Line, Inc. ("Value Line"), an independent mutual fund ranking
service reviews the performance of 2,000 mutual funds. In ranking mutual funds,
Value Line uses two indicators: a Risk Rank to show the total level of risk a
fund has assumed and an Overall Rank measuring various performance criteria
taking risk into account. Funds are ranked from 1 to 5, with 1 the highest
Overall Rank (the best risk-adjusted performance) and the best Risk Rank (the
least risky). From time to time, the Funds may include ranking information
provided by Value Line in advertisements and sales literature.
The Funds may also compare their respective total return or yield or
both to that of money market funds and other investments, such as certificates
of deposit and may refer to standard measures of performance for such
investments, including information published by the Bank Rate Monitor and the
Federal Reserve System. Investors should note that, although the Fund may
experience better returns and higher yields than money market funds and other
investments, they do not seek to maintain stable net asset values. Thus,
particularly during periods of rising interest rates, the per share net asset
value of each Fund may decrease while the principal value of such other
investments will not change. Each Fund may invest in securities of varying
qualities, although 75% of CGM American Tax Free Fund's portfolio and 65% of CGM
Fixed Income Fund's portfolio will consist of investment grade securities. In
addition, unlike certificates of deposit, shares of the Funds are not insured by
the FDIC or any other entity.
Bank Rate Monitor is an independent financial service that generates
indexes of bank products, including an index of stated rates for certificates of
deposit and bank money market accounts in the ten largest metropolitan areas in
the U.S. The Federal Reserve System publishes data about the U.S. banking
system. Average rates for certificates of deposit traded in the secondary market
are published by the Board of Governors of the Federal Reserve System in
Selected Interest Rates.
From time to time, articles about a particular Fund's performance,
rankings and other characteristics, and information about persons responsible
for the Fund's portfolio management may appear in national publications and
major metropolitan newspapers including, but not limited to, The Wall Street
Journal, The Boston Globe and Forbes, Fortune and Money magazines. In
particular, some or all of these publications may publish their own rankings or
performance reviews of mutual funds, including the Funds. References to or
reprints of such articles may be used in the Funds' promotional literature.
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NET ASSET VALUE AND PUBLIC OFFERING PRICE
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The method for determining the public offering price and net asset
value per share is summarized in the Prospectus under "Pricing of Shares."
The net asset value of a share of each Fund is determined by dividing
the particular Fund's total net assets (the excess of its assets over its
liabilities) by the total number of shares outstanding and rounding to the
nearest cent. Such determination is made as of the close of normal trading on
the New York Stock Exchange on each day on which the Exchange is open for
unrestricted trading, and no less frequently than once daily on each day during
which there is sufficient trading in the Fund's portfolio securities that the
value of the Fund's shares might be materially affected. During the 12 months
following the date of this Statement the New York Stock Exchange is expected to
be closed on the following holidays: Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day, New Year's Day, Presidents' Day and Good
Friday.
Securities which are traded over-the-counter or on a stock exchange
will be valued according to the broadest and most representative market based on
the last reported sale price for securities listed on a national securities
exchange (or on the NASDAQ National Market System) or, if no sale was reported
and in the case of over-the-counter securities not so listed, the last reported
bid price. U.S. government securities are valued at the most recent quoted price
on the date of valuation.
For equity securities, it is expected that the broadest and most
representative market will ordinarily be either (i) a national securities
exchange, such as the New York Stock Exchange or American Stock Exchange, or
(ii) the NASDAQ National Market System. For corporate bonds, notes, debentures
and other fixed-income securities, it is expected that the broadest and most
representative market will ordinarily be the over-the-counter market.
Fixed-income securities may, however, be valued on the basis of prices provided
by a pricing service approved by the Board of Trustees when such prices are
believed to reflect the fair market value of such securities. The prices
provided by the pricing service may be determined based on valuations for
normal, institutional-size trading units of such securities using market
information, transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders.
Instruments with maturities of sixty days or less are valued at amortized cost,
which approximates market value. Other assets and securities which are not
readily marketable will be valued in good faith at fair value using methods
determined by the Board of Trustees.
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SHAREHOLDER SERVICES
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Open Accounts
A shareholder's investment is credited to an open account maintained
for the shareholder by the CGM Shareholder Services Department ("CGM Shareholder
Services") of Boston Financial Data Services, Inc. ("BFDS"), the shareholder
servicing agent for State Street Bank. The address is: CGM Shareholder Services,
c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
Certificates representing shares are issued only upon written request
to CGM Shareholder Services but are not issued for fractional shares. Following
each transaction in the account, a shareholder will receive an account statement
disclosing the current balance of shares owned and the details of recent
transactions that have taken place during the year. After the close of each
fiscal year, CGM Shareholder Services will send each shareholder a statement
providing federal tax information on dividends and distributions paid to the
shareholder during the year. The year-end statement should be retained as a
permanent record. Shareholders will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates problems of handling and safekeeping, and the
cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are borne by the
Funds, and no direct charges are made to shareholders. Although the Funds have
no present intention of making such direct charges to shareholders, they reserve
the right to do so. Shareholders will receive prior notice before any such
charges are made.
Systematic Withdrawal Plans ("SWP")
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $50 or more from the
account of a shareholder provided that the account has a value of at least
$10,000 at the time the plan is established.
Payments will be made either to the shareholder or to any other person
or entity designated by the shareholder. If payments are issued to an individual
other than the registered owner(s) and/or mailed to an address other than the
address of record, a signature guarantee will be required on the SWP
application. Shares to be included in a Systematic Withdrawal Plan must be held
in an Open Account rather than certificated form. Income dividends and capital
gain distributions will be reinvested at the net asset value determined as of
the close of the New York Stock Exchange. If withdrawal checks are returned to
the Funds as "undeliverable" or remain uncashed for more than six months the
shareholder's Systematic Withdrawal Plan will be cancelled, such undeliverable
or uncashed checks will be cancelled and such amounts reinvested in the Funds at
the per share net asset value determined as of the date of cancellation of the
checks.
Since withdrawal payments represent in whole or in part proceeds from
the liquidation of shares, the shareholder should recognize that withdrawals may
reduce and possibly exhaust the value of the account, particularly in the event
of a decline in net asset value. Accordingly, the shareholder should consider
whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn
are appropriate in the circumstances. The Trust makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
Exchange Privilege
A shareholder may exchange shares of CGM American Tax Free Fund or CGM
Fixed Income Fund for shares of CGM Mutual Fund, CGM Realty Fund, CGM Fixed
Income Fund or CGM American Tax Free Fund (as applicable), New England Cash
Management Trust, New England Tax Exempt Money Market Trust or CGM Capital
Development Fund; however, shares of CGM Capital Development Fund may be
exchanged only if you were a shareholder on September 24, 1993, and have
continuously remained a shareholder in the CGM Capital Development Fund since
that date. CGM Capital Development Fund shares are not generally available to
other persons except in special circumstances that have been approved by, or
under the authority of, the Board of Trustees of CGM Capital Development Fund.
The special circumstances currently approved by the Board of Trustees of CGM
Capital Development Fund are limited to the offer and sale of shares of such
fund to the following additional persons: trustees of CGM Capital Development
Fund, employees of the Investment Manager and counsel to such fund and the
Investment Manager. CGM Realty Fund shares are not available in South Dakota as
described in the prospectus for CGM Realty Fund. The value of shares exchanged
must be at least $1,000 and all exchanges are subject to the minimum investment
requirements of the fund into which the exchange is being made. This option is
summarized in the Prospectus under "Shareholder Services--Exchange Privilege."
Exchange requests cannot be revoked once they have been received in good order.
The Trust reserves the right to terminate or limit the privilege of a
shareholder who makes more than four exchanges (or two round trips) per year and
to prohibit exchanges during the first 15 days following an investment in a
particular Fund. A shareholder may exercise the exchange privilege only when the
fund into which shares will be exchanged is registered or qualified in the state
in which such shareholder resides.
Exchanges may be effected by (i) a telephone request to CGM Shareholder
Services at 800-343-5678, provided a special authorization form is on file with
the Trust, or (ii) a written exchange request to CGM Shareholder Services
accompanied by an account application for the appropriate fund. The Trust
reserves the right to modify this exchange privilege without prior notice,
except as otherwise required by law or regulation.
Automatic Investment Plans ("AIP")
Once initial investment minimums have been satisfied (see "How to
Purchase Shares" in the Prospectus), a shareholder may participate in an
Automatic Investment Plan, pursuant to which the Fund debits $50.00 or more on
or about the same date each month from a shareholder's checking account and
transfers the proceeds into the shareholder's Fund account. To participate, a
shareholder must authorize the Fund and its agents to initiate Automated
Clearing House ("ACH") debits against the shareholder's designated account at a
bank or other financial institution. Debits from savings banks and credit unions
generally are not acceptable . Debits from savings accounts will not be accepted
under any circumstances. Shareholders receive a confirmation of each purchase of
Fund shares, and each deduction from a shareholder's bank account will appear on
the shareholder's monthly bank statement. If a shareholder elects to redeem
shares of either Fund purchased under the AIP within 15 days of such purchase,
the shareholder may experience delays in receiving redemption proceeds. See "All
Redemptions."
Once a shareholder enrolls in the AIP, the Fund and its agents are
authorized to initiate ACH debits against the shareholder's account payable to
the order of The CGM Funds. Such authority remains in effect until revoked by
the shareholder, and, until the Fund actually receives such notice of
revocation, the Fund is fully protected in initiating such debits. Participation
in the AIP may be terminated by sending written notice to CGM Shareholder
Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511, or by calling
800-343-5678 more than 14 days prior to the next scheduled debit date. The Fund
may immediately terminate a shareholder's participation in the AIP in the event
that any item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify the AIP at any time.
Retirement Plans
Under "Shareholder Services--Retirement Plans" the Prospectus refers to
several retirement plans. These include tax deferred money purchase pension or
profit sharing plans, as well as SEP-IRAs, IRAs and 403(b)(7) custodial accounts
established under retirement plans sponsored by CGM. These plans may be funded
with shares of CGM Fixed Income Fund. CGM American Tax Free Fund may not be an
appropriate investment for: IRA accounts, SEP-IRA accounts, 403(b)(7) custodial
accounts, qualified profit sharing plans, or qualified money purchase plans.
For participants under age 59 1/2, all income dividends and capital
gain distributions of plan participants must be reinvested. Plan documents and
further information can be obtained from the Trust by writing or calling the
Trust as indicated on the cover of this Statement.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
Address Changes
Shareholders can request to change their record address either by
telephone or in writing (by mail or delivery service, but not by facsimile) in
accordance with policies and procedures of the Trust. After an address change is
made, no telephone or written redemption requests will be honored for three
months unless the registered owner's signature is guaranteed on the request.
Written requests for a change in address may be mailed to: CGM Shareholder
Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
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REDEMPTIONS
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The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by an eligible guarantor institution, in accordance with procedures
established by the Trust. Signature guarantees by notaries public are not
acceptable.
The procedures established by the Trust provide that an "eligible
guarantor institution" means any of the following: banks (as defined in ss. 3(a)
of the Federal Deposit Insurance Act (the "FDIA") [12 U.S.C. ss. 1813(a)]);
brokers, dealers, municipal securities brokers, government securities dealers
and government securities brokers, as those terms are defined under the
Securities Exchange Act of 1934 (the "Act"); credit unions (as defined in ss.
19(b)(1)(A) of the Federal Reserve Act [12 U.S.C. ss. 461(b)]); national
securities exchanges, registered securities associations and clearing agencies,
as those terms are defined under the Act; and savings associations (as defined
in ss. 3(b) of the FDIA [12 U.S.C. ss. 1813(b)]). However, as noted in the
Prospectus, a signature guarantee will not be required if the proceeds of the
redemption do not exceed $25,000, and the proceeds check is made payable to the
registered owner(s) and mailed to the record address, which has not changed in
the prior three months. If the record address has changed within the prior three
months, a signature guarantee will be required. This policy applies to both
written and telephone redemption requests.
Redeeming by Telephone
There are two ways to redeem by telephone. In either case, a
shareholder should call 800-343-5678 prior to 4:00 p.m. (Eastern time). Requests
made after that time or on a day when the New York Stock Exchange is not open
for business cannot be accepted. Telephone redemptions are not available for
IRAs, SEP-IRAs, 403(b)(7) custodial accounts or money purchase pension and
profit sharing plans under a CGM retirement plan where State Street Bank is the
trustee.
Check Sent to the Record Address
A shareholder may request that a check be sent to the record address on
the account, provided that the address has not changed for the last three months
and the shareholder is redeeming $25,000 or less. The check will be made payable
to the registered owner(s) of the account.
If checks representing redemption proceeds are returned "undeliverable"
or remain uncashed for six months, such checks shall be cancelled and such
proceeds shall be reinvested in the applicable Fund at the per share net asset
value determined as of the date of cancellation of such checks.
Proceeds Wired to a Predesignated Bank
A shareholder may request that the redemption proceeds be wired to the
bank selected on the Fund application or subsequently on the Service Options
Form available from the Trust. A nominal wire fee, currently $5.00, is deducted
from the proceeds. When selecting the service, a shareholder must designate a
bank account to which the redemption proceeds should be wired. Any change in the
bank account so designated may be made by furnishing CGM Shareholder Services a
completed Service Options Form with a signature guarantee. Whenever the Service
Options Form is used, the shareholder's signature must be guaranteed as
described above. Telephone redemptions may only be made if an investor's bank is
a member of the Federal Reserve System or has a correspondent bank that is a
member of the System. If the account is with a savings bank, it must have only
one correspondent bank that is a member of the System.
All Redemptions
The redemption price will be the net asset value per share next
determined after the redemption request is received by CGM Shareholder Services
in good order (including any necessary documentation). Redemption requests
cannot be revoked once they have been received in good order. Proceeds resulting
from a written redemption request will normally be mailed to you within seven
days after receipt of your request in good order. Telephone redemption proceeds
will normally be mailed or wired within seven days following receipt of a proper
redemption request. If you purchased your Fund shares by check (or through your
AIP) and elect to redeem shares within 15 days of such purchase, you may
experience delays in receiving redemption proceeds. The Trust will process your
redemption request upon receipt of a request in good order. However, the Trust
will generally postpone sending your redemption proceeds from such investment
until it can verify that your check (or AIP investment) has been or will be
collected. Under ordinary circumstances, the Trust cannot verify collection of
individual checks (or AIP investments) and may therefore automatically hold
proceeds from redemptions requested during the 15 day period following such
investment for a total of up to seven days. There will be no such automatic
delay following investments paid for by federal funds wire or by bank cashier's
check, certified check or treasurer's check although the Trust may in any case
postpone payment of redemption proceeds for up to seven days.
The Trust will normally redeem shares for cash; however, the Trust
reserves the right to pay the redemption price wholly in kind or partly in kind
and partly in cash if the Board of Trustees of the Trust determines it to be
advisable in the interest of the remaining shareholders. If portfolio securities
are distributed in lieu of cash, the shareholder will normally incur brokerage
commissions upon subsequent disposition of any such securities. However, the
Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Trust is obligated to redeem shares solely in cash for any shareholder
during any 90-day period up to the lesser of $250,000 or 1% of the total net
asset value of the particular Fund at the beginning of such period.
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gain or
loss. See "Income Dividends, Capital Gains Distributions and Tax Status."
Because the expense of maintaining small accounts is disproportionately
high, the Trust may close accounts with 20 shares or less and mail the proceeds
to the shareholder. Shareholders who are affected by this policy will be
notified of the Trust's intention to close the account, and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to retirement and Uniform Gifts to Minors Act
or Uniform Transfers to Minors Act accounts.
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INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
As described in the Prospectus under "Dividends, Capital Gains and
Taxes" it is the policy of each Fund to qualify annually as a "regulated
investment company" under the Internal Revenue Code and to declare and pay
monthly substantially all net investment income in the form of dividends and to
distribute annually all net realized capital gains, if any, after offsetting any
capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of each Fund based upon the net asset value determined as of
the close of the New York Stock Exchange on the record date for such dividend or
distribution. Shareholders, however, may elect to receive their income dividends
or capital gain distributions, or both, in cash. (However, if you elect to
receive capital gains in cash, your income dividends must also be received in
cash.) The election, made at the time the account is opened, may be changed by
the shareholder at any time by submitting a written request directly to BFDS. In
order for a change to be in effect for any dividend or distribution, it must be
received by BFDS on or before the record date for such dividend or distribution.
If you elect to receive distributions in cash, and checks are returned
"undeliverable" or remain uncashed for six months, your cash election will be
automatically changed and your future distributions will be reinvested in the
same Fund at the per share net asset value determined as of the date of payment
of the distribution. In addition, following such six-month period, any
undeliverable or uncashed checks will be cancelled and such amounts reinvested
in the same Fund at the per share net asset value determined as of the date of
cancellation of such checks.
Dividends paid by a Fund from net taxable investment income, including
dividends, interest and net short-term gains, will be taxable to shareholders as
ordinary income. For corporate investors, no portion of dividends paid by either
Fund is expected to qualify for the corporate dividends-received deduction.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) are taxable as long-term capital gains,
regardless of the length of time shareholders have owned shares in a Fund. To
the extent that a Fund makes a distribution in excess of its current and
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing the tax basis in a shareholder's shares,
and then, to the extent the distribution exceeds such basis, as a taxable gain
to be realized upon sale of such shares. Taxable dividends and capital gains are
taxable to shareholders of a Fund in the same manner whether received in cash or
reinvested in additional Fund shares.
CGM American Tax Free Fund anticipates that a substantial portion of
its investment income will be tax-exempt interest income. Dividends paid by the
Fund from net tax-exempt interest income will be excluded from a shareholder's
gross income for federal income tax purposes. Shareholders who are recipients of
Social Security benefits should be aware that exempt-interest dividends received
from the Fund are includable in their "modified adjusted gross income" for
purposes of determining the amount of such Social Security benefits, if any,
that is required to be included in their gross income. The exemption of certain
dividends from federal income tax does not necessarily result in exemption under
the income tax laws of any state or local taxing authority. Shareholders should
consult their own tax advisers about the status of dividends and distributions
of CGM American Tax Free Fund in their own states and localities.
If a shareholder of CGM American Tax Free Fund receives an
exempt-interest dividend with respect to any share and redeems or exchanges such
share before holding it for more than six months, any loss on the redemption or
exchange will be disallowed to the extent of such exempt-interest dividend.
Similarly, if a shareholder of CGM American Tax Fee Fund receives a distribution
taxable as long-term capital gain with respect to any share and redeems or
exchanges such share before holding it for more than six months, any loss on the
redemption or exchange (not otherwise disallowed as attributable to an
exempt-interest dividend) will be treated as long-term capital loss to the
extent of the long-term capital gain recognized on such distribution.
CGM American Tax Free Fund may invest in private activity bonds.
Interest on private activity bonds issued after August 7, 1986, although
generally excludable from gross income for federal income tax purposes, may be
subject to the federal alternative minimum tax ("AMT"). AMT is imposed on
taxpayers who utilized to a significant degree certain tax deductions and
exclusions (known as "items of tax preference"). Interest from private activity
bonds is an item of tax preference that is included with items of income from
certain other sources in calculating if a taxpayer is subject to AMT and the
amount thereof. Shareholders should consult their own tax advisers regarding the
potential applicability of the AMT to them.
If CGM Fixed Income Fund invests in foreign securities, it may be
subject to foreign withholding taxes on income earned on such securities and may
be unable to pass through to shareholders foreign tax credits and deductions
with respect to such taxes.
A distribution will be treated as paid by a Fund and received by its
respective shareholders on December 31 of the current calender year if it is
declared in October, November, or December of that year with a record date in
such a month and paid in January of the subsequent year.
Any dividends or distributions paid shortly after a purchase of shares
will have the effect of reducing the per share net asset value of the shares by
the amount of the dividends or distributions. Although in effect a return of
capital, these distributions (if derived from taxable investment income or net
capital gains) are subject to tax, even if their effect is to reduce the per
share net asset value below a shareholder's cost. To the extent that a Fund
makes a distribution in excess of its current and accumulated earnings and
profits, the distribution will be treated first as a tax-free return of capital,
reducing the tax basis in a shareholder's shares, and then, to the extent the
distribution exceeds such basis, as a taxable gain to be realized upon the sale
of such shares. Each Fund will notify you annually as to the tax status of
dividend and capital gains distributions paid by the Fund.
The sale or other disposition of shares of a Fund, including a
redemption of shares or an exchange of shares into another fund, is a taxable
event and may result in a capital gain or loss which will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares.
Each Fund is required to withhold and remit to the U.S. Treasury 31% of
all dividends from net investment income and capital gains distributions,
whether distributed in cash or reinvested in shares of the Fund, paid or
credited to any shareholder account for which an incorrect or no taxpayer
identification number has been provided or where the Fund is notified that the
shareholder has underreported income in the past (or the shareholder fails to
certify that he is not subject to withholding). In addition, each Fund will be
required to withhold and remit to the U.S. Treasury 31% of the amount of the
proceeds of any redemption of Fund shares from a shareholder account for which
an incorrect or no taxpayer identification number has been provided or where the
Fund is notified that the shareholder has underreported income in the past (or
the shareholder fails to certify that he is not subject to such withholding).
As required by federal law, detailed federal tax information is
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year. BFDS, the shareholder servicing agent, will send you and
the Internal Revenue Service an annual statement detailing federal tax
information, including information about dividends and distributions paid to you
during the preceding year. If you redeem or exchange shares in any year,
following the end of a year, you will receive a statement providing the cost
basis and gain or loss of each share lot that you sold in each year. Your CGM
account cost basis will be calculated using the "single category average cost
method," which is one of the four calculation methods allowed by the IRS. Be
sure to keep these statements as permanent records. A fee may be charged for any
duplicate information that you request.
Dividend distributions, capital gains distributions, and capital gains
or losses from redemptions and exchanges may also be subject to state and local
taxes. In certain states, a portion of each Fund's income derived from certain
direct U.S. Government obligations may be exempt from state and local taxes.
Each year, each Fund will indicate the portion of its income, if any, that is
derived from such obligations.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements and Report of Independent Accountants for the
year ended December 31, 1995 for each Fund, which are included in the respective
Fund's Annual Report to Shareholders for the year ended December 31, 1995, are
incorporated herein by reference.
167286.c4
<PAGE>
CGM TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements with respect to CGM Mutual Fund, CGM Realty
Fund, CGM Fixed Income Fund, and CGM American Tax Free Fund are
incorporated herein by reference to each Fund's Annual Report to
Shareholders for the year ended December 31, 1995 (File No.
2-10653) filed on February 22, 1996.
(b) Exhibits:
(1) (A) Agreement and Declaration of Trust of the Registrant is
incorporated herein by reference to Post-Effective
Amendment No. 61 on Form N-1A (File No. 2-10653) filed
on June 27, 1986.
(B) Amendment No. 1 to the Agreement and Declaration of
Trust is incorporated herein by reference to
Post-Effective Amendment No. 68 on Form N-1A (File No.
2-10653) filed on April 15, 1991.
(C) Amendment No. 2 to the Agreement and Declaration of
Trust is incorporated herein by reference to
Post-Effective Amendment No. 69 on Form N-1A (File No.
2-10653) filed on December 23, 1991.
(D) Amendment No. 3 to the Agreement and Declaration of
Trust is incorporated herein by reference to
Post-Effective Amendment No. 70 on Form N-1A (File No.
2-10653) filed on April 30, 1992.
(E) Amendment No. 4 to the Agreement and Declaration of
Trust is incorporated herein by reference to
Post-Effective Amendment No. 74 on Form N-1A (File No.
2-10653) filed on September 10, 1993.
(F) Amendment No. 5 to the Agreement and Declaration of
Trust is incorporated herein by reference to
Post-Effective Amendment No. 76 on Form N-1A (File No.
2-10653) filed on March 14, 1994.
(2) By-Laws of the Registrant, as amended, are incorporated
herein by reference to Post-Effective Amendment No. 66 on
Form N-1A (File No. 2-10653) filed on May 1, 1989.
(3) None.
(4) (A) Form of share certificate of the Registrant's CGM
Mutual Fund is incorporated herein by reference to
Post-Effective Amendment No. 77 on Form N-1A (File No.
2-10653) filed on April 28, 1994.
(B) Form of share certificate of the Registrants' CGM Fixed
Income Fund is incorporated herein by reference to
Post-Effective Amendment No. 77 on Form N-1A (File No.
2-10653) filed on April 28, 1994.
(C) Form of share certificate of the Registrant's CGM
American Tax Free Fund is incorporated herein by
reference to Post-Effective Amendment No. 77 on Form
N-1A (File No. 2-10653) filed on April 28, 1994.
(D) Form of share certificate of the Registrant's CGM
Realty Fund is incorporated herein by reference to
Post-Effective Amendment No. 77 on Form N-1A (File No.
2-10653) filed on April 28, 1994.
(5) (A) Advisory Agreement of the Registrant dated September 1,
1993 with respect to CGM Mutual Fund is incorporated
herein by reference to Post-Effective Amendment No. 75
on Form N-1A (File No. 2-10653) filed on February 24,
1994.
(B) Advisory Agreement of the Registrant dated September 1,
1993 with respect to CGM Fixed Income Fund is
incorporated herein by reference to Post-Effective
Amendment No. 75 on Form N-1A (File No. 2-10653) filed
on February 24, 1994.
(C) Advisory Agreement of the Registrant dated November 8,
1993 with respect to CGM American Tax Free Fund is
incorporated herein by reference to Post-Effective
Amendment No. 75 on Form N-1A (File No. 2-10653) filed
on February 24, 1994.
(D) Advisory Agreement of the Registrant dated May 12, 1994
with respect to CGM Realty Fund is incorporated herein
by reference to Post-Effective Amendment No. 2-10653)
filed on November 8, 1994.
(6) None.
(7) None.
(8) (A) Custodian Agreement with respect to CGM Mutual Fund is
incorporated herein by reference to Post-Effective
Amendment No. 61 on Form N-1A (File No. 2-10653) filed
on June 27, 1986.
(B) Supplement dated March 6, 1992 to Custodian Contract
with respect to CGM Mutual Fund is incorporated herein
by reference to Post-Effective Amendment No. 70 on Form
N-1A (File No. 2-10653) filed on April 30, 1992.
(C) Custodian Contract dated March 6, 1992 with respect to
CGM Fixed Income Fund is incorporated herein by
reference to Post-Effective Amendment No. 70 on Form
N-1A (File No. 2-10653) filed on April 30, 1992.
(D) Amendment dated April 16, 1992 to the Custodian
Contract with respect to CGM Fixed Income Fund is
incorporated herein by reference to Post-Effective
Amendment No. 70 on Form N-1A (File No. 2-10653) filed
on April 30, 1992.
(E) Custodian Contract with respect to CGM American Tax
Free Fund is incorporated herein by reference to
Post-Effective Amendment No. 77 on Form N-1A (File No
2-10653) filed on April 28, 1994.
(F) Custodian Contract with respect to CGM Realty Fund is
incorporated herein by reference to Post-Effective
Amendment No. 78 on Form N-1A (File No. 2-10653) filed
on November 8, 1994.
(9) (A) Service Agreement is incorporated herein by reference
to Post-Effective Amendment No. 67 on Form N-1A (File
No. 2-10653) filed on May 1, 1990.
(B) Transfer Agency and Service Agreement with respect to
CGM Mutual Fund dated June 1, 1987 is incorporated
herein by reference to Post-Effective Amendment No. 70
on Form N-1A (File No. 2-10653) filed on April 30,
1992.
(C) Supplement dated March 6, 1992 to Transfer Agency and
Service Agreement with respect to CGM Mutual Fund is
incorporated herein by reference to Post-Effective
Amendment No. 70 on Form N-1A (File No. 2-10653) filed
on April 30, 1992.
(D) Transfer Agency and Service Agreement dated March 6,
1992 with respect to CGM Fixed Income Fund is
incorporated herein by reference to Post-Effective
Amendment No. 70 on Form N-1A (File No. 2-10653) filed
on April 30, 1992.
(E) Transfer Agency Agreement with respect to CGM American
Tax Free Fund is incorporated herein by reference to
Post-Effective Amendment No. 77 on Form N-1A (File No
2-10653) filed on April 28, 1994.
(F) Powers of Attorney are incorporated by reference to the
signature page of Post-Effective Amendment No. 74 on
Form N-1A (File No. 2-10653) filed on September 10,
1993.
(G) Transfer Agency Agreement with respect to CGM Realty
Fund is incorporated herein by reference to
Post-Effective Amendment No. 78 on Form N-1A (File No.
2-10653) filed on November 8, 1994.
(10) (A) Opinion and consent of counsel with respect to shares
of CGM Mutual Fund is incorporated herein by reference
to Post-Effective Amendment No. 59 on Form N-1A (File
No. 2-10653) filed on April 30, 1986.
(B) Opinion and consent of counsel with respect to shares
of CGM Fixed Income Fund is incorporated herein by
reference to Post-Effective Amendment No. 69 on Form
N-1A (File No. 2-10653) filed on December 23, 1991.
(C) Opinion and consent of counsel with respect to shares
of CGM American Tax Free Fund is incorporated herein by
reference to Post-Effective Amendment No. 74 on Form
N-1A (File No. 2-10653) filed on September 10, 1993.
(D) Opinion and consent of counsel with respect to shares
of CGM Realty Fund is incorporated herein by reference
to Post-Effective Amendment No. 76 on Form N-1A (File
No. 2-10653) filed on March 14, 1994.
(11) Consent of independent accountants is filed herewith.
(12) None.
(13) Incorporated by reference to the Registration Statement on
Form N-1A (File No. 2-10653).
(14) Forms of The CGM Funds Retirement Plans are filed herewith.
(15) None.
(16) None.
(17) Financial data schedule is filed herewith.
(18) None.
Item 25. Persons Controlled by or Under Common Control with Registrant
Information pertaining to persons controlled by or under common
control with the Registrant is hereby incorporated by reference to the
section captioned "The Fund's Investment Manager" in each Prospectus
and the section captioned "Investment Advisory and Other Services --
Advisory Agreement" in each Statement of Additional Information.
Item 26. Number of Holders of Securities
The following table sets forth the number of record holders of each
class of securities of the Registrant as of March 31, 1996:
Number of Record
Title of Class Holders
-------------- -------
Shares of Beneficial Interest, CGM Mutual Fund 75,486
Shares of Beneficial Interest, CGM Fixed Income Fund 2,321
Shares of Beneficial Interest, CGM American Tax Free Fund 1,060
Shares of Beneficial Interest, CGM Realty Fund 5,766
Item 27. Indemnification
See Article 4 of the Trust's By-Laws which is incorporated herein by
reference to Post-Effective Amendment No. 66 on Form N-1A (File No.
2-10653) filed on May 1, 1989. In addition, the Trust maintains a
trustees and officers liability insurance policy with maximum coverage
of $5 million under which the Trust and its trustees and officers will
be named insureds.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the Trust's By-Laws, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against the public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Capital Growth Management Limited Partnership ("CGM"), the investment
manager of CGM Mutual Fund, CGM Fixed Income Fund, CGM American Tax
Free Fund and CGM Realty Fund, provides investment advice to a number
of other registered investment companies and to other organizations
and individuals.
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
The following companies maintain possession of the documents required
by the specified rules:
(a) Registrant
Rule 31a-1(a)(4); Rule 31a-1(d); Rule 31a-2(a); Rule 31a-2(c)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a); Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8);
Rule 31a-2(a)
(c) Capital Growth Management Limited Partnership
One International Place
Boston, Massachusetts 02110
Rule 31a-1(a); Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f);
Rule 31a-2(a); Rule 31a-2(e)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940 as though such provision of the
Act were applicable to the Registrant, except that the request
referred to therein may only be made by shareholders who hold in
the aggregate at least one percent of the outstanding shares of
the Registrant or shares with an aggregate net asset value of
$25,000.
(b) The Registrant undertakes, with respect to CGM Mutual Fund, CGM
Fixed Income Fund, CGM American Tax Free Fund and CGM Realty
Fund, to furnish, upon request and without charge, to each person
to whom a fund's prospectus is delivered, a copy of such fund's
latest annual report to shareholders.
<PAGE>
CGM TRUST
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
post-effective amendment to its Registration Statement meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933 and the Registrant further certifies that it has duly caused this
amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston, and the
Commonwealth of Massachusetts, on the 17th day of April, 1996.
CGM Trust
By: /s/ Robert L. Kemp
-----------------------
Robert L. Kemp
President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to this Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert L. Kemp President (Principal Executive April 17, 1996
- --------------------------- Officer) and Trustee
Robert L. Kemp
/s/ Frank N. Strauss Treasurer (Principal Financial April 17, 1996
- --------------------------- and Accounting Officer)
Frank N. Strauss
* Trustee April 17, 1996
- ---------------------------
Peter O. Brown
* Trustee April 17, 1996
- ---------------------------
Nicholas J. Grant
* Trustee April 17, 1996
- ---------------------------
G. Kenneth Heebner
* Trustee April 17, 1996
- ---------------------------
Robert B. Kittredge
* Trustee April 17, 1996
- ---------------------------
Laurens MacLure
* Trustee April 17, 1996
- ---------------------------
James Van Dyke Quereau, Jr.
* Trustee April 17, 1996
- ---------------------------
J. Baur Whittlesey
*By: /s/ Robert L. Kemp
------------------
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
------ ------- -------------
11 Consent of Independent Accountants
14 Forms of The CGM Retirement Plans
17 Financial Data Schedule
152768.c5
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 81 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 6, 1996, relating to the financial
statements and financial highlights appearing in the December 31, 1995 Annual
Report to Shareholders of CGM Realty Fund, which are also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
heading "Independent Accountants" in the Statement of Additional Information.
Price Waterhouse LLP
Boston, Massachusetts
April 12, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 81 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 6, 1996, relating to the financial
statements and financial highlights appearing in the December 31, 1995 Annual
Reports to Shareholders of CGM American Tax Free Fund and CGM Fixed Income Fund,
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the headings "Financial Highlights"
in the Prospectus and under the heading "Independent Accountants" in the
Statement of Additional Information.
Price Waterhouse LLP
Boston, Massachusetts
April 12, 1996
<PAGE>
EXHIBIT 99.14
CGM FUNDS
- ------------------------------------------------------------------------------
INDIVIDUAL
RETIREMENT
ACCOUNT
- ------------------------------------------------------------------------------
INSIDE . . .
PAGE 1 INVESTMENT OPTIONS
PAGE 2 Q&AS ABOUT IRAS
PAGE 4 DISCLOSURE STATEMENT
PAGE 8 PLAN DOCUMENT
PAGE 15 IRS APPROVAL LETTER
IRA
<PAGE>
INVESTMENT OPTIONS
FIVE NO-LOAD MUTUAL FUNDS
The five no-load funds eligible for your IRA investments are listed below. You
may invest either in one, or in a combination, of the funds best suited to
your circumstances. The funds have different investment objectives and offer a
range of investment income and appreciation potential. Be sure to read each
fund's prospectus before you invest or send money.
STOCKS AND BONDS
CGM MUTUAL FUND is a flexibility managed balanced fund that seeks reasonable
long-term capital appreciation with a prudent approach to protection of
capital from undue risks. Consideration is given to the production of current
income in the selection of stocks and bonds for the Fund's portfolio.
BONDS
CGM FIXED INCOME FUND is a "total return" bond fund. The Fund's objective is
to maximize total return by investing in debt securities and preferred stocks
that provide current income, capital appreciation or a combination of both
income and appreciation.
MONEY MARKET
TNE CASH MANAGEMENT TRUST is a money market fund that seeks to provide maximum
current income consistent with preservation of capital. The Money Market
Series invests in a variety of high quality money market instruments. The U.S.
Government Series invests only in obligations backed by the full faith and
credit of the U.S. Government and in related repurchase agreements. Both
Series are managed by Back Bay Advisors, Inc.
STOCKS
CGM CAPITAL DEVELOPMENT FUND is an aggressively managed growth fund that seeks
long-term capital appreciation in a diverse group of companies and industries
believed to provide opportunities for capital development. Note: Shares are
available only to certain individuals. Eligibility categories are listed
below.
ELIGIBILITY FOR CGM CAPITAL DEVELOPMENT FUND
The CGM Capital Development Fund is offered only to those individuals who are
currently shareholders of the CGM Capital Development Fund.
<PAGE>
QUESTIONS AND ANSWERS ABOUT IRAS
ELIGIBILITY
WHO CAN OPEN AN IRA?
Anyone who earns income and is still under age 70 1/2 at the end of the
calendar year.
CAN I SIMULTANEOUSLY HAVE TWO OR MORE IRA ACCOUNTS?
Yes, as long as no more than a total of $2,000 is contributed to your IRA
accounts in any one tax year.
CAN MY SPOUSE HAVE AN IRA?
Yes. An IRA which is separate from but identical to your IRA (a "spousal IRA")
can be set up for the benefit of your spouse if
- --your spouse has no earnings for the year or elects to be treated as having
no earnings for the year
- --your spouse has not attained age 70 1/2, and
- --you and your spouse file a joint income tax return.
CONTRIBUTIONS
WHAT IS THE MAXIMUM ANNUAL CONTRIBUTION I CAN MAKE TO MY IRA (DEDUCTIBLE PLUS
NON-DEDUCTIBLE)?
You may contribute $2,000 or 100% of your earned income, whichever is less.
Please refer to IRS Publication 590 for information in computing the amount
which may be deductible.
WHAT IS THE MAXIMUM ANNUAL CONTRIBUTION THAT CAN BE MADE TO MY SPOUSE'S IRA?
A total of $2,250 or 100% of your earned income can be contributed to your own
IRA and your spouse's IRA. The contributions may be divided between the two
separate IRAs in any way you wish, provided neither IRA receives more than
$2,000.
WHAT IS THE MAXIMUM AMOUNT THAT MY EMPLOYER CAN CONTRIBUTE TO MY SEP IRA?
The total contributions made by and for an employee may not exceed the lesser
of 15% of the employee's compensation or $30,000.
CAN I CONTRIBUTE LESS THAN THE MAXIMUM?
Yes, you can contribute any amount you wish up to the maximum amount for your
IRA (and your spouse's IRA) for each taxable year.
CAN BOTH A HUSBAND AND WIFE WHO WORK HAVE IRAS?
Yes. If you both have earned income, you can each have your own IRA.
WHEN DO I MAKE MY CONTRIBUTION?
You can make your contribution any time from the beginning of the tax year to
April 15 of the following year. SEP contributions can be made up to your due
date plus extensions.
DO I HAVE TO CONTRIBUTE TO AN IRA EACH YEAR?
No. You need not contribute to an IRA each year. You can also vary the amount
of contributions to your IRA.
WHAT IF I CONTRIBUTE MORE THAN THE MAXIMUM ALLOWED?
If you withdraw the excess contribution and its earnings before you file your
tax return (including extensions) for the year, you won't be subject to the 6%
penalty on the excess contribution described below. You will be subject,
however, to income taxes (and a 10% penalty tax if you are under age 59 1/2)
on the earnings of the excess contribution.
Another method for correcting the excess contribution is to leave the money in
your IRA and to apply the excess to your next year's contribution. If you do
that, however, you would be subject to a 6% penalty tax on the excess
contribution in the year in which it was made and each subsequent year it
remains an excess contribution.
MAY I MAKE ANNUAL CONTRIBUTIONS TO AN IRA AFTER I REACH AGE 70 1/2?
No. If you reach age 70 1/2 by the end of the year you will not be able to
contribute to your IRA. In addition, no contributions may be made to your
spouse's IRA after he or she reaches age 70 1/2.
<PAGE>
TRANSFERS AND ROLLOVERS
WHAT IS A TRANSFER OF ASSETS?
A transfer of assets is the direct transfer from one IRA to another IRA. The
assets must be transferred directly from one trustee, custodian or insurance
company to another.
WHAT ARE THE THREE TYPES OF IRA ROLLOVERS?
You may make three types of IRA rollovers: regular rollovers, direct rollovers
and indirect rollovers.
A REGULAR IRA ROLLOVER occurs when you withdraw assets from your IRA and,
within 60 days, reinvest them into another IRA. Such rollovers may be made
only once per year.
A DIRECT ROLLOVER takes place when you choose to have an eligible rollover
distribution from a qualified plan placed directly in an IRA already
established at a financial organization. In this case, there is no mandatory
tax withholding.
An INDIRECT ROLLOVER occurs when you receive an eligible rollover distribution
from a qualified retirement plan and then, within 60 days, roll the
distribution yourself into an IRA Plan. In this case, the payor is required by
law to withhold 20% of the amount of your distribution for taxes. You will
receive only 80% of the distribution amount. Such distribution proceeds should
not be commingled with your contributory IRA account if you ever plan to
reinvest the assets in a qualified plan or tax sheltered annuity.
PLEASE NOTE: The IRS has no provisions for extending the 60-day rollover
window.
DISTRIBUTIONS
WHEN CAN I START TO MAKE WITHDRAWALS FROM MY IRA?
You may start to withdraw money without penalty from your IRA as early as age
59 1/2. Distribution must begin by April 1 following the year in which you
attain age 70 1/2.
WHAT ARE THE PERMISSIBLE METHODS OF DISTRIBUTION?
A lump sum payment, installment payments (monthly, quarterly, semi-annual or
annual) or an annuity contract. Please refer to pages 5, 6, 7, 10 and 11 for
full details.
MAY I MAKE WITHDRAWALS BEFORE I REACH AGE 59 1/2?
Yes. However, the IRS imposes a 10% penalty tax on the amount withdrawn and
the distribution must also be reported in your income tax return for that
year. Distributions which are due to death or disability, paid under a
qualified domestic relations order, or as part of a series of substantially
equal periodic (at least annual) payments over your life or the lives of you
and your beneficiary are exempt from these penalties.
MAY I USE MY IRA AS COLLATERAL FOR A LOAN?
No. If you use your IRA, or any portion of it, as collateral for a loan, it
will be taxed immediately as if it were a payment to you.
DISTRIBUTION AT DEATH
WHAT HAPPENS TO MY IRA IF I DIE BEFORE AGE 59 1/2 OR BEFORE MY BENEFITS HAVE
BEEN DISTRIBUTED TO ME FROM MY IRA?
Any amount in your IRA at the time of your death will be distributed to your
designated beneficiary or beneficiaries. If you did not designate a
beneficiary or your beneficiary predeceases you, payment will be made to your
estate.
HOW DO I NAME A BENEFICIARY?
You name a beneficiary by completing a Beneficiary Designation form. You may
change your beneficiary at any time by completing a new form.
<PAGE>
DISCLOSURE STATEMENT
CGM FUNDS INDIVIDUAL RETIREMENT
ACCOUNT
FEATURES OF THE PLAN
The tax features of an Individual Retirement Account ("IRA") have greatly
expanded the opportunity to set aside dollars for your retirement years. You
may get a current deduction on your tax return for the amount you invest in an
IRA. You don't pay a tax on these savings until you draw out your accumulated
funds at retirement. The earnings in the account are also tax-free until that
time. Your right to your account, or, in the event of death, the right of your
beneficiary or estate, is at all times non-forfeitable. Capital Growth
Management Limited Partnership ("Capital Growth Management") created this IRA
as a convenient way for you to establish your own personal IRA. The Plan was
previously sponsored by Loomis-Sayles and Company, Inc. and was issued a
determination letter by the IRS (Serial No. 8111143b) stating that it met the
requirements of applicable law, as of September 5, 1986. The Plan as sponsored
by Capital Growth Management has received a determination from the IRS that it
continues to meet the requirements of applicable law. (See the IRS
determination letter (Serial No. D112763a) dated March 22, 1991 which is
included in these materials.) IRS approval of the form of Plan does not,
however, represent any endorsement or determination by the IRS as to the
merits of the Plan or the Funds. If you think you would like to participate,
please read on for a further explanation of the key features of applicable law
and the Plan.
RIGHT TO REVOKE
You may revoke your enrollment in an IRA account by giving written notice
within seven days after the account is established. Notice of revocation must
be mailed to the Trustee, State Street Bank and Trust Company, at P.O. Box
8511, Boston, Massachusetts 02266 or hand delivered to the Trustee c/o BFDS, 2
Heritage Drive, N. Quincy, MA 02171. Notice will be deemed to have been mailed
on the date of the postmark (or if sent by registered or certified mail, the
date of certification or registration) when deposited in the mail in the
United States, first class postage prepaid, properly addressed. If you revoke
your account, the entire amount you paid in will be returned to you promptly,
without deductions or adjustments of any kind. If you participate in an IRA
account plan established by your employer, your seven-day withdrawal period
will commence as of the date on which your first contribution is made.
ELIGIBILITY
In general, everyone under age 70 1/2 who earns a wage or salary or earns a
profit from his work is eligible to participate. Also married individuals who
are eligible may establish a separate IRA on behalf of their non-working
spouses (a "Spousal IRA"). Furthermore, divorced or legally separated
individuals may contribute to an IRA based on the alimony payments they
receive.
CONTRIBUTIONS
If you establish an IRA for your own benefit, each year until you attain age
70 1/2, you may contribute up to an amount equal to the lesser of your total
annual compensation or $2,000. Alimony payments may be treated as
compensation. If an IRA is also established for the benefit of your spouse,
the overall limit for contributions to both IRAs is $2,250 (but you still may
not contribute more than 100% of your total annual compensation, and the
amount contributed to either IRA may not exceed $2,000). Your contribution may
be made at any time during the taxable year or after the end of the taxable
year up to the time for filing your individual tax return for that year
(without regard to any extension). For most individuals, the deadline would be
April 15. You do not have to contribute each year, nor are you required to
contribute the same amount each year. You may make your contributions in
convenient installments as set forth in the Account Application. Your account
will be in your name; your spouse's account, if any, will be in his or her
name, and you are entitled to the tax deduction. To
<PAGE>
keep an IRA qualified, you will need to report your deduction on your annual IRS
tax return, Form 1040. You do not have to itemize deductions in order to deduct
an IRA contribution on your income tax return. Your regular contributions must
be made in cash or by check. Your employer may be willing to help by deducting
from your pay the amount you specify and sending it to the Trustee for your
account.
An IRA may be used to make a "rollover" contribution of funds received by you
from a qualified employee benefit plan in which you previously participated.
Anyone who receives a lump sum payment of accumulated benefits in a qualified
employee benefit plan can preserve tax sheltered treatment of these funds by
investing them in an IRA within 60 days. In order to avoid tax withholding,
the rollover should be made as a "direct rollover", and should be coordinated
through your employer. In this manner, assets transferred from another
retirement program are kept invested, tax consequences stemming from the
payment are deferred until distributions are made from your IRA account, and
you have the option to "rollover" the funds later to a tax-qualified program
of a subsequent employer, a retirement annuity or another IRA. You can
rollover the entire amount of your distribution from a qualified employee
benefit plan (less any nondeductible contributions you made to the plan) to
your IRA or you can rollover only a portion of the distribution. If you do not
rollover the entire distribution, however, the portion of the distribution not
included in the rollover will be taxed as ordinary income.
This rollover contribution should be segregated from an IRA account into which
current contributions are made if you wish to preserve the option to rollover
such amount at a later time to a tax-qualified program of a subsequent
employer. Anyone desiring to make such a segregation of a "rollover"
contribution should open two separate IRA accounts. Rollover contributions may
be made in the form of securities or other assets with the Trustee's approval.
An IRA rollover also occurs in the case where assets from one IRA to which you
have made current contributions are withdrawn by you and within 60 days are
reinvested into another IRA. A rollover can be made only once in any taxable
year. Such rollover assets need not be segregated from an IRA account into
which current contributions are being made.
EARNINGS AND CHARGES
Your contributions will be used to purchase shares of CGM Mutual Fund, CGM
Fixed Income Fund, CGM Capital Development Fund (if you are an eligible
investor), and/or the TNE Money Market Funds (the "Funds"). The Funds are no-
load funds. No sales commissions are charged; 100 percent of your dollar
contribution is invested. Any dividends or capital gain distributions on the
Funds' shares will be invested in additional Funds' shares automatically.
These additional shares will represent your earnings from the account. The
funds available for distribution when you reach age 59 1/2, die, or become
disabled will be the market value of the shares your contributions and
earnings have purchased over the years. Due to the fluctuating value of the
Funds' investments, it is not possible to make a projection of expected
growth, and growth cannot be guaranteed.
The law requires that the shares in your account be held by a trustee that is
a bank or other organization approved by the IRS. The Trustee of the Plan
meets this requirement. You will be entitled to vote the shares in your
account. The Trustee charges $5.00 as an establishment fee, $10.00 per year
per account as a maintenance fee, and $5.00 for each lump sum distribution or
return of an excess contribution but reserves the right to increase these
charges at any time upon 30 days' advance notice. The Trustee will send you a
statement of account annually informing you of the exact amount of
contributions, earnings, distributions, and year-end value. The Trustee will
also send a statement to the Internal Revenue Service as required by law.
DISTRIBUTIONS
You may withdraw funds from your account at any time after age 59 1/2 and
before age 70 1/2 without any restrictions. Penalties may apply in certain
other circumstances. (See Account Restrictions and Penalties, below). You must
begin to withdraw funds from your account no later than April 1 following the
year in which you attain age 70 1/2 (or the year you create a rollover IRA, if
later).
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Your funds may, at your option, be distributed to you in the following ways:
(1) a lump sum payment of your entire account, in cash or Fund shares; (2)
installment payments over a period certain not extending beyond your life
expectancy; (3) installment payments over a period certain not extending
beyond the joint life and last survivor expectancy of you and your
beneficiary; or (4) in the form of an annuity contract.
If you die before distribution of your IRA begins, then the entire balance
must be distributed in cash or Fund Shares to your beneficiary by December 31
of the year which contains the fifth anniversary of your death, or in
installment payments over a period certain not exceeding your beneficiary's
life expectancy, or in the form of an annuity contract for a similar period.
Installment payments must begin either by December 31 of the year following
your death or, if your beneficiary is your surviving spouse, not later than
the date you would have attained age 70 1/2. If you die after distribution of
your IRA begins but before it is completed, the remaining balance must be
distributed to your beneficiary under a method which provides for payment at
least as rapidly as under the method of distribution in use before your death.
You may designate a beneficiary and change beneficiaries from time to time. If
you do not designate a beneficiary, your estate will receive the balance in
your account. Designating a beneficiary and changing beneficiaries is not
considered the making of a taxable gift.
A nondeductible 50% excise tax will be imposed on the difference between the
minimum amount which should have been paid out in any year based on the form
of payment selected and the amount actually paid out in that year. The tax is
to be paid by the individual to whom the minimum payments should have been
made.
You will pay income taxes when your account is distributed. If the amount of
distributions you receive in any one year from your IRA and other retirement
plans exceeds $150,000, you will be subject to a 15% penalty on the amount
distributed in excess of $150,000. Depending upon your particular
circumstances, you may find it advantageous to withdraw your account in
installments over a number of years. If you die before receiving all of the
assets in your account, the remainder of the account is included in the assets
of your estate for federal estate tax purposes. In addition, if the benefits
in your IRA and other retirement plans exceed certain threshold amounts, your
estate may be subject to a 15% excise tax on amounts in excess of the
threshold amounts.
The tax laws provide that payments received from your IRA plan are subject to
federal income tax withholding unless you elect not to have withholding apply.
Such election must be made in writing to the Trustee at the time you submit
your authorization for distribution.
ACCOUNT RESTRICTIONS AND PENALTIES
If you withdraw funds from your account before age 59 1/2 (except upon
becoming disabled, or if the withdrawal is for purposes of a rollover transfer
or is part of a series of substantially equal periodic payments for your life
or life expectancy), the distributions will not only be included in your gross
income, but also you will pay a nondeductible excise tax equal to 10% of the
amount withdrawn.
There are very severe consequences if you use your Plan assets as security for
a loan or borrow any money from or through your IRA account, or engage in
other transactions prohibited by Section 4975(c) of the Internal Revenue Code.
Not only would your account lose its tax-exempt status, but you would be
required to include the entire value of the account's assets in your gross
income for the year in which the prohibited transaction occurred and to pay a
10% penalty as well.
If you contribute more to the Plan than the law allows (as explained under
"contributions"), you may withdraw the excess without the 6% penalty
(described below) if you do so by the due date for filing your federal income
tax return (with extensions). You must also withdraw the earnings on the
excess and pay taxes and a 10% penalty on the amount of earnings. Excess
contributions in a taxable year can be corrected by withdrawing the excess
contribution in any later year provided that a tax deduction has not been
allowed for the excess contribution. Additionally, an excess contribution in
one taxable year (for which no tax deduction was taken) will be deductible
<PAGE>
in a subsequent taxable year if, and to the extent that, the taxpayer
contributes less than the maximum deductible amount in that later year. Excess
contributions that are not withdrawn or utilized as a current contribution
during the year will be subject to a nondeductible excise tax of 6% for each
taxable year in which they remain uncorrected.
You must begin to withdraw funds from your account no later than April 1
following the year you reach age 70 1/2. If you do not, or if you withdraw
less than the minimum amount described earlier under "Distributions," you
will incur an excise tax equal to 50% of the amount you should have withdrawn
but did not. The Secretary of the Treasury has the power to waive this 50% tax
penalty if the excess accumulation is due to reasonable cause and reasonable
steps are being taken to correct the excess.
If you receive a premature distribution, make an excess contribution which is
not corrected in the time allowed, fail to withdraw the minimum amount
required to be withdrawn upon attainment of age 70 1/2, or receive an excess
distribution, you must file Form 5329 (return of excise tax) with the IRS
along with your annual tax return, Form 1040. In addition, if you make a
nondeductible contribution to your IRA in any year, you must file Form 8606 to
report the amount of the nonductible contribution.
HOW TO PARTICIPATE
You may establish your own account simply by completing the Account
Application and mailing it to the CGM Funds with your first contribution. If
you need any assistance in completing the Account Application, please
telephone CGM at (800) 345-4048.
PLEASE NOTE: The foregoing is not a complete or definitive explanation of the
Plan or of the provisions of applicable law. Please do not complete the
application without reading the Plan and the Fund prospectus which must always
accompany the Plan. Consult your financial or tax advisor if you are uncertain
that a CGM Funds IRA is an appropriate program for your investment needs.
<PAGE>
PLAN DOCUMENT
THE CGM FUNDS INDIVIDUAL
RETIREMENT ACCOUNT (THE "PLAN")
Capital Growth Management Limited Partnership ("Capital Growth Management")
has developed and is sponsoring this individual retirement plan for adoption
by eligible individuals. Upon execution of the Account Application by the
adopting individual (and by his or her spouse in the case of a "Spousal IRA"),
a Plan and Trust Account shall be created for the exclusive benefit of the
adopting Individual or his or her beneficiaries upon the following terms and
conditions and in accordance with the provisions of the Employee Retirement
Income Security Act of 1974, as amended (the "Act") and the Internal Revenue
Code of 1986, as amended (the "Code"). Some words and phrases used herein have
a technical meaning and are defined in Article IX.
ELIGIBILITY
I. Any person who receives Compensation for services rendered during the
taxable year is eligible to adopt this Plan in such taxable year. Any
person for whom a Spousal IRA is being established is also eligible to
adopt this Plan. In addition, any person making a Rollover
Contribution, as defined in Article IX, below, may adopt the Plan.
PARTICIPATION
II.A. PRIMARY PARTICIPATION. An eligible person who wishes to adopt this
Plan (the "Individual") may do so by signing and mailing to the bank
named in the Account Application as Trustee (the "Trustee") a
counterpart copy of the Account Application (the "Application"). In
addition, any such adopting Individual may designate the Plan as
forming part of his or her employer's simplified employee pension plan
(within the meaning of Section 408(k) of the Code) in which event such
employer may make contributions to the Trust Account subject to the
limitations described in Article III.a., below.
B. SPOUSAL IRA. A spouse for whom a Spousal IRA is being established will
be required to sign an Account Application. Such a spouse shall be
considered the sole owner of all amounts contributed thereto and the
earnings thereon; shall have the right to designate how the assets in
the Plan are to be invested under the provisions of Article IV, below;
and shall have the right to direct the time and manner of distribution
pursuant to the provisions of Article V, below. The spouse for whom a
Spousal IRA is established shall not have the right to contribute to
the Plan or to amend the Plan without his or her spouse's consent. Any
provision of this Plan which gives any person adopting the Plan a
right, option or privilege, or imposes any duty, risk or limitation on
such person, or relieves the Trustee or the Fund from liability to
such person shall be deemed to extend to the spouse for whom a Spousal
IRA has been established.
CONTRIBUTIONS
III.A. An Individual who receives Compensation for services rendered during
the taxable year may contribute cash to his or her account (the "Trust
Account" or "Account") in any such year prior to the year in which he
or she attains age 70 1/2 in an amount not in excess of the lesser of
the Individual's Compensation includable in his or her gross income
for such year or $2,000.
The Fund and Trustee are not responsible for determining the amount
such an Individual may contribute, but the Trustee will not accept
more than $2,000 in any taxable year from such Individual, plus any
permitted Rollover Contribution plus (where the Plan has been
designated as a part of a simplified employee pension plan (within the
meaning of Section 408(k) of the Code) contributions from such
<PAGE>
Individual's employer not in excess of the maximum dollar limitation
applicable to defined contribution plans under Section 415(c)(1)(A) of
the Code. The interest of such Individual in the Trust Account shall
be non-forfeitable at all times. If during any taxable year such
Individual contributes an amount which exceeds the deduction he or she
is allowed under Section 219 of the Code, such excess contribution and
any income attributable thereto shall, upon the written request at any
time of such Individual, be paid to him or her by the Trustee.
Such Individual may also at any age make a Rollover Contribution as
defined in Article IX below. If such Individual so directs on the
Application, such Rollover Contribution and the earnings thereon shall
be held by the Trustee in a separate account (the "Rollover Account")
for the Individual. The interest of an Individual in his or her
Rollover Account, if any, shall be non-forfeitable at all times.
B. Cash may also be contributed to the Trust Account on behalf of an
Individual for whom a Spousal IRA has been established provided: (i)
such Individual has no Compensation or elects to be treated as having
no Compensation for such taxable year; and (ii) such Individual will
not have attained age 70 1/2 prior to the close of such taxable year.
The interest of an Individual for whom a Spousal IRA has been
established in his or her Trust Account shall be non-forfeitable at
all times.
The amount contributed may not exceed (i) the lesser of the
Compensation of such Individual's spouse which is includable in his or
her gross income for such taxable year or $2,250, reduced by (ii) the
amount contributed by the spouse to any individual retirement plan
established for his or her benefit and deductible by him or her under
Section 219 of the Code for such taxable year. However, in no case may
the contribution under this Section exceed $2,000.
INVESTMENT OF CONTRIBUTIONS
IV.A. All contributions made by, or on behalf, of an Individual shall be
invested by the Trustee in shares of one or more of the following
registered investment companies (the "Funds") alone or in combination,
in such percentage as the Individual shall specify in the Application
or thereafter in writing to the Trustee from time to time.
(1) CGM Mutual Fund;
(2) CGM Capital Development Fund (provided the Individual is
eligible to invest in such Fund;
(3) The New England Money Market Funds; and/or
(4) Such other registered investment company or companies as may now
or hereafter be sponsored by Capital Growth Management or any of
its affiliates and which Capital Growth Management designates in
writing to the Trustee as an eligible investment under this
Article IV.
Prior to the date an Individual attains age 59 1/2, all income
dividends and capital gains distributions from a Fund shall be
reinvested in additional Fund Shares. On or after the date an
Individual attains age 59 1/2, he or she may elect to receive all
income dividends and/or capital gains distributions from a Fund in
cash.
B. A Rollover Contribution may be made in cash or in Shares of the Funds.
C. No part of the Trust Account shall at any time be commingled with
other property, except in a common trust fund or common investment
fund (within the meaning of Section 408(a)(5) of the Code), or
invested in any of the following:
(1) A life insurance contract or contracts;
(2) A promissory note or other obligation issued by the Individual;
(3) Any work of art, rug, antique, metal, gem, stamp, coin,
alcoholic beverage, or other tangible personal property
specified by the Secretary of the Treasury as a "collectible"
within the meaning of Section 408(m) of the Code.
<PAGE>
DISTRIBUTIONS
V.A. All or any part of the interest of the Individual in the Trust Account
may be distributed at any time but must be, or commence to be,
distributed by the Trustee no later than the first day of April
following the calendar year in which the Individual attains age 70 1/2
(the "Required Commencement Date"). Not later than the Required
Commencement Date, the Individual shall specify, by written notice in
a form and at such time as may be acceptable to the Trustee, that his
or her interest in the Trust Account is to be distributed in:
(1) A single sum payment in cash or Fund Shares;
(2) Equal or substantially equal monthly, quarterly or annual
payments over a period certain not extending beyond the life
expectancy of the Individual or the joint life and last survivor
expectancy of the Individual and his or her designated
beneficiary; or
(3) In the form of a nontransferable annuity contract which provides
for payments over any period certain not exceeding the periods
described in (2) above or over the life of the Individual or the
joint lives of the Individual and his or her designated
beneficiary, which contract shall be immediately distributed to
the Individual.
If the Individual fails to elect any of the methods of distribution
described above on or before the Required Commencement Date,
distribution to the Individual will be made on or before the Required
Commencement Date in a single sum payment.
B. If the Individual dies after distribution of his or her interest in
the Trust Account commences but before his or her entire interest is
distributed, the remaining portion of such interest will continue to
be distributed to the Individual's designated beneficiary under a
method of distribution elected by such beneficiary, provided such
method provides for payment at least as rapidly as under the method of
distribution employed prior to the Individual's death.
If the Individual dies before distribution of his or her interest in
the Trust Account commences, his or her entire interest will be
distributed to his or her designated beneficiary under the method
selected by such beneficiary from among those described below:
(1) A single sum payment in cash or Fund Shares made not later than
December 31 of the year in which occurs the fifth anniversary of
the Individual's death; or
(2) Equal or substantially equal monthly, quarterly or annual
payments over a period certain not extending beyond the life
expectancy of the designated beneficiary commencing, in the case
of a designated beneficiary who is the Individual's surviving
spouse, not later than the day preceding the date the Individual
would have attained age 70 1/2 or, in the case of any other
designated beneficiary, not later than December 31 of the year
in which occurs the first anniversary of the Individual's death;
or
(3) In the form of a nontransferable annuity contract which provides
for payments over any period certain not exceeding the period
described in (2) above or over the life of the designated
beneficiary, such payments to commence not later than the
applicable date described in (2) above, which contract shall
immediately be distributed to the designated beneficiary.
Notwithstanding the preceding paragraphs, however, if the designated
beneficiary is the Individual's surviving spouse, such spouse may at
any time prior to December 31 of the year containing the fifth
anniversary of the Individual's death elect to treat his or her
interest in the Trust Account as his or her own individual retirement
account, in which event he or she will thereafter succeed to all of
the rights, and be subject to all of the restrictions, of the
Individual with respect to his or her interest in the Trust Account.
Such an election will be deemed to have been made in the event the
surviving spouse makes an annual contribution to the Trust Account,
<PAGE>
makes a Rollover Contribution to or from the Trust Account, or fails
to elect payment of his or her interest pursuant to any of the
distribution options described above within the five-year period
following the individual's death.
C. Notwithstanding that distributions may have commenced to the
Individual, or in the event of the Individual's death, to his
designated beneficiary, pursuant to one of the above options, the
Individual or, if applicable, his or her designated beneficiary, may
receive a distribution of the balance or any part of the balance of
his or her interest in the Trust Account either in cash or in Fund
Shares at any time upon written notice to the Trustee. If the
Individual or a designated beneficiary elects a mode of distribution
under (a)(2) or (b)(2) above, the total amount paid (in the case of
payments due to the Individual) in the calendar year containing the
Required Commencement Date and each subsequent year, or (in the case
of payments due to a designated beneficiary) in the twelve consecutive
month period beginning on the date payment commences and on each
anniversary of such date, shall not be less than the lesser of the
entire interest of the Individual or designated beneficiary in the
Trust Account and an amount determined by dividing the entire interest
of the Individual or designated beneficiary in the Trust Account at
the beginning of each such year or period (including, in computing the
minimum distribution due to the Individual, amounts not in the Account
at the beginning of the year because they had been withdrawn for the
purpose of making a Rollover Contribution to another individual
retirement account) by the life expectancy of the Individual or the
joint life and last survivor expectancy of the Individual and his or
her designated beneficiary, or in the case of distribution to a
designated beneficiary, the life expectancy of such beneficiary, such
expectancies determined in each case in accordance with (d) below. In
the event the Individual's designated beneficiary is not his spouse,
such amount shall be determined by dividing such entire interest of
the Individual by the applicable divisor determined from the table set
forth in Q&A-4 of section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations. Distributions after the death of the Individual shall be
calculated using the applicable life expectancy as the relevant
divisor without regard to Proposed Regulations section 1.401(a)(9)-2.
Distributions under (a)(3) or (b)(3) above shall be made in accordance
with the requirements of section 401(a)(9) of the Internal Revenue
Code and the regulations thereunder.
D. For purposes of this Article, expectancies will be determined by use
of the expected life return multiples specified in Tables V and VI of
section 1.72-9 of the Income Tax Regulations. The life expectancy of
the Individual and his or her surviving spouse, at the election of the
Individual, may be recalculated not more frequently than annually.
Such election shall be irrevocable as to the Individual and his or her
surviving spouse and shall apply to all subsequent years. The life
expectancy of any designated beneficiary who is not the Individual's
surviving spouse may not be recalculated. In the event the Individual
does not elect to have life expectancies recalculated, the life
expectancy of the Individual, his or her surviving spouse or any other
designated beneficiary will be determined as of his or her attained
age during the calendar year in which distributions are required to
begin and shall thereafter be reduced by one for each completed twelve
consecutive month period to elapse since the date payment commenced.
E. The Individual may designate a beneficiary or beneficiaries on the
form which accompanies the Account Application. If no such designation
is in force at the time of the Individual's death, the Trustee shall
distribute the assets in the Trust Account to the personal
representative of the deceased Individual. For purposes of b., c. and
d. above, an Individual's surviving spouse will be deemed to be his or
her designated beneficiary with respect to any payments to be made to
a child of the Individual if the remainder of such child's interest in
the Trust Account becomes payable to the Individual's surviving spouse
when the child reaches the age of majority.
<PAGE>
ADMINISTRATION
VI. Except as otherwise provided in this Plan, the Trustee shall exercise
as agent on behalf of the Individual, his or her spouse, and any
beneficiary any and all powers such persons themselves could exercise
as an owner of the property held, including but not limited to the
following powers:
(1) To receive contributions or a Rollover Contribution pursuant to
the provisions of this Plan;
(2) To hold, invest and reinvest the contributions or a Rollover
Contribution in investments permitted by the provisions of
Article IV hereof, or in any combination of such permitted
investments, in such percentages as the Individual shall specify
from time to time;
(3) To register any property held by the Trustee in its own name, or
in nominee or bearer form that will pass delivery; and
(4) To make distributions from the Trust Account in cash or in Fund
Shares or in an annuity contract pursuant to the provisions of
this Plan.
The Trustee shall mail to the Individual all proxies, proxy soliciting
materials, and periodic reports or other communications that may come
into the Trustee's possession by reason of its custody of Fund Shares.
Upon receipt from the Individual of a signed proxy, the Trustee shall
forward it to the soliciting Fund, it being intended that the
Individual shall vote the proxy, notwithstanding the fact that the
Trustee may be the registered owner of the shares, and the Trustee
shall have no further liability or responsibility with respect to the
voting of such shares.
The Trustee shall keep accurate and detailed account of its receipts,
investments and disbursements. As soon as practicable after December
31st each year, and whenever required by Regulations adopted by the
Internal Revenue Service under the Act or the Code, the Trustee shall
file with the Individual a written report of the Trustee's
transactions relating to the Trust Account during the period from the
last previous accounting and the then value of the Trust Account, and
shall file such other reports with the Internal Revenue Service as may
be required by its Regulations.
Upon the expiration of sixty (60) days following its receipt, the
Individual shall be deemed to have approved such report, and the
Trustee shall be forever released and discharged with respect to all
matters reflected therein, except as to such matters as the Individual
may indicate by written objection received by the Trustee within said
sixty (60) day period. The Trustee may seek a judicial settlement of
its accounts. In any such proceeding the only necessary party thereto
in addition to the Trustee shall be the Individual.
The Trustee shall use ordinary care and reasonable diligence in the
performance of its duties as Trustee. The Trustee shall not be liable
for a mistake in judgment, for any action taken in good faith, or for
any loss that is not the result of gross negligence, except as
provided by the Act if applicable and regulations promulgated thereby.
The Individual agrees to indemnify and hold the Trustee harmless from
and against any liability that the Trustee may incur in the
administration of the Trust Account, unless arising from the Trustee's
own gross negligence or willful misconduct.
The Trustee shall be under no duty to question the amount of any
contribution or any direction of the Individual in respect to the
investment of contributions, including a Rollover Contribution, or to
make suggestions to the Individual with respect to the investment,
retention or disposition of any contributions, including a Rollover
Contribution, or assets held in the Trust Account.
Unless otherwise instructed by the Individual, the Trustee shall pay
out of the Trust Account expenses of administration, including the
fees of counsel employed by the Trustee, taxes, its fees for main-
<PAGE>
taining the Trust Account (which are set forth in the Application
or any subsequently amended Application), and any additional expenses
or charges incurred by reason of the Individual's direction of the
investment of a Rollover Contribution. The Trustee may sell Trust
Account assets to pay the forgoing expenses. The Trustee may resign as
Trustee of any Individual's Trust Account or as Trustee of all
accounts adopted under the provisions of this Plan, in either case
upon sixty (60) days' prior notice to CGM and thirty (30) days' prior
notice to each Individual who will be affected by such resignation.
CAPITAL GROWTH MANAGEMENT
VII. The Individual delegates to Capital Growth Management the following
powers with respect to the Plan: (i) to remove the Trustee upon sixty
(60) days' prior notice to the Trustee, and to select a successor
Trustee; (ii) to establish the fees of the Trustee by agreement with
the Trustee; and (iii) to amend this Plan as provided in Article VIII
hereof (except the power to amend the Individual's entries on the
Application).
The powers herein delegated to Capital Growth Management shall be
exercised by such officer thereof as Capital Growth Management may
designate from time to time, and shall be exercised only when
similarly exercised with respect to all other Individuals adopting the
Plan.
Neither the Funds nor Capital Growth Management, any officer,
director, board, committee, employee or other member of the Funds or
Capital Growth Management 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 Capital Growth Management.
If Capital Growth Management shall hereafter determine that it is no
longer desirable for Capital Growth Management to continue to exercise
any of the powers hereby delegated to Capital Growth Management, 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 Capital Growth Management proposes to discontinue its
exercise of the powers delegated to it.
AMENDMENT AND TERMINATION
VIII. The Individual delegates to Capital Growth Management the power to
amend this Plan (including retroactive amendment).
The Individual may amend his or her Application (including retroactive
amendment) by submitting to the Trustee (i) a copy of such amended
Application, and (ii) evidence satisfactory to the Trustee that the
Plan as amended by such amended Application will continue to qualify
as an Individual Retirement Account under the provisions of Section
408 of the Code.
No amendment shall be effective if it would cause or permit: (i) any
part of the Trust Account to be diverted to any purpose that is not
for the exclusive benefit of the Individual and his or her
beneficiaries; (ii) the Individual to be deprived of any portion of
his or her interest in the Trust Account, unless such action is taken
in order to satisfy qualification requirements under the Code; or
(iii) the imposition of an additional duty on the Trustee without its
consent.
The Individual reserves the right to terminate his or her adoption of
this Plan by instrument in writing signed by him or her and filed with
the Trustee.
DEFINITIONS
IX. Whenever used in this Plan, the following terms shall have the
meanings set forth below unless otherwise expressly provided herein:
A. "Compensation" means wages, salaries, professional fees, or other
amounts derived from or received for personal service actually ren-
<PAGE>
dered (including, but not limited to, commissions paid to salesmen,
compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, and bonuses) and includes
earned income as defined in Section 401(c)(2) of the Code (reduced by
the deduction the self-employed individual takes for contributions
made to a Keogh plan). Compensation does not include amounts derived
from or received as earnings or profits from property (including, but
not limited to, interest and dividends) or amounts not includable in
gross income. Compensation also does not include any amount received
as a pension or annuity or as deferred compensation. Any amount
includable in the Individual's gross income under Section 71 of the
Code with respect to a divorce or separation instrument described in
Section 71(b)(2)(A) of the Code shall be included as compensation.
B. "Fund Shares" means the common stock issued by the Funds described in
Article IV as eligible investments.
C. "Rollover Contribution" means a rollover contribution as described in
Section 402(a)(5), Section 403(a)(4), Section 403(b)(8) or Section 408
(d)(3) of the Code, as amended, and regulations promulgated
thereunder. The Individual shall have the exclusive responsibility for
determining whether an amount contributed as a Rollover Contribution
is properly described in the applicable Section of the Code.
PLEASE NOTE:
The CGM Funds Individual Retirement Account, as described herein, has
been approved by the Internal Revenue Service. A copy of the
determination letter issued by the Internal Revenue Service with
respect to the CGM Funds Individual Retirement Account is reproduced
on page 15. Internal Revenue Service approval is only an approval of
the form of the plan, however, and cannot be considered a
determination as to the merits of the plan.
<PAGE>
IRS APPROVAL LETTER
INTERNAL REVENUE SERVICE
Plan Name: IRA Trust
FFN: 50195840000-001 Case: 9070148 EIN: 04-3076053
Letter Serial No: D112763a
CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
ONE INTERNATIONAL PLACE
BOSTON, MA 02110
DEPARTMENT OF THE TREASURY
Washington, DC 20224
Person to Contact: Mr. Welty
Telephone Number: (202) 566-4111
Refer Reply to: E:EP:Q:2
Date: 03/22/91
Dear Applicant:
In our opinion, the form of the prototype trust, custodial
account or annuity contract identified above is acceptable under section 408 of
the Internal Revenue Code, as amended by the Tax Reform Act of 1986.
Each individual who adopts this approved plan will be considered to have a
retirement savings program that satisfies the requirements of Code section 408,
provided they follow the terms of the program and do not engage in certain
transactions specified in Code section 408 (e). Please provide a copy of this
letter to each person affected.
The Internal Revenue Service has not evaluated the merits of this savings
program and does not guarantee contributions or investments made under the
savings program. Furthermore, this letter does not express any opinion as to
the applicability of Code section 4975, regarding prohibited transactions.
Code section 408(i) and related regulations require that the trustee, custodian
or issuer of a contract provide a disclosure statement to each participant in
this program as specified in the regulations. Publication 590, Tax Information
on Individual Retirement Arrangements, gives information about the items to be
disclosed.
The trustee, custodian or issuer of a contract is also required to provide each
adopting individual with annual reports of savings program transactions.
Your program may have to be amended to include or revise provisions in order to
comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case, call us at the
above telephone number. Please refer to the Letter Serial Number and File Folder
Number shown in the heading of this letter. Please provide those adopting this
plan with your phone number, and advise them to contact your office if they have
any questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us if you
terminate the form of this plan.
Sincerely yours,
/s/ John Swieca
John Swieca
Chief, Employee Plans
Qualifications Branch
CGM FUNDS * P.O. BOX 449 * BOSTON, MA 02117 * 800-345-4048
<PAGE>
PLEASE USE THIS FORM WHEN ROLLING ASSETS FROM A
QUALIFIED RETIREMENT PLAN OR 403(b)(7) PLAN DIRECTLY See Reverse Side For
TO CGM FOR INVESTMENT INTO AN IRA IRA Transfer Form
- --------------------------------------------------------------------------------
DIRECT ROLLOVER FORM
- --------------------------------------------------------------------------------
IMPORTANT: Please complete this form and send it to CGM with an IRA Application,
IRA Rollover Certification form and $5.00. CGM will send your employer a formal
acceptance letter, as well as this authorization form.
TO: ( )
- --------------------------------------------------------------------------------
Name of Current Employer/Plan Administrator Telephone Number
- --------------------------------------------------------------------------------
Address City State Zip Code
RE:
- --------------------------------------------------------------------------------
Name of Employee Type of Plan Account Number
[] I have established an Individual Retirement Account with the CGM Funds and
have appointed State Street Bank and Trust Company as my IRA Plan Trustee.
I authorize you to send my qualified plan distribution to State Street
Bank as a direct rollover.
[] Please accept this as your authorization to (check one):
[] Liquidate and transfer $ or % ------- of my plan assets held by you in
the above account as a direct rollover.
[] Liquidate and transfer all of my plan assets held by you in the above
account as a direct rollover.
[] Please process this transaction as follows, effective (check one):
[] Immediately [] Upon maturity of my assets
[] MAKE CHECK PAYABLE TO THE SPECIFIC CGM FUND IN WHICH YOU ARE INVESTING.
State Street Bank and Trust Company, Trustee for the IRA
Direct Rollover of:
----------------------------------------------------------
Participant Name Social Security Number
----------------------------------------------------------
CGM Fund(s) CGM Account Number*
*(If existing IRA account with CGM, indicate your CGM
account number. If new, write "new" and complete IRA Account
Application.)
[] Send check to: CGM Funds c/o State Street Bank and Trust Company,
P.O. Box 8511, Boston, MA 02266-8511
- ----------------------------------------- -----------------------------------
YOUR SIGNATURE DATE Your Street Address
Signature Guarantee -----------------------------------
(if required by current Plan Trustee) City State Zip Code
Name of Firm: --------------------------- ( )
By: ------------------------------------- -------------------------------------
Authorized Individual Your Daytime Phone Number
- ------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY HEREBY ACCEPTS FUNDS WHICH YOU HOLD.
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE, STATE STREET BANK AND TRUST COMPANY DATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To be completed by Employer/Plan Administrator if Customer is age
70 1/2 or older.
If this direct rollover is being made during or after the year in which you
turn 70 1/2, you cannot rollover any distribution which would constitute a
required minimum distribution from the distributing plan. Please check with
your Plan Administrator for more information about minimum distributions.
Please complete the following information concerning your distributions:
1. Date of Birth of the Designated (measuring) Beneficiary being used to
calculate minimum required distributions with respect to the transferor plan:
----------------- .
2. Life expectancy of the Participant ------- [] was ------- [] was not being
recalculated.
3. Life expectancies of the Participant and/or Spouse Beneficiary -------- []
were ------ [] were not being recalculated.
- ------------------------------------------------------------------------------
RETURN THIS FORM TO: THE CGM FUNDS * P.O. BOX 449 * BOSTON, MA 02117-0449
<PAGE>
PLEASE USE THIS FORM WHEN MOVING ASSETS See Reverse Side For
DIRECTLY FROM ONE IRA TO ANOTHER IRA Direct Rollover Form
- --------------------------------------------------------------------------------
IRA TRANSFER FORM
- --------------------------------------------------------------------------------
IMPORTANT: CGM will send a formal letter of instruction along with this IRA
Transfer form to your current Trustee or Custodian. To ensure timely
processing of your transfer, please call your current Trustee or Custodian and
verify the correct address of their transfer department and any transfer
requirements, such as a signature guarantee.
TO:
( )
- ------------------------------------------------------------------------------
Name of Current Trustee or Custodian Telephone Number
- --------------------------------------------------------------------------------
Address City State Zip Code
RE:
- ------------------------------------------------------------------------------
Name of Investment Account Number
(Please check one): [] Regular IRA [] Rollover IRA [] SEP IRA
[] I have established an Individual Retirement Account with the CGM Funds
and have appointed State Street Bank and Trust Company as the Successor
Trustee.
[] Please accept this as your authorization to (check one):
[] Liquidate and transfer $ or % ------- of my IRA assets held by you in the
above account.
[] Liquidate and transfer all of my IRA assets held by you in the above
account.
[] Please process this transaction as follows, effective (check one):
[] Immediately [] Upon maturity of my assets
[] MAKE CHECK PAYABLE TO THE SPECIFIC CGM FUND IN WHICH YOU ARE INVESTING.
State Street Bank and Trust Company, Trustee for the IRA
of:
----------------------------------------------------------
Participant Name Social Security Number
----------------------------------------------------------
CGM Fund CGM Account Number*
*(If existing IRA account with CGM, indicate your CGM
account number. If new, write "new" and complete IRA Account
Application.)
[] Send check to: CGM Funds, c/o State Street Bank and Trust Company,
P.O. Box 8511, Boston, MA 02266-8511
- --------------------------------------- -------------------------------------
YOUR SIGNATURE DATE Your Street Address
- -----------------------------------
Signature Guarantee -------------------------------------
(if required by current Trustee) City State Zip Code
Name of Firm: -------------------------- ( )
By: ------------------------------------ --------------------------------------
Authorized Individual Your Daytime Phone Number
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY HEREBY ACCEPTS FUNDS WHICH YOU HOLD.
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE, STATE STREET BANK AND TRUST COMPANY DATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please complete if you are 70 1/2 or older.
If this transfer is being made during or after the year in which you turn age
70 1/2, you cannot transfer any distribution which would constitute a
required minimum distribution from the distributing IRA. Please check with
your current IRA Trustee or Custodian for more information about minimum
distributions. Please complete the following information concerning your
distributions:
1. Date of Birth of the Designated (measuring) Beneficiary being used to
calculate minimum required distributions with respect to the transferor plan:
----------------- .
2. Life expectancy of the Participant ------- [] was ------- [] was not being
recalculated.
3. Life expectancies of the Participant and/or Spouse Beneficiary -------- []
were ------ [] were not being recalculated.
- ------------------------------------------------------------------------------
RETURN THIS FORM TO: THE CGM FUNDS * P.O. BOX 449 * BOSTON, MA 02117-0449
IRATRAN94
<PAGE>
THE CGM FUNDS IRA ACCOUNT APPLICATION
- ------------------------------------------------------------------------------
1. ACCOUNT INFORMATION
Name ------------------------------------------------------------------------
Social Security # -----------------------------------------------------------
Address ---------------------------------------------------------------------
-----------------------------------------------------------------------------
Date of Birth ---------------------------------------------------------------
Employer/Occupation ---------------------------------------------------------
Daytime Telephone Number ( ) ----------------------------------------------
2. INITIAL CONTRIBUTION INFORMATION (MINIMUM $1,000)
The enclosed check represents: (If two options are selected below, please
specify contribution amount for each option.)
[] Contribution for ---- current year ---- prior year
[] SEP IRA Contribution ---- current year ---- prior year
[] Rollover contribution from another IRA. PLEASE COMPLETE IRA
ROLLOVER CERTIFICATION FORM AND THE REST OF THIS FORM.
[] Direct Rollover from a qualified pension, profit sharing or 403(b) plan
sent to CGM by my employer. PLEASE COMPLETE DIRECT ROLLOVER FORM, IRA
ROLLOVER CERTIFICATION FORM AND THE REST OF THIS FORM.
[] Indirect Rollover from a qualified pension, profit sharing or 403(b)
plan. PLEASE COMPLETE IRA ROLLOVER CERTIFICATION FORM AND THE REST OF THIS
FORM.
[] Transfer of assets from another IRA or SEP IRA. PLEASE COMPLETE ASSET
TRANSFER FORM AND THE REST OF THIS FORM.
3. INVESTMENT SELECTION
$ ------ CGM Mutual Fund
$ ------ CGM Realty Fund
(CGM Realty Fund is not available in certain states, as described in
the CGM Realty Fund prospectus.)
$ ------ CGM Fixed Income Fund
$ ------ CGM Capital Development Fund
(CGM Capital Development Fund is closed. Please see Section 9,
"Who Can Purchase Shares of CGM Capital Development Fund", on the back
of this application. If you are eligible, please check this box []
and fill in your existing CGM Capital Development Fund
account number ------------------------- .)
$ ------ New England Cash Management Trust
[] Money Market Series
[] U.S. Government Series
5.00
$ ------ INITIAL APPLICATION FEE
(Required for all accounts.)
$ ------ AMOUNT OF CHECK ENCLOSED
MAKE ALL CHECKS PAYABLE TO THE SPECIFIC CGM FUND(S) IN WHICH YOU ARE INVESTING.
------------------------------------------------------------------------------
4. AUTOMATIC INVESTMENT PLAN
(Allow 10 business days for Plan to start.)
You can have us move $50 or more on the same day each month from your bank
account into your fund account. To elect this option please:
[] ATTACH A VOIDED CHECK FROM THE BANK ACCOUNT YOU WILL BE USING.
[] FILL IN THE INFORMATION REQUESTED BELOW.
Please invest $ ------- in CGM ----------------------------------------- Fund
on or about: (Specify Fund name)
[] 5th day of each month
[] 20th day of each month
(5TH WILL BE SELECTED IF NO BOX IS CHECKED)
As a convenience to me, you are hereby requested and authorized to pay and
charge to my account Automated Clearing House (ACH) debits drawn on my account
by and payable to the order of The CGM Funds. This authority is to remain in
effect until revoked by me in writing and, until you actually receive such
notice, I agree you will be fully protected in honoring any such debits.
-----------------------------------------------------------------------------
Name of Bank Bank Account Number
-----------------------------------------------------------------------------
Name of Depositor(s) as Shown on Bank Records
-----------------------------------------------------------------------------
Signature
-----------------------------------------------------------------------------
Signature (if joint bank account)
5. TELEPHONE EXCHANGE PRIVILEGES
[] Yes [] No
This service enables you to exchange monies ($1,000 minimum) by telephone
among accounts with the same registration in the CGM Funds or New England
Money Market Funds. CGM Capital Development Fund is closed. Please see
Section 9 for full details. CGM Realty Fund is not available in certain
states, as described in that Fund's prospectus. By completing this section,
you authorize the Fund and its agents to accept and act upon telephone
instructions from you and acknowledge receipt of the current prospectus of
the Fund into which the exchange is made.
6. SIGNATURE
By signing below, I certify that I agree to the provisions on the reverse
side listed in Section 8.
PLEASE SIGN HERE:
X --------------------------------------------- -----------------
Signature Date
PLEASE COMPLETE BENEFICIARY INFORMATION ON REVERSE SIDE.
- -------------------------------------------------------------------------------
FOR FUND USE ONLY
- -------------------------------------------------------------------------------
Social Code: ------------------------------------------------------------------
Deposit: $ --------------------------------------------------------------------
Fee: $ ------------------------------------------------------------------------
Trade Date: -------------------------------------------------------------------
Accepted by State Street Bank and Trust Company, Trustee
/s/ Douglass L. Coyne
by ---------------------------------------------------------------------------
A statement will be sent to you confirming the above transactions and will
serve as notification of State Street Bank's acceptance. Please note that you
will be charged each year $10.00 per mutual fund account as an annual
maintenance fee.
SEND APPLICATION TO: CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117-0449
(OVER)
IRAAPP94
<PAGE>
- -------------------------------------------------------------------------------
DESIGNATION OF BENEFICIARY
- -------------------------------------------------------------------------------
7. BENEFICIARY DESIGNATION
This Beneficiary Designation is to be used to indicate the person or persons
to whom the IRA assets should be turned over in the event of your death. If
you are not survived by a validly designated beneficiary, your benefits will
be paid to your estate in the event of your death. IMPORTANT: If you do not
designate a beneficiary or if the beneficiary designated is not a person, you
cannot base your calculations for distributions on joint life expectancy.
The Beneficiaries named herein and the manner of distribution may be changed
or revoked at any time by filing a new designation in writing with the
Trustee. This designation, and any changes or revocation, will only be
effective upon receipt by the Trustee. PLEASE RETAIN A COPY FOR YOUR RECORDS.
Upon my death, distribute my CGM Individual Retirement Account in equal
shares to the following Principal Beneficiaries who survive me or, if none
survives me, in equal shares to the following Secondary Beneficiaries who
survive me: (Please complete the information below)
Principal Beneficiary(ies)
Name Address Relationship
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Secondary Beneficiary(ies)
Name Address Relationship
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
PLEASE SIGN HERE:
X ------------------------------------------------ -----------------------
Signature of IRA Owner Date
---------------------------------------------------------------------------
8. PROVISIONS
By signing this application establishing an IRA, I (i) appoint State
Street Bank and Trust Company, or its successors, as Trustee of the
Account, (ii) state that I have received, read, accept, and specifically
incorporate the Trust and Disclosure Statement by reference to this
application, (iii) acknowledge receipt of the current prospectus of the
mutual fund(s) selected, (iv) consent to the Trustee's fee, (v) agree to
promptly give instructions to the Trustee necessary to enable the Trustee
to carry out its duties under the Trust, (vi) represent that whenever
information as to any taxable year is required to be filed with the
Internal Revenue Service by the Trustee unless filed by me, I will file
such information with the Internal Revenue Service, (vii) affirm that my
participation is completely voluntary, and (viii) confirm that my employer
has made no specific endorsement of the choice of investments available
under this plan and (ix) certify under penalties of perjury that the
social security number provided above is correct. I hereby adopt The CGM
Individual Retirement Plan upon the terms and conditions thereof.
[] If I have enrolled in the "AUTOMATIC INVESTMENT PLAN" in Section 4, I
authorize the Fund and its agents to initiate Automated Clearing House
(ACH) debits against the designated account at a bank or other financial
institution. I understand that:
-- I will receive a confirmation of each purchase of Fund shares and that
the deduction from my bank account will appear on my bank statement.
-- Fund shares purchased by Automatic Investment Plan must be owned for 10
days before they may be redeemed.
-- I may terminate my Automatic Investment Plan by sending written notice
to CGM Funds c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511, 15 days
prior to my next scheduled debit date.
-- The CGM Funds may immediately terminate my Plan in the event that any
item is unpaid by my financial institution.
-- The Fund may terminate or modify this privilege at any time.
[] If I have elected the "TELEPHONE EXCHANGE" service, I understand that the
Fund may terminate or modify this privilege at any time. The Fund will
employ reasonable procedures to confirm that instructions received by
telephone are genuine, such as requesting personal identification
information that appears on your account application and recording the
telephone conversation. You will bear the risk of loss due to unauthorized
or fraudulent instructions regarding your account, although the Fund may
be liable if reasonable procedures are not employed.
9. WHO CAN PURCHASE SHARES OF CGM CAPITAL DEVELOPMENT FUND
Only shareholders of the Fund as of September 24,1993 who remain shareholders
thereafter may purchase additional shares of the Fund. The Fund reserves the
right to reject any purchase order. This policy supersedes all previous
eligibility requirements. Fund shares are not generally available to other
persons except in special circumstances that have been approved by, or under
the authority of, the board of trustees of the Fund. The special
circumstances currently approved by the board of trustees of the Fund are
limited to the offer and sale of shares of the Fund to the following
additional persons: trustees of the Fund, employees of the Investment Manager
and counsel to the Fund and the Investment Manager.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THE CGM FUNDS(R)
- -------------------------------------------------------------------------------
SIMPLIFIED
- -------------------------------------------------------------------------------
EMPLOYEE
- -------------------------------------------------------------------------------
PENSION
- -------------------------------------------------------------------------------
PLAN
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[Logo] ------------------------------------------------------------------------
-------------------------------------------------------------------------
<PAGE>
[LOGO]
THE CGM FUNDS SEP-IRA
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page 4 Employer's Checklist for Setting Up a New SEP-IRA
Page 5 Eligibility Form
Page 6 Adoption Agreement Instructions
Page 7 Adoption Agreement
Page 9 SEP-IRA Application and Beneficiary Form
Page 11 SEP-IRA Transfer Form
Page 13 SEP Summary Form for Employees
Page 14 Contribution Worksheets
Page 17 Basic Plan Document
Page 19 IRS Opinion Letter
<PAGE>
Employer's Checklist for Setting Up a New SEP-IRA
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[1] DETERMINE WHETHER YOU ARE ELIGIBLE TO ESTABLISH A SEP-IRA
x Review the Basic Plan Document on page 17 with your attorney or tax
adviser.
x Complete the Eligibility Form on page 5.
- -------------------------------------------------------------------------------
[2] PLEASE COMPLETE THESE FORMS
x Complete the Adoption Agreement on page 7 and make an extra copy for
your files. See Adoption Agreement Instructions on page 6.
x Ask each participant to complete a copy of the SEP-IRA Application and
Beneficiary Form on page 9 (and also the Transfer Form on page 11 if
assets are being transferred from another SEP Plan). You may photocopy
extra copies of both forms, if necessary.
x Complete the SEP Summary for Employees Form on page 13 and distribute a
copy to each participant along with the Employee Information Booklet
and the CGM Funds Individual Retirement Account Booklet. (Please call
us at 800-345-4048 to let us know how many of each booklet you will
need for your employees.) Retain a copy of the SEP Summary for
Employees Form for your files.
- -------------------------------------------------------------------------------
[3] RETURN THESE ITEMS TO: CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117
x Eligibility Form (page 5)
x Adoption Agreement (page 7)
x SEP-IRA Application Form for each participant (page 9)
x SEP-IRA Transfer Form for each participant who is transferring assets
to CGM (page 11)
x Investment check payable to "State Street Bank and Trust Company"
x Application fee check for $5 payable to "State Street Bank and Trust
Company." You may include the $5 application fee in your investment
check.
- -------------------------------------------------------------------------------
[4] PLEASE NOTE
The minimum initial investment is $1000 per account. There is a $5
application fee for each participant; and a $10 annual maintenance fee
will be charged per mutual fund account.
Future contributions made by the employer into each participant's account
must meet the minimum additional investment of $50 per account. Also, all
such contributions must be designated as "employer contributions."
Employees may not make SEP-IRA contributions. All contributions must be
made by the employer on behalf of the employee.
You must distribute copies of the prospectuses for The CGM Funds to your
employees before you make contributions on their behalf. Please call
800-345-4048 if you need additional copies of the prospectuses or have
questions about your SEP-IRA.
===============================================================================
<PAGE>
ELIGIBILITY FORM
- -------------------------------------------------------------------------------
The following questions are designed to help employers, together with their
attorneys and tax advisers, determine whether they are eligible to adopt a
prototype SEP-IRA plan. Please answer the following questions and sign below.
YES NO
[ ] [ ] Are you the owner of a business or the person authorized by a business
to establish a SEP-IRA plan?
If the answer is "NO", please STOP. You are NOT ELIGIBLE to establish
this plan.
[ ] [ ] Has your business ever maintained a defined benefit plan which is now
terminated?
If the answer is "YES", please STOP. You are NOT ELIGIBLE to establish
this plan.
If you answer "YES" to any of the questions below, you may have to
include leased employees and/or employees of other business(es) in
your SEP-IRA Plan. Please consult your tax adviser to determine what
additional action, if any, you must take.
[ ] [ ] Is the business a member of a controlled group of corporations,
businesses or trades, (whether or not incorporated) within the meaning
of IRC Section 414(b) or 414(c)?
[ ] [ ] Is the business a member of an affiliated service group within the
meaning of IRC Section 414(m)?
[ ] [ ] Does the business use the services of leased employees within the
meaning of IRC Section 414(n)?
SIGNATURE:
I certify that I am an authorized representative of the employer and that the
employer is eligible to establish this SEP-IRA Plan. In determining my
eligibility to adopt this plan, I relied solely upon the advice of my own
advisers, and I agree not to hold Capital Growth Management Limited Partnership,
CGM Trust, CGM Capital Development Fund or State Street Bank and Trust Company
responsible for any liabilities that I may suffer as a result of being found
ineligible to establish this SEP-IRA Plan.
- -------------------------------------------------------------------------------
Name of Employer (Please print or type)
X
- -------------------------------------------------------------------------------
Signature of Employer Date Executed
===============================================================================
<PAGE>
INSTRUCTIONS FOR ESTABLISHING THE STANDARD SIMPLIFIED EMPLOYEE PENSION PLAN
- -------------------------------------------------------------------------------
These instructions are designed to help you, the employer, along with your
attorney and/or tax advisor, establish your SEP plan. The instructions are meant
to be used only as a general guide and are not intended as a substitute for
qualified legal or tax advice.
ADOPTION AGREEMENT
If you wish to have us, the financial organization sponsoring this prototype
plan, help you fill out the Adoption Agreement, we will do so. However, we
recommend that you obtain the advice of your legal or tax advisor before you
sign the Adoption Agreement.
This Adoption Agreement is a one-page form that needs to be completed and signed
by the Employer. We recommend that you, as Employer, retain a photocopy of the
completed Adoption Agreement with your permanent records.
- --------------------------------------------------------------------------------
SECTION 1. EMPLOYER INFORMATION
- --------------------------------------------------------------------------------
Fill in the requested information.
- --------------------------------------------------------------------------------
SECTION 2. EFFECTIVE DATES
- --------------------------------------------------------------------------------
This SEP plan is either a new plan (an initial adoption) or an amendment and
restatement of an existing SEP plan.
If this is a new SEP plan, check Option A and fill in the effective date. The
effective date is usually the first day of the plan year in which this Adoption
Agreement is signed. For example, if an employer maintains a plan on a calendar
year basis and this Adoption Agreement is signed on September 24, 1995, the
effective date would be January 1, 1995.
If the reason you are adopting this plan is to amend and replace an existing SEP
plan, check Option B. The existing SEP plan which will be replaced is called a
"prior plan." You will need to know the effective date of the prior plan. The
best way to determine its effective date is to refer to the prior plan Adoption
Agreement. The effective date of this amendment and restatement is usually the
first day of the plan year in which the Adoption Agreement is signed.
- --------------------------------------------------------------------------------
SECTION 3. ELIGIBILITY REQUIREMENTS
- --------------------------------------------------------------------------------
NOTE: SECTION 3 SHOULD BE COMPLETED EVEN IF YOU DO NOT HAVE EMPLOYEES.
Within limits, you, as the employer, can specify the number of years your
employees must work for you and the age they must attain before they are
eligible to participate in this plan. Note that the eligibility requirements
which you set up for the plan also apply to you.
Suppose, for example, you establish a service requirement of three of the
immediately preceding five years and an age requirement of 21. In that case,
only those employees (including yourself) who have worked for you for three of
the immediately preceding five years and are at least 21 years old are eligible
to participate in this plan.
PART A. YEARS OF ELIGIBILITY SERVICE REQUIREMENT
Fill in the number of years of service (0, 1, 2 or 3). This number must be
either 0, 1, 2 or 3.
PART B. AGE REQUIREMENT
Fill in the age an employee must attain (no more than 21) to be eligible to
participate in the plan.
PART C. CLASS OF EMPLOYEES ELIGIBLE TO PARTICIPATE
1. Generally you are permitted to exclude employees covered by the terms of a
collective bargaining agreement (e.g., a union agreement) where retirement
benefits were bargained for and those employees who are nonresident aliens
with no U.S. income. If you wish to exclude those employees, check the first
box under Section 3, Part C.
2. You are permitted to exclude those employees who have received less than
$300 (indexed for cost of living increases) of compensation during the plan
year. If you want to exclude those employees, check the second box under
Section 3, Part C.
- -------------------------------------------------------------------------------
SECTION 4. EMPLOYER CONTRIBUTION AND ALLOCATION FORMULA
- -------------------------------------------------------------------------------
PART A. CONTRIBUTION FORMULA
Because a SEP plan allows for flexible contributions, the amount of the
contribution will be determined from year to year. There are no blanks to be
completed in Part A.
PART B. ALLOCATION FORMULA
Once the contribution amount has been decided for a plan year, it must be
allocated among the participants in the plan. The contribution can be allocated
using either a pro rata formula or an integrated formula. Check either Option 1
or 2.
OPTION 1. PRO RATA FORMULA
Check this option if you wish to have the contribution allocated to all
qualifying participants based on their compensation for the plan year.
OPTION 2. INTEGRATED FORMULA
Check this option if the plan is to be integrated. Generally, integration
is a method of giving some participants in the plan an extra contribution
allocation. Because of the complexity of integration, you should consult
your tax advisor regarding this issue.
- -------------------------------------------------------------------------------
SECTION 5. EMPLOYEE SIGNATURE
- -------------------------------------------------------------------------------
An authorized representative of the employer must sign and date the Adoption
Agreement. In addition, the prototype sponsor must provide its name, address and
telephone number.
(C)1995 Universal Pensions, Inc., Brainerd, MN 56401
===============================================================================
<PAGE>
THE CGM FUNDS SIMPLIFIED EMPLOYEE PENSION PLAN ADOPTION AGREEMENT
FENCER LOGO
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECTION 1. EMPLOYER INFORMATION
- -------------------------------------------------------------------------------
Name of Employer _____________________________________________________________
Address ______________________________________________________________________
_______________________________________________________________________________
Telephone ____________________________________________________________________
Federal Tax Identification Number ____________________________________________
Income Tax Year End ___________________________________________________________
(month) (day)
Plan Year End ________________________________________________________________
(month) (day)
- -------------------------------------------------------------------------------
SECTION 2. EFFECTIVE DATES
- -------------------------------------------------------------------------------
Check and complete Option A or B
OPTION A.
[ ] This is the initial adoption of a Simplified Employee Pension plan by the
Employer.
The Effective Date of this Plan is ___________________________, 19__.
NOTE: The effective date is usually the first day of the Plan Year in which
this Adoption Agreement is signed.
OPTION B.
[ ] This is an amendment and restatement of an existing Simplified Employee
Pension plan (a Prior Plan).
The Prior Plan was initially effective on ________________________, 19__.
The Effective Date of this amendment and restatement is ____________, 19__.
NOTE: The effective date is usually the first day of the Plan Year in which
this Adoption Agreement is signed.
- -------------------------------------------------------------------------------
SECTION 3. ELIGIBILITY REQUIREMENTS
- -------------------------------------------------------------------------------
Complete Parts A, B and C
PART A. SERVICE REQUIREMENT
An Employee will be eligible to become a Participant in the Plan after having
performed Service for the Employer during at least ________________________
(enter 0, 1, 2 or 3) of the immediately preceding 5 Plan Years.
NOTE: If left blank, the Service Requirement will be deemed to be 0.
PART B. AGE REQUIREMENT
An Employee will be eligible to become a Participant in the Plan after attaining
age _______________________________ (no more than 21).
NOTE: If left blank, it will be deemed there is no age requirement for
eligibility.
PART C. CLASS OF EMPLOYEES ELIGIBLE TO PARTICIPATE
All Employees shall be eligible to become a Participant in the Plan, except the
following (if checked):
[ ] Certain Employees covered by a collective bargaining agreement and
nonresident aliens, as described in Section 3.02 of the Plan.
[ ] Those Employees who have received less than $300 (indexed for cost of
living increases in accordance with Section 408(k)(8) of the Code) of
Compensation from the Employer during the Plan Year.
- -------------------------------------------------------------------------------
SECTION 4. EMPLOYER CONTRIBUTION AND ALLOCATION FORMULA
- -------------------------------------------------------------------------------
PART A. CONTRIBUTION FORMULA
For each Plan Year the Employer will contribute an amount to be determined from
year to year.
PART B. ALLOCATION FORMULA (Check Option 1 or 2)
OPTION 1. PRO RATA FORMULA.
[ ] The Employer Contribution for each Plan Year shall be allocated to the IRA
of each Participant in the same proportion as such Participant's
Compensation (not in excess of $200,000, indexed for cost of living
increases in accordance with Section 408(k)(8) of the Code) for the Plan
Year bears to the total Compensation of all Participants for such year. The
amount allocated to each Participant's IRA shall be limited to the lesser
of 15 percent of the first $200,000 (indexed) of the Participant's
Compensation or $30,000.
- -------------------------------------------------------------------------------
NOTE: See the Basic Plan Document, Section 2.03, seventh paragraph for OBRA '93
changes in the compensation limit.
- -------------------------------------------------------------------------------
OPTION 2. INTEGRATED FORMULA.
[ ] Employer Contributions shall be allocated in the manner described in
Section 4.01(B) of the Plan.
For purposes of the integrated formula, the integration level shall be
(Choose one):
OPTION 1. [ ] The Taxable Wage Base (TWB)
OPTION 2. [ ] ___% of the TWB level shall be the Taxable Wage Base.
NOTE: If no box is checked, the integration level shall be the Taxable Wage
Base.
- -------------------------------------------------------------------------------
SECTION 5. EMPLOYER SIGNATURE
- -------------------------------------------------------------------------------
X
- -------------------------------------------------------------------------------
Signature for Employer Date Signed
- -------------------------------------------------------------------------------
(Type Name)
Capital Growth Management Limited Partnership
- -------------------------------------------------------------------------------
Name of Prototype Sponsor
222 Berkeley Street, Suite 1013, Boston, MA 02116
- -------------------------------------------------------------------------------
Address
(617) 859-7714 or (800) 345-4048
- -------------------------------------------------------------------------------
Telephone Number
Note to Employer: Before signing this Adoption Agreement, you should obtain the
advice of a qualified attorney and tax advisor regarding its completion and the
legal and tax implications of adopting this Plan.
(C)1995 Universal Pensions, Inc., Brainerd, MN 56401
===============================================================================
<PAGE>
===============================================================================
THE CGM FUNDS SEP-IRA ACCOUNT APPLICATION
===============================================================================
- -------------------------------------------------------------------------------
1. ACCOUNT INFORMATION
- -------------------------------------------------------------------------------
Name _________________________________________________________________________
Social Security # [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ]
Address ______________________________________________________________________
_______________________________________________________________________________
Date of Birth ________________________________________________________________
Employer/Occupation __________________________________________________________
Daytime Telephone Number (____)________________________________________________
- -------------------------------------------------------------------------------
2. INITIAL CONTRIBUTION INFORMATION (MINIMUM $1000)
- -------------------------------------------------------------------------------
The enclosed check represents:
(If more than one option is selected below, please specify the contribution
amount for each option.)
[ ] SEP-IRA Contribution made by Employer for above participant.
$_________________ current year $ _____________________prior year
[ ] Rollover contribution from another IRA or SEP-IRA.
$ ______________________
[ ] Transfer of assets from another SEP-IRA. COMPLETE SEP-IRA
TRANSFER FORM AND THE REST OF THIS FORM. $ ____________________
- -------------------------------------------------------------------------------
3. INVESTMENT SELECTION
- -------------------------------------------------------------------------------
$________________ CGM Mutual Fund
$________________ CGM Realty Fund
(CGM Realty Fund is not available in South Dakota.)
$________________ CGM Fixed Income Fund
$________________ CGM Capital Development Fund
(CGM Capital Development Fund is closed. Please see Section 9,
"Who Can Purchase Shares of CGM Capital Development Fund", on
the back of this application. If you are an eligible investor,
check this box | | and fill in your existing CGM Capital
Development Fund account number:___________________________.)
$________________ New England Cash Management Trust
[ ] Money Market Series [ ] U.S. Govt. Series
$ 5.00 INITIAL APPLICATION FEE
_________________ (Required for all accounts)
$________________ AMOUNT OF CHECK ENCLOSED
MAKE ALL CHECKS PAYABLE TO STATE STREET BANK AND TRUST COMPANY.
PLEASE NOTE: CGM American Tax Free Fund is not available under this SEP-IRA Plan
because it may not be an appropriate investment for retirement plans and similar
accounts.
- -------------------------------------------------------------------------------
4. TELEPHONE EXCHANGE PRIVILEGES
- -------------------------------------------------------------------------------
[ ] Yes [ ] No
This service enables you to exchange monies ($1,000 minimum) by telephone among
accounts with the same registration in the CGM Funds or New England Money Market
Funds. CGM Capital Development Fund is closed. Please see Section 9 for full
details. CGM Realty Fund is not available in South Dakota. By completing this
section, you authorize the Fund and its agents to accept and act upon telephone
instructions from you and acknowledge receipt of the current prospectus of the
Fund into which the exchange is made.
- -------------------------------------------------------------------------------
5. AUTOMATIC INVESTMENT PLAN - OPTIONAL
- -------------------------------------------------------------------------------
Employers may have us debit $50 or more each month from their bank account to
apply to their SEP-IRA account. If you are an Employer and if you wish to set up
an Automatic Investment Plan for you or your Plan Participants, please check
this box [ ] and complete Section 10 on the reverse side.
- -------------------------------------------------------------------------------
6. BENEFICIARY DESIGNATION
- -------------------------------------------------------------------------------
This Beneficiary Designation is to be used to indicate the person or persons to
whom the SEP-IRA assets should be turned over in the event of your death. If you
are not survived by a validly designated Beneficiary, your benefits will be paid
to your estate in the event of your death. IMPORTANT: If you do not designate a
Beneficiary or if the Beneficiary designated is not a person, you cannot base
your calculations for distributions on joint life expectancy.
The Beneficiaries named herein and the manner of distribution may be
changed or revoked at any time by filing a new designation in writing with the
Trustee. This designation, and any changes or revocation, will only be effective
upon receipt by the Trustee. PLEASE RETAIN A COPY FOR YOUR RECORDS.
Upon my death, distribute my CGM Simplified Employee Pension Plan Account
(SEP-IRA) in equal shares to the following Principal Beneficiaries who survive
me or, if none survives me, in equal shares to the following Secondary
Beneficiaries who survive me:
Principal Beneficiary(ies):
_______________________________________________________________________________
Name Relationship
_______________________________________________________________________________
Address
Secondary Beneficiary(ies):
_______________________________________________________________________________
Name Relationship
_______________________________________________________________________________
Address
CONSENT OF SPOUSE
(To be used in community property states when spouse is not sole principal
beneficiary): I consent to the above Beneficiary Designation. By signing this
consent, I intend to change the portion (if any) of this SEP-IRA individual
retirement account which is community property into the separate property of my
spouse. I specifically give to my spouse any interest I have in the funds
deposited in this account.
- -------------------------------------------------------------------------------
Signature of Spouse Date
- -------------------------------------------------------------------------------
7. SIGNATURE
- -------------------------------------------------------------------------------
By signing below, I certify that I agree to the provisions on the reverse side
listed in Section 8.
- -------------------------------------------------------------------------------
PLEASE SIGN HERE:
x _______________________________________________________________________
Signature Date
- -------------------------------------------------------------------------------
Please note that there is an annual $10 maintenance fee per account which will
be billed to you each year.
(OVER)
- -------------------------------------------------------------------------------
SEPAPP95
<PAGE>
8. PROVISIONS
- -------------------------------------------------------------------------------
By signing this application establishing an individual retirement account under
my Employer's Simplified Employee Pension Plan (SEP-IRA), I (i) appoint State
Street Bank and Trust Company, or its successors, as Trustee of the Account,
(ii) state that I have received, read, accept, and specifically incorporate the
Trust and Disclosure Statement by reference to this application, (iii)
acknowledge receipt of the current prospectus of the mutual fund(s) selected,
(iv) consent to the Trustee's fee, (v) agree to promptly give instructions to
the Trustee necessary to enable the Trustee to carry out its duties under the
Trust, (vi) represent that whenever information as to any taxable year is
required to be filed with the Internal Revenue Service by the Trustee unless
filed by me, I will file such information with the Internal Revenue Service,
(vii) affirm that my participation is completely voluntary, and (viii) confirm
that my employer has made no specific endorsement of the choice of investments
available under this plan and (ix) certify under penalties of perjury that the
social security number provided is correct. I hereby adopt The CGM Individual
Retirement Account (SEP-IRA) upon the terms and conditions thereof.
[ ] If I have elected the "TELEPHONE EXCHANGE" service, I understand that the
Fund may terminate or modify this privilege at any time. The Fund will
employ reasonable procedures to confirm that instructions received by
telephone are genuine, such as requesting personal identification
information that appears on your account application and recording the
telephone conversation. You will bear the risk of loss due to unauthorized
or fraudulent instructions regarding your account, although the Fund may be
liable if reasonable procedures are not employed.
[ ] FOR EMPLOYERS ONLY: If I have enrolled in the "AUTOMATIC INVESTMENT PLAN"
in Section 10, I authorize the Fund and its agents to initiate Automated
Clearing House (ACH) debits against the designated account at a bank or
other financial institution. I understand that:
- Fund shares purchased by Automatic Investment Plan must be owned for 10
days before they may be redeemed.
- I may terminate my Automatic Investment Plan by sending written notice to
CGM Funds c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511, 15 days prior to
my next scheduled debit date.
- The CGM Funds may immediately terminate my Plan in the event that any item
is unpaid by my financial institution.
- The Fund may terminate or modify this privilege at any time.
- -------------------------------------------------------------------------------
9. WHO CAN PURCHASE SHARES OF CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
Only shareholders of the Fund as of September 24, 1993 who remain shareholders
thereafter may purchase additional shares of the Fund. The Fund reserves the
right to reject any purchase order. This policy supersedes all previous
eligibility requirements. Fund shares are not generally available to other
persons except in special circumstances that have been approved by, or under the
authority of, the board of trustees of the Fund. The special circumstances
currently approved by the board of trustees of the Fund are limited to the offer
and sale of shares of the Fund to the following additional persons: trustees of
the Fund, employees of the Investment Manager and counsel to the Fund and the
Investment Manager.
- -------------------------------------------------------------------------------
10. AUTOMATIC INVESTMENT PLAN (AIP) - AVAILABLE ONLY TO EMPLOYERS
- -------------------------------------------------------------------------------
If you are an Employer, you can have us debit $50 or more on the same
day each month from your bank account and have it applied to your SEP-IRA
account or the SEP-IRA accounts of your Plan Participants. (Please allow 10
business days for AIP Plan to start.)
To elect this option, please: [ ] ATTACH A CHECK MARKED "VOID" FROM THE BANK
ACCOUNT YOU WILL BE USING.
[ ] FILL IN THE INFORMATION REQUESTED BELOW.
Please invest $________ on or about | | 5th day of each month or | | 20th day of
each month (5th will be selected if no box is checked).
Please allocate the above investment amount as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PARTICIPANT'S NAME SOCIAL SECURITY NUMBER SPECIFIC CGM FUND NAME MONTHLY INVESTMENT AMOUNT
- -------------------------------------------------------------------------------------------------------
$
- -------------------------------------------------------------------------------------------------------
$
- -------------------------------------------------------------------------------------------------------
$
- -------------------------------------------------------------------------------------------------------
$
- -------------------------------------------------------------------------------------------------------
$
- -------------------------------------------------------------------------------------------------------
$ _________________________
</TABLE>
TOTAL MONTHLY INVESTMENT
As a convenience to me, you are hereby requested and authorized to pay and
charge to my account Automated Clearing House (ACM) debits drawn on my account
by and payable to the order of The CGM Funds. This authority is to remain in
effect until revoked by me in writing and, until you actually receive such
notice, I agree you will be fully protected in honoring any such debits.
_______________________________________________________________________________
Name of Bank Bank Account Number
_______________________________________________________________________________
Name of Depositor(s) as Shown on Bank Records
X X
_______________________________________________________________________________
Signature of Employer Signature (if Joint Bank Account)
SEND APPLICATION TO: CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117-0449
===============================================================================
<PAGE>
PLEASE USE THIS FORM WHEN MOVING ASSETS
DIRECTLY FROM ONE IRA TO ANOTHER IRA
- -------------------------------------------------------------------------------
THE CGM FUNDS SEP-IRA TRANSFER FORM
- -------------------------------------------------------------------------------
IMPORTANT: CGM will send a formal letter of instruction along with this SEP-IRA
Transfer form to your current Trustee or Custodian. To ensure timely processing
of your transfer, please call your current Trustee or Custodian and verify the
current address of their transfer department and any transfer requirements, such
as a signature guarantee. IF YOU ARE AGE 70 1/2 OR OLDER, YOU MUST COMPLETE THE
BACK OF THIS FORM.
TO: ( )
______________________________________________________________________________
Name of Current Trustee or Custodian Telephone Number
______________________________________________________________________________
Address City State Zip Code
RE:
______________________________________________________________________________
Name of Investment Account Number
[ ] I have established an Individual Retirement Account under a SEP-IRA Plan
with the CGM Funds and have appointed State Street Bank and Trust Company
as the Successor Trustee.
[ ] Please accept this as your authorization to (check one):
| | Liquidate and transfer $ or %_________ of my IRA assets held by you in
the above account.
| | Liquidate and transfer all of my IRA assets held by you in the above
account.
[ ] Please process this transaction as follows, effective (check one):
| | Immediately | | Upon maturity of my assets
[ ] MAKE CHECK PAYABLE TO THE SPECIFIC CGM FUND IN WHICH YOU ARE INVESTING.
State Street Bank and Trust Company, Trustee for the SEP-IRA of:
____________________________________________________________________
Participant Name Social Security Number
____________________________________________________________________
CGM Fund CGM Account Number*
*(If existing SEP-IRA account with CGM, indicate your CGM account
number. If new, write "new" and complete SEP-IRA Account Application.)
[ ] Send check to: CGM Funds, c/o State Street Bank and Trust Company, P.O. Box
8511, Boston, MA 02266-8511
_____________________________________________
PLEASE SIGN HERE:
X
- -------------------------------------------
YOUR SIGNATURE DATE
_____________________________________________ _________________________
Your Street Address
Signature Guarantee (if required by current Trustee) _________________________
City State Zip Code
Name of Firm: ______________________________________
By: ________________________________________________ (___)____________________
Authorized Individual Your Daytime Phone Number
_______________________________________________________________________________
STATE STREET BANK AND TRUST COMPANY HEREBY ACCEPTS FUNDS WHICH YOU HOLD.
______________________________________________________________________________
AUTHORIZED SIGNATURE, STATE STREET BANK AND TRUST COMPANY DATE
_______________________________________________________________________________
(OVER)
SEPIRATRAN95
________________________________________________________________________________
<PAGE>
_______________________________________________________________________________
PLEASE COMPLETE THIS SECTION IF YOU ARE 70 1/2 OR OLDER.
If this transfer is being made during or after the year in which you turn age
70-1/2, your required minimum distribution for the current year must be made
from the distributing IRA prior to the transfer. Please check with your current
IRA Trustee or Custodian for more information about minimum distributions.
Please complete the following information concerning your distributions:
1. Date of Birth of the Designated Beneficiary being used to calculate minimum
required distributions with respect to the transferor plan: ___________________
____________________________. (If there is more than one Designated Beneficiary,
you must use the birthdate of the oldest Beneficiary.)
2. Life expectancy of the Participant: (Choose one) [ ] is being recalculated
[ ] is not being recalculated.
3. Life expectancies of the Participant and/or Spouse Beneficiary:
(Choose one) [ ] are being recalculated [ ] are not being recalculated.
________________________________________________________________________________
RETURN THIS FORM TO: THE CGM FUNDS o P.O. BOX 449 o BOSTON, MA 02117-0449
<PAGE>
[LOGO]
THE CGM FUNDS SEP SUMMARY FOR EMPLOYEES
- --------------------------------------------------------------------------------
Please read together with your Employee Information Booklet.
- --------------------------------------------------------------------------------
ESTABLISHMENT OF SEP PLAN
- --------------------------------------------------------------------------------
Your employer has adopted a type of employee benefit plan known as a Simplified
Employee Pension (SEP) Plan. In order to become a participant in the Plan, you
must meet the Plan's eligibility requirements specified below. Once you become a
participant, you are entitled to receive a certain share of the amounts your
employer contributes to the Plan. All contributions will be deposited into a
SEP-IRA for you. Contributions made to the Plan for you are yours to keep. These
features of the Plan are explained further in the Employee Information Booklet.
(Employers: Please call the CGM Funds at 800-345-4048 to let us know how many
booklets you will need for your employees.)
The actual Plan is a complex legal document that has been written in a manner
required by the Internal Revenue Service. This document is called a SEP Summary
for Employees. It is designed to explain and summarize the important features of
the Plan. If you have any questions or need additional information about the
Plan, consult_____________________________________
(Name of Employer Representative)
You may examine the Plan itself at a reasonable time by making arrangements with
the above mentioned representative of your employer.
- --------------------------------------------------------------------------------
ELIGIBILITY REQUIREMENTS
- --------------------------------------------------------------------------------
EMPLOYER CONTRIBUTIONS: Your employer is not required to make contributions to
the Plan. However, if a contribution is made, your SEP-IRA will receive a share
of that contribution if you are an "eligible" employee and if you have met the
age and service requirements set forth below.
ELIGIBLE EMPLOYEES: Under the SEP Plan, all employees can participate except the
classifications of employees checked below:
[ ] Those employees covered by the terms of a collective bargaining agreement
(a union agreement) where retirement benefits were negotiated and those
employees who are nonresident aliens.
[ ] Those employees who did not earn at least $300 from the employer during
the year. (This $300 figure is increased by the IRS each year based on
changes in the cost of living.)
AGE REQUIREMENT: You must be at least ______ years old.
SERVICE REQUIREMENT: You must have worked for your employer in at least ______
(must be 0, 1, 2 or 3) of the immediately preceding 5 years.
- --------------------------------------------------------------------------------
CONTRIBUTION FORMULA
- --------------------------------------------------------------------------------
Any employer contribution will be allocated to your SEP-IRA in accordance
with the formula selected below (check one):
[ ] PRO RATA FORMULA. Each eligible employee will receive a pro rata portion of
the employer contribution equal to the ratio of his or her compensation to
the total compensation of all eligible employees. Thus, the contribution
will be the same percentage of compensation for all employees.
[ ] INTEGRATED FORMULA. Integration allows contribution percentages among
eligible employees to vary. Details about integration are provided in your
Employee Information Booklet. The integration level is (check one):
[ ] The Taxable Wage Base (TWB)
[ ] ____% of the TWB
- --------------------------------------------------------------------------------
SEP-IRA WITH PLAN SPONSOR
- --------------------------------------------------------------------------------
Under this SEP Plan, you must maintain your SEP-IRA at the following financial
organization subject to the following terms: THE CGM FUNDS, 222 BERKELEY STREET,
BOSTON, MA 02116.
MINIMUM MINIMUM
INITIAL SUBSEQUENT
INVESTMENT OPTIONS INVESTMENT INVESTMENT
- --------------------------------------------------------------------------------
CGM Mutual Fund $1,000 $50
CGM Capital Development Fund* $1,000 $50
CGM Fixed Income Fund $1,000 $50
CGM Realty Fund $1,000 $50
(Not available in South Dakota)
New England Cash Management Trust $1,000 $50
Money Market Series
New England Cash Management Trust $1,000 $50
US Government Series
- --------------------------------------------------------------------------------
*Only shareholders of the CGM Capital Development Fund as of September 24, 1993
who have remained shareholders continuously since that date may purchase
additional shares of the Fund. Please see The CGM Fund SEP-IRA Account
Application (Section 9) for full details.
Before your Employer makes an investment on your behalf, please read the
prospectus(es) for the CGM Fund(s) in which your contribution will be invested.
Please refer to the Disclosure Statement and other documentation given to you by
the above named financial organization for the other terms and conditions which
apply to your SEP-IRA.
(C)1995 Universal Pensions, Inc., Brainerd, MN 56401
- --------------------------------------------------------------------------------
<PAGE>
WORKSHEET A For Employers
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS SHEET OFFERS GUIDANCE IN CALCULATING YOUR SEP-IRA CONTRIBUTION. PLEASE SEEK
PROFESSIONAL TAX ADVICE TO VALIDATE YOUR COMPUTATIONS.
- --------------------------------------------------------------------------------
HOW TO CALCULATE SEP CONTRIBUTIONS FOR A SELF-EMPLOYED PERSON
Individuals with self-employed income must base their contributions on "net
earnings", rather than W-2 compensation, and special rules apply when figuring
the maximum deduction for these contributions. Please see formula and example
below for a full explanation.
DEFINITIONS
SELF-EMPLOYED INDIVIDUAL: A self-employed individual is an employee for SEP
purposes. He or she is also the employer. Even if the self-employed individual
is the only eligible employee, he or she can have a SEP-IRA.
COMPENSATION: For self-employed individuals, compensation refers to net
earnings.
NET EARNINGS: For SEP purposes, your net earnings from your business refers to
your income less business expenses, reduced by a deduction for one-half of
your self-employment tax, less your SEP-IRA contribution. (In this case,
"expenses" include SEP plan contributions you make on behalf of any eligible
employees, but exclude the contribution you, as a self-employed person, would
make on your own behalf.)
FORMULA
As mentioned above, the deduction allowed for a contribution must be taken
into account when determining the earned income of a self-employed person.
Because your deduction amount and your net earnings are each dependent on the
other, this adjustment presents a problem.
To solve this problem, you make the adjustment to net earnings indirectly by
reducing the contribution rate called for in the plan. Use the following
worksheet and your income tax forms to find this reduced contribution rate and
your maximum deduction. Make no reduction to the contribution rate for any
common-law employees.
- --------------------------------------------------------------------------------
1. Start with the contribution rate (%) you have
selected for all employees. And show that rate as a decimal... ______________
2. Add 1 to the rate ............................................ ______________
3. Divide line (1) by line (2)................................... ______________
4. Show your net earnings (not reduced for contributions to
your SEP-IRA) from Schedule C, C-EZ or F (Form 1040) or
Schedule K-1 (Form 1065)...................................... $_____________
5. Enter deduction for self-employment tax (Line 25, Form 1040).. $_____________
6. Adjusted net earnings (subtract line 5 from line 4) .......... $_____________
7. Multiply line 3 by the lesser of $150,000* or the adjusted
net earnings on line 6. This is the maximum deduction for
contributions to a self-employed person's SEP-IRA............. $_____________
- --------------------------------------------------------------------------------
*The maximum compensation you may base your contribution on for 1995 is $150,000
Please refer to the example on the next page.
5/95 WORKA95
<PAGE>
WORKSHEET A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS SHEET OFFERS GUIDANCE IN CALCULATING YOUR SEP-IRA CONTRIBUTION. PLEASE
SEEK PROFESSIONAL TAX ADVICE TO VALIDATE YOUR COMPUTATIONS.
- --------------------------------------------------------------------------------
EXAMPLE
You are a sole proprietor and have employees. This year you have decided to
contribute 15% of compensation for you and your employees. Your net earnings
from your business (not taking into account a deduction for contributions to
your own SEP-IRA) are $140.000.
Using the worksheet, you figure your maximum deduction for contributions to your
own SEP-IRA as follows:
- --------------------------------------------------------------------------------
1. Contribution rate selected (15%) shown as a decimal............ .15
______________
2. Add 1 to the rate.............................................. 1.15
______________
3. Divide line (1) by line (2) ................................... .130435
______________
4. Show your net earnings (not reduced for contributions
to your SEP-IRA) from Schedule C, C-EZ or F (Form 1040)
or Schedule K-1 (Form 1065)....................................$140,000
______________
5. Enter deduction for self-employment tax (Line 25, Form 1040)...$ 10,000
______________
6. Adjusted net earnings (subtract line 5 from line 4) ...........$130,000
______________
7. Multiply line 3 by the lesser of $150,000* or the adjusted
net earnings on line 6. This is the amount of your SEP-IRA
contribution...................................................$ 16,956
______________
- --------------------------------------------------------------------------------
*The maximum compensation you may base your contribution on for 1995 is $150,000
- --------------------------------------------------------------------------------
For more information about SEP-IRAs, you may call the IRS at 800-829-3676 and
ask for Publication 560 "Retirement Plans for the Self-Employed" or Publication
590 "Individual Retirement Arrangements." Chapter 8 of Publication 590 covers
Simplified Employee Pensions. (SEPS).
- --------------------------------------------------------------------------------
5/95 WORKA95
- --------------------------------------------------------------------------------
<PAGE>
WORKSHEET B For Employees
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS SHEET OFFERS GUIDANCE IN CALCULATING YOUR SEP-IRA CONTRIBUTION. PLEASE SEEK
PROFESSIONAL TAX ADVICE TO VALIDATE YOUR COMPUTATIONS.
- --------------------------------------------------------------------------------
HOW TO CALCULATE SEP CONTRIBUTIONS FOR YOUR COMMON-LAW EMPLOYEES
The SEP rules permit you, as the employer, to contribute each year to each
eligible employee's SEP-IRA. You can contribute 0% to 15% of the common-law
employee's compensation. The maximum compensation you may base your
contribution on for 1995 is $150,000. These contributions are funded by you.
The contribution rate designated can vary from year to year. However, within a
given year, the same rate must be applied to all plan participants, including
yourself, if you selected pro rata as your allocation formula. Should you have
selected the integrated formula as your allocation method, please seek
competent tax advice as the method is more involved than can be explained in
this worksheet.
DEFINITIONS
Common-law employees are those employees who have no financial interest in
your business.
Compensation for these employees is the amount recorded on
their W-2 form.
FORMULA
The formula for computing the SEP-IRA contribution using pro-rata allocation
for a common-law employee is as follows:
- --------------------------------------------------------------------------------
1. Decide the percentage (%) of compensation you wish to
contribute for yourself and your employees. Show that
rate as a decimal......................................... ________________
2. Show the common-law employee's compensation............... $________________
3. Multiply line (1) by line (2). This is the maximum
deduction for contributions to a common-law employee's
SEP-IRA................................................... $________________
- --------------------------------------------------------------------------------
EXAMPLE
Barry is a common-law employee. His compensation for 1995 is $20,000. Barry's
employer has decided to contribute 15% of compensation for each employee.
Therefore, he may contribute $3,000 to Barry's SEP-IRA.
- --------------------------------------------------------------------------------
1. Contribution rate selected (15%) shown as a decimal....... .15
________________
2. Compensation of common-law employee....................... $ 20,000
________________
3. Multiply line (1) by line (2).
$20,000 x .15 = ......................................... $ 3,000
________________
- --------------------------------------------------------------------------------
$3,000 is the amount that the employer may contribute to Barry's SEP-IRA.
5/95 WORKB95
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
THE CGM FUNDS SIMPLIFIED EMPLOYEE PENSION PLAN
BASIC PLAN DOCUMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION 1. ESTABLISHMENT AND PURPOSE OF PLAN
- --------------------------------------------------------------------------------
1.01 PURPOSE The purpose of this Plan is to provide, in accordance with its
provisions, a Simplified Employee Pension Plan providing benefits upon
retirement for the individuals who are eligible to participate hereunder.
1.02 INTENT TO QUALIFY It is the intent of the Employer that this Plan shall be
for the exclusive benefit of its Employees and shall qualify for approval under
Section 408(k) of the Internal Revenue Code, as amended from time to time (or
corresponding provisions of any subsequent Federal law at that time in effect).
In case of any ambiguity, it shall be interpreted to accomplish such result. It
is further intended that it comply with the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA) as amended from time to time.
1.03 WHO MAY ADOPT An employer who has ever maintained a defined benefit plan
which is now terminated may not participate in this prototype Simplified
Employee Pension Plan. If, subsequent to adopting this Plan, any defined benefit
plan of the Employer terminates, the Employer will no longer participate in this
prototype plan and will be considered to have an individually designed plan.
1.04 USE WITH IRA This prototype Simplified Employee Pension Plan must be used
with an Internal Revenue Service model IRA (Form 5305 or Form 5305-A) or an
Internal Revenue Service approved master or prototype IRA.
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SECTION 2. DEFINITIONS
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2.01 ADOPTION AGREEMENT Means the document executed by the Employer through
which it adopts the Plan and thereby agrees to be bound by all terms and
conditions of the Plan.
2.02 CODE Means the Internal Revenue Code of 1986 as amended.
2.03 COMPENSATION For the purposes of the $300 limit of Section 408(k)(2)(C) of
the Code shall be defined as Section 414(q)(7) Compensation.
For all other purposes, Compensation shall mean all of a Participant's wages as
defined in Section 3401(a) of the Code 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 Section 3401(a)(2) of the Code).
For any Self-Employed Individual covered under the Plan, Compensation will mean
Earned Income.
Compensation shall include only that Compensation which is actually paid or made
available to the Participant during the Plan Year.
Compensation shall include any amount which is contributed by the Employer
pursuant to a salary reduction agreement and which is not includible in the
gross income of the Employee under Sections 125, 402(a)(8), 402(h) or 403(b) of
the Code.
The annual Compensation of each Participant taken into account under the Plan
for any year shall not exceed $200,000. This limitation shall be adjusted by the
Secretary at the same time and in the same manner as under Section 415(d) of the
Code, except 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 effected on January 1, 1990. If a 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.
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 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.
2.04 EARNED INCOME Means the net earnings from self employment in the trade or
business with respect to which the Plan is established, for which 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 or to a Simplified Employee Pension Plan to the
extent deductible under Section 404 of the Code.
Net earnings shall be determined with regard to the deduction allowed to the
Employer by Section 164(F) of the Code for taxable years beginning after
December 31, 1989.
2.05 EFFECTIVE DATE Means the date the Plan becomes effective as indicated in
the Adoption Agreement.
2.06 EMPLOYEE Means any person who is a natural person employed by the Employer
as a common-law employee and if the Employer is a sole proprietorship or
partnership, any Self-Employed Individual who performs services with respect to
the trade or business of the Employer. Further, any employee of any other
employer required to be aggregated under Section 414(b), (c), (m), or (o) of the
Code and any leased employee required to be treated as an employee of the
Employer under Section 414(n) of the Code shall also be considered an Employee.
2.07 EMPLOYER Means any corporation, partnership or sole proprietorship named in
the Adoption Agreement and any successor who by merger, consolidation, purchase
or otherwise assumes the obligations of the Plan. A partnership is considered to
be the Employer of each of the partners and a sole proprietorship is considered
to be the Employer of the sole proprietor
2.08 EMPLOYER CONTRIBUTION Means the amount contributed by the Employer to this
Plan
2.09 IRA Means the designated Individual Retirement Account or Individual
Retirement Annuity, which satisfies the requirements of Section 408 of the Code,
and which is maintained with the Prototype Sponsor by a Participant.
2.10 PARTICIPANT Means any Employee who has met the participation requirements
of Section 3.01 and who is or may become eligible to receive an Employer
Contribution.
2.11 PLAN Means this plan document plus the corresponding Adoption Agreement as
completed and signed by the Employer.
2.12 PLAN YEAR Means the 12 consecutive month period which coincides with
Employer's taxable year or such other 12 consecutive month period as is
designated in the Adoption Agreement.
2.13 PRIOR PLAN Means a plan which was amended or replaced by adoption of this
plan document, as indicated in the Adoption Agreement.
2.14 PROTOTYPE SPONSOR Means the entity specified in the Adoption Agreement
which sponsors this prototype Plan.
2.15 SELF-EMPLOYED INDIVIDUAL Means an individual who has Earned Income for a
Plan Year from the trade or business for which the Plan is established; also, an
individual who would have had Earned Income but for the fact that the trade or
business had no net profits for the Plan Year.
2.16 SERVICE Means the performance of duties by an Employee for the Employer,
for any period of time, however short, for which the Employee is paid or
entitled to payment. When the Employer maintains the Plan of a predecessor
employer, an Employee's Service will include his service for such predecessor
employer.
2.17 TAXABLE WAGE BASE Means the maximum amount of earnings which may be
considered wages for a year under Section 3121 (a)(l) of the Code in effect as
of the beginning of the Plan Year.
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<PAGE>
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SECTION 3. ELIGIBILIGY AND PARTICIPATION
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3.01 ELIGIBILITY REQUIREMENTS Except for those Employees excluded pursuant to
Section 3.02, each Employee of the Employer who fulfills the eligibility
requirements specified in the Adoption Agreement shall, as a condition for
further employment, become a Participant. Each Participant must establish an IRA
with the Prototype Sponsor to which Employer Contributions under this Plan will
be made.
3.02 EXCLUSION OF CERTAIN EMPLOYEES If the Employer has so indicated in the
Adoption Agreement, the following Employees shall not be eligible to become a
Participant in the Plan: (1) Those Employees included in a unit of Employees
covered by the terms of a collective bargaining agreement, provided retirement
benefits were the subject of good faith bargaining; and (2) those Employees who
are nonresident aliens, who have received no earned income from the Employer
which constitutes earned income from sources within the United States.
3.03 ADMITTANCE AS A PARTICIPANT
A. PRIOR PLAN If this Plan is an amendment or continuation of a Prior Plan,
each Employee of the Employer who immediately before the Effective Date was
a participant in said Prior Plan shall be a Participant in this Plan as of
said date.
B. NOTIFICATION OF ELIGIBILITY The Employer shall notify each Employee who
becomes a Participant of his status as a Participant in the Plan and of his
duty to establish an IRA with the Prototype Sponsor to which Employer
Contributions may be made.
C. ESTABLISHMENT OF AN IRA If a Participant fails to establish an IRA for
whatever reason, the Employer may execute any necessary documents to
establish an IRA with the Prototype Sponsor on behalf of the Participant.
3.04 DETERMINATIONS UNDER THIS SECTION The Employer shall determine the
eligibility of each Employee to be a Participant. This determination shall be
conclusive and binding upon all persons except as otherwise provided herein or
by law.
3.05 LIMITATION RESPECTING EMPLOYMENT Neither the fact of the establishment of
the Plan nor the fact that a common-law employee has become a Participant shall
give to that common-law employee any right to continued employment; nor shall
either fact limit the right of the Employer to discharge or to deal otherwise
with a common-law employee without regard to the effect such treatment may have
upon the Employee's rights under the Plan.
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SECTION 4. CONTRIBUTIONS AND ALLOCATIONS
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4.01 EMPLOYER CONTRIBUTIONS
A. ALLOCATION FORMULA Employer Contributions shall be allocated in accordance
with the allocation formula selected in the Adoption Agreement. Each Employee
who has satisfied the eligibility requirements pursuant to Section 3.01
(thereby becoming a Participant) will share in such allocation.
Employer Contributions made for a Plan Year on behalf of any Participant
shall not exceed the lesser of 15% of Compensation or the limitation in
effect under Code Section 415(c)(1)(A) (indexed for cost of living increases
in accordance with Code Section 415(d)).
B. INTEGRATED ALLOCATION FORMULA If the Employer has selected the integrated
allocation formula in the Adoption Agreement, then Employer Contributions for
the Plan Year will be allocated to Participants' IRAs as follows:
STEP 1 Employer Contributions will be allocated to each Participant's IRA in
the ratio that each Participant's total Compensation bears to all
Participants' total Compensation, but not in excess of 3% of each
Participant's Compensation.
STEP 2 Any Employer Contributions remaining after the allocation in Step 1
will be allocated to each Participant's IRA in the ratio that each
Participant's Compensation for the Plan Year in excess of the integration
level bears to the Compensation of all Participants in excess of the
integration level, but not in excess of 3%.
STEP 3 Any Employer Contributions remaining after the allocation in Step 2
will be allocated to each Participant's IRA in the ratio that the sum of each
Participant's total Compensation and Compensation in excess of the
integration level bears to the sum of all Participants' total Compensation
and Compensation in excess of the integration level, but not in excess of the
maximum disparity rate described in the table below.
STEP 4 Any Employer Contributions remaining after the allocation in Step 3
will be allocated to each Participant's IRA in the ratio that each
Participant's total Compensation for the Plan Year bears to all Participants'
total Compensation for that Plan Year.
The integration level shall be equal to the Taxable Wage Base or such lesser
amount elected by the Employer in the Adoption Agreement.
INTEGRATION LEVEL MAXIMUM DISPARITY RATE
_________________ _______________________
Taxable Wage Base (TWB) 2.7%
More than $0 but not more than X* 2.7%
More than X* of TWB but not more than 80% of TWB 1.3%
More than 80% of TWB but not more than TWB 2.4%
*X mean the greater of $10,000 or 20% of TWB.
C. TIMING OF EMPLOYER CONTRIBUTION Employer Contributions, if any, made on
behalf of Participants for a Plan Year shall be allocated and deposited to
the IRA of each Participant no later than the due date for filing the
Employer's tax return (including extensions).
4.02 VESTING, WITHDRAWAL RIGHTS TO CONTRIBUTIONS All Employer Contributions made
under the Plan on behalf of Employees shall be fully vested and nonforfeitable
at all times. Each Employee shall have an unrestricted right to withdraw at any
time all or a portion of the Employer Contributions made on his behalf. However,
withdrawals taken are subject to the same taxation and penalty provisions of the
Code which are applicable to IRA distributions.
4.03 SIMPLIFIED EMPLOYER REPORTS The Employer shall furnish reports, relating to
contributions made under the Plan, in the time and manner and containing the
information prescribed by the Secretary of the Treasury, to Participants. Such
reports shall be furnished at least annually and shall disclose the amount of
the contribution made under the Plan to the Participant's IRA.
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SECTION 5. AMENDMENT OR TERMINATION OF PLAN
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5.01 AMENDMENT BY EMPLOYER The Employer reserves the right to amend the
elections made or not made on the Adoption Agreement by executing a new Adoption
Agreement and delivering a copy of the same to the Prototype Sponsor. The
Employer shall not have the right to amend any nonelective provision of the
Adoption Agreement nor the right to amend provisions of this plan document. If
the employer adopts an amendment to the Adoption Agreement or plan document in
violation of the preceding sentence, the Plan will be deemed to be an
individually designed plan and may no longer participate in this prototype Plan.
5.02 AMENDMENT BY PROTOTYPE SPONSOR By adopting this Plan, the Employer
delegates to the Prototype Sponsor the power to amend or replace the Adoption
Agreement or the Plan to conform them to the provisions of any law, regulations
or administrative rulings pertaining to Simplified Employee Pensions and to make
such other changes to the Plan, which, in the judgment of the Prototype Sponsor,
are necessary or appropriate. The Employer shall be deemed to have consented to
all such amendments; provided however, that no changes may be made without the
consent of the Employer if the effect would be to substantially change the costs
or benefits under the Plan. The Prototype Sponsor shall not have the obligation
to exercise or not to exercise the power delegated to it nor shall the Prototype
Sponsor incur liability of any nature for any act done or failed to be done by
the Prototype Sponsor in good faith in the exercise or nonexercise of the power
delegated hereunder.
5.03 LIMITATIONS ON POWER TO AMEND No amendment by either the Employer or the
Prototype Sponsor shall reduce or otherwise adversely affect any benefits of a
Participant or Beneficiary acquired prior to such amendment unless it is
required to maintain compliance with any law, regulation or administrative
ruling pertaining to Simplified Employee Pensions.
5.04 TERMINATION While the Employer expects to continue the Plan indefinitely,
the Employer shall not be under any obligation or liability to continue
contributions or to maintain the Plan for any given length of time. The Employer
may terminate this Plan at any time by appropriate action of its managing body.
This Plan shall terminate on the occurrence of any of the following events:
A. Delivery to the Prototype Sponsor of a notice of termination executed by the
Employer specifying the effective date of the Plan's termination.
B. Adjudication of the Employer as bankrupt or the liquidation or dissolution of
the Employer.
5.05 NOTICE OF AMENDMENT, TERMINATION Any amendment or termination shall be
communicated by the Employer to all appropriate parties as required by law.
Amendments made by the Prototype Sponsor shall be furnished to the Employer and
communicated by the Employer to all appropriate parties as required by law. Any
filings required by the Internal Revenue Service or any other regulatory body
relating to the amendment or termination of the Plan shall be made by the
Employer.
5.06 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER A successor of the Employer may
continue the Plan and be substituted in the place of the present Employer. The
successor and present Employer (or if deceased, the executor of the estate of a
deceased Self-Employed Individual who was the Employer) must execute a written
instrument authorizing such substitution and the successor must complete and
sign a new Adoption Agreement.
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<PAGE>
27
INTERNAL REVENUE SERVICE Department of the Treasury
Prototype SEP 001
FFN: 50495842700-001 Case: 9580029 Washington, DC 20224
EIN: 04-3076053
Letter Serial No: D410091a
Person to Contact: MS. ARRINGTON
CAPITAL GROWTH MANAGEMENT
Telephone Number: (202) 622-8173
222 BERKELEY STREET SUITE 1013
Refer Reply to: CP:E:EP:Q:P3
BOSTON, MA 02116
Date: 03/22/95
Dear Applicant:
In our opinion, the form of your Simplified Employee Pension (SEP) arrangement
is acceptable under section 408(k) of the Internal Revenue Code. This SEP
arrangement is approved for use only in conjunction with an Individual
Retirement Arrangement (IRA) which meets the requirements of Code section 408
and has received a favorable opinion letter, or a model IRA (Forms 5305 and
5305-A).
Employers who adopt this approved plan will be considered to have a retirement
savings program that satisfies the requirements of Code section 408 provided
that it is used in conjunction with an approved IRA. Please provide a copy of
this letter to each adopting employer.
Code section 408(l) and related regulations require that employers who adopt
this SEP arrangement furnish employees in writing certain information about this
SEP arrangement and annual reports of savings program transactions.
Your program may have to be amended to include or revise provisions in order to
comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case, call us at the
above telephone number. Please refer to the Letter Serial Number and File Folder
Number shown in the heading of this letter. Please provide those adopting this
plan with your phone number, and advise them to contact your office if they have
any questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us if you
terminate the form of this plan.
Sincerely yours,
John Swieca
Chief, Employee Plans Technical Branch
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<PAGE>
[logo]
CGM Capital Development Fund
CGM Mutual Fund
CGM Fixed Income Fund
CGM American Tax Free Fund
CGM Realty Fund
Post Office Box 449
Boston, Massachusetts 02117
800-345-4048
PLEASE NOTE: CGM American Tax Free Fund is not available under this SEP-IRA Plan
because it may not be an appropriate investment for retirement plans and similar
accounts.
(C) 1995 Universal Pensions, Inc., Brainerd, MN 56401 SEPIRABOOK95
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<PAGE>
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IMPORTANT: PLEASE SAVE WITH YOUR PERMANENT RECORDS.
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CGM 403(b)(7) TAX-SHELTERED CUSTODIAL ACCOUNT AGREEMENT
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This Agreement allows you to establish a tax-sheltered custodial account
authorized under Section 403(b)(7) of the Internal Revenue Code. By electing to
reduce your compensation and have your Employer contribute to your tax-sheltered
custodial account, you will not be taxed on the amounts contributed or earnings
attributable to such amounts until the funds are withdrawn from your account.
SECTION ONE: DEFINITIONS
The following words and phrases when used in this Agreement with initial capital
letters shall have the meanings set forth below.
1.01 ACCOUNT - Means the tax-sheltered custodial Account established pursuant to
this Agreement for the benefit of the Participant and when the context so
implies refers to the assets, if any, then held by the Custodian hereunder.
1.02 AGREEMENT - Means this 403(b)(7) Tax-Sheltered Custodial Account Agreement.
1.03 BENEFICIARY - Means the person or persons designated by the Participant in
accordance with Section 4.04 to receive any distributions from the Account
upon the Participant's death.
1.04 Code - Means the Internal Revenue Code of 1986, as amended from time to
time.
1.05 CUSTODIAN - Means State Street Bank and Trust Company or any successor
thereto which qualifies to serve as Custodian in the manner prescribed by
Section 401(f)(2) of the Code.
1.06 EMPLOYER - Means the entity so designated on this Agreement. The Employer
must be an entity described in Section 501(c)(3) of the Code which is
exempt from tax under Section 501(a) of the Code, an educational
organization described in Section 170(b)(1)(A)(ii) of the Code or any other
entity eligible under Section 403(b) of the Code to make contributions to
tax-sheltered custodial accounts.
1.07 PARTICIPANT - Means any person who is regularly employed by the Employer
who elects to participate in this Agreement by completing and signing a
Salary Deferral Agreement or such other form as may be acceptable to the
Employer.
1.08 SALARY DEFERRAL AGREEMENT - Means the Salary Reduction Agreement signed by
the Employee and delivered to the Employer whereby the Employer authorizes
a reduction of salary to be contributed by the Employer to the Employee's
Account established hereunder.
1.09 SPONSOR - Means Capital Growth Management Limited Partnership.
SECTION TWO: CONTRIBUTIONS
2.01 Salary Deferral Agreement - The Custodian may accept contributions from the
Employer on behalf of a Participant made pursuant to a Salary Deferral
Agreement. A Participant shall designate the amount or percentage of such
Participant's compensation which is to be deferred in the Salary Deferral
Agreement. Such amount or percentage shall be effective until otherwise
modified in writing by the Participant. A Participant may amend or
terminate his or her Salary Deferral Agreement at such times as may be
permitted by the Employer, however, the Participant may not change his or
her elections more than once per tax year.
2.02 MAXIMUM CONTRIBUTION LIMITS - In no event shall the contributions to the
Account for a tax year on behalf of a Participant exceed the maximum
allowable deferrals permitted under current law or regulation.
(a)The maximum salary deferral made during a tax year on behalf of a
Participant, when aggregated with other salary deferral amounts
made through the Employer (or controlled group of Employers under
IRC 414(b), (c), (m) or (o)), shall not exceed the lesser of the
maximum permitted amount for a Participant under Sections 403(b)(2)
and 415(c) of the Code for that year.
(b)The maximum of all salary deferrals made during the Participant's
tax year shall not exceed the limitations set forth in Section
402(g) of the Code.
(c)The maximum salary deferrals may be based on a valid election by
the Participant to use available special increase options.
Neither the Custodian nor Employer shall be under any obligation to
determine whether contributions made pursuant to this Agreement on behalf
of the Participant exceed the limits prescribed under the Code.
2.03 TRANSFER TO CUSTODIAL ACCOUNT - The Participant may transfer (or arrange
for the transfer of) assets from another annuity contract or custodial
account described in Section 403(b) of the Code to this Account. The
transfer shall be accepted by the Custodian if the Participant certifies
that the transaction satisfies all current requirements for such a
transaction. The Custodian may request the Participant to provide such
information it deems necessary prior to accepting the transfer. The
Custodian shall not be responsible for determining whether any transfer is
proper.
SECTION THREE: INVESTMENT OF CONTRIBUTIONS
3.01 SHARES OF REGULATED INVESTMENT COMPANIES - All Contributions by a
Participant to his or her Account shall be invested by the Custodian
pursuant to written instructions concerning the investment delivered by the
Participant to the Custodian prior to or at the time the contribution is
made to the Account. The Custodian shall, within a reasonable time
following receipt of written instructions from the Participant, invest such
contributions in full or fractional shares of certain regulated investment
companies.
<PAGE>
For purposes of this Agreement, "regulated investment companies" means any
of the following: CGM Mutual Fund, CGM Capital Development Fund (if the
Participant is an eligible investor), CGM Fixed Income Fund, CGM Realty
Fund, New England Money Market Funds and/or any other taxable funds
sponsored by Capital Growth Management.
If the investment instructions provided by the Participant to the Custodian
are nor received by the Custodian, or are, in the opinion of the Custodian,
ambiguous, the Custodian may hold or return all or a portion of the
contribution uninvested without liability for loss of income or
appreciation, without liability for interest, dividends or any other gain
whatsoever, pending receipt of proper instructions or clarification. The
Custodian shall advise the Participant of the form and manner in which
investment instructions must be given.
3.02 PARTICIPANT CHANGE OF INVESTMENT - Subject to rules and procedure adopted
by the Custodian, a Participant may, at his or her election, direct the
Custodian to redeem any or all regulated investment company shares held by
the Custodian pursuant to this Agreement and to reinvest the proceeds in
such other regulated investment company shares as directed. Transactions of
this character must conform with the provisions of the current prospectus
for the regulated investment company shares subject to purchase.
3.03 DIVIDENDS AND DISTRIBUTIONS - Dividends and other distributions received by
the Custodian on shares of any regulated investment company held in the
Account shall be reinvested in additional shares of the regulated
investment company from which the dividend or other distribution
originates, unless the Participant directs the Custodian to act otherwise.
Should a Participant have the choice of receiving a distribution of shares
(as defined in Section 4.01) from a regulated investment company in
additional shares, cash or other property, the Custodian shall nonetheless
elect to receive such distribution in additional shares.
3.04 REGISTERED OWNER, VOTING RIGHTS - All regulated investment company shares
acquired by the Custodian pursuant to this Agreement shall be registered in
the name of the Custodian or its nominee. The Custodian shall deliver or
cause to be executed and delivered to the Participant all notices,
prospectuses, financial statements, proxies and related proxy information
The Custodian shall vote the shares in accordance with instructions from
the Participant.
3.05 SALES CHARGES - All sales charges, transfer fees, investment fees or other
administrative charges associated with the purchase of, transfer of or sale
of regulated investment company shares shall be charged to the Account of
the Participant.
SECTION FOUR: DISTRIBUTIONS
4.01 LIMITATIONS ON DISTRIBUTIONS - Subject to the limitations described in this
Agreement, a Participant may request a distribution from the Account. A
Participant's Account may not be distributed prior to the Participant's:
(a) attainment of age 59 1/2,
(b) incurring a disability within the meaning of Section 72(m)(7) of
the Code,
(c) death,
(d) encountering a financial hardships, or
(e) separation from service.
No distribution shall be made to a Participant (or Beneficiary(ies), if
applicable) until he or she completes such written forms and provides such
additional information and documentation as the Custodian, in its sole
discretion, may deem necessary. If the value of the Account immediately
preceding the 1989 Plan Year is ascertainable, such pre- 1989 amounts are
not subject to the limitations of Section 4.01.
4.02 FINANCIAL HARDSHIP - For purposes of this Agreement, "financial hardship"
shall include a financial need incurred by the Participant due to illness,
temporary disability, purchase of a home, or educational expenses of the
Participant or any member of his or her immediate family, or any other
immediate and heavy financial need of the Participant; provided, however,
no financial hardship shall exceed or otherwise not conform to the
requirements of Section 403(b)(7) of the Code. No distributions due to
financial hardship shall exceed the amount determined to be required to
meet the immediate financial need created by the hardship which cannot be
otherwise reasonably accommodated from the resources of the Participant.
Any distribution made due to a Participant's financial hardship shall be
made to such Participant in a single sum payment in cash pursuant to
written instructions in a form acceptable to the Custodian, and delivered
to the Custodian as may be provided in Section 403(b)(7) of the Code.
Hardship distributions may consist only of the amounts contributed pursuant
to a Participant's Salary Deferral Agreement.
4.03 FORM OF DISTRIBUTION - Distributions for other than a financial hardship
shall be made in any one or more or any combination of the following forms:
(a)single lump sum payment;
(b)monthly, quarterly, semiannual or annual payments over a period
elected by the Participant not to extend beyond the Participant's
life expectancy; or
(c)in monthly, quarterly, semiannual or annual payments over a period
selected by the Participant not to exceed the joint life and last
survivor expectancy of the Participant and his or her
Beneficiary(ies).
At any time prior to commencement of distribution, the Participant may make
or change the foregoing distribution forms by delivering a written notice
to the Custodian.
Notwithstanding any other provision to the contrary, the Custodian may make
an immediate single sum distribution to the Participant or Beneficiary(ies)
(if applicable) if the value of the Account does not exceed $3,500.
At the discretion of the Custodian, other forms of distribution, if allowed
under applicable provisions of the Code, may be allowed.
<PAGE>
In the event a Participant does not elect any of the methods of
distribution described above on or before such Participant's 70 1/2
birthday, the Participant shall be deemed to have elected distribution made
on his or her 70 1/2 birthday in the form of periodic payments over the
single life expectancy of the participant using the declining years method
of determining the Participant's life expectancy multiple; provided,
however, the Custodian shall have no liability to the Participant for any
tax penalty or other damages which may result from any inadvertent failure
by the Custodian to make such a distribution.
Notwithstanding anything in this Agreement to the contrary, distributions
shall conform to the minimum distribution requirements of Section 401(a)(9)
of the Code and the regulations thereunder, including Treasury Regulations
Sections 1.401(a)(9)-2 and 1.403(b)-2.
If the value of the Account prior to 1987 is determinable, the pre-1987
amount need not be subject to a required minimum distribution until the
calendar year the Participant attains age 75, or such later date as may be
allowed by law or regulation.
4.04 DESIGNATION OF BENEFICIARY - Each Participant may designate, upon a form
provided by the Custodian, any person or persons (including an entity other
than a natural person) as primary or contingent Beneficiary to receive all
or a specified portion of the Participant's Account in the event of the
Participant's death. A Participant may change or revoke such Beneficiary
designation from time to time by completing and delivering the proper form
to the Custodian.
4.05 DISTRIBUTION UPON DEATH OF PARTICIPANT - If a Participant dies before his
or her entire interest in the Account is distributed to him or her, or if
distribution has commenced to the Participant and his or her surviving
spouse and such surviving spouse dies before the entire interest is
distributed to such spouse, the entire interest or remaining undistributed
balance of such interest shall be distributed in the form of a single sum
cash payment, or other form of payment as permitted under current
applicable code or regulations to the Beneficiary(ies), if any, as
designated by the Participant or his or her spouse as the case may be. In
the event no such Beneficiary has been designated, the Participant's estate
shall receive the balance of the Account.
4.06 DISTRIBUTION OF EXCESS AMOUNTS - The Custodian may make distribution of any
excess to the Participant.
4.07 ELIGIBLE ROLLOVER DISTRIBUTIONS - At the election of a Participant (or the
surviving spouse Beneficiary of a deceased Participant) the Custodian
shall pay any eligible rollover distribution to an individual retirement
plan described in Section 408 of the Code or another annuity contract or
custodial account described in Section 403(b) of the Code in a direct
rollover for that Participant (or Beneficiary). The term "eligible rollover
distribution" shall have the meaning set forth in Sections 402(c)(2) and
(4) of the Code and Q&A-3 through Q&A-8 of Treasury Regulations Section
1.402(c)-2T.
The Participant (or surviving spouse Beneficiary) who desires a direct
rollover must specify the individual retirement plan or 403(b) plan to
which the eligible rollover distribution is to be paid and satisfy such
other reasonable requirements as the Custodian may impose.
SECTION FIVE: ADMINISTRATION
5.01 DUTIES OF THE CUSTODIAN - The Custodian shall have the following
obligations and responsibilities.
(a)To hold contributions to the Account it receives, invest such
contributions pursuant to the Participant's instructions and
distribute Account assets pursuant to this Agreement;
(b)To register any property held by the Custodian in its own name, or
in nominal bearer form that will pass delivery;
(c)To maintain records of all relevant information as may be
necessary for the proper administration of the Account;
(d)To allocate earnings, if any, realized from such contributions and
such other data or information as may be necessary;
(e)To file such returns, reports and other information with the
Internal Revenue Service and other government agencies as may be
required of the Custodian under applicable laws and regulations.
5.02 REPORTS - As soon as practicable after December 31st of each calendar year,
and whenever required by regulations under the Code, the Custodian shall
deliver to the Participant a written report of the Custodian's transactions
relating to the Account during the period from the last previous accounting
and shall file such other reports as may be required under the Code.
On receipt of the Custodian's report referenced in the preceding paragraph,
a Participant shall have a period of 60 days following receipt to deliver a
written objection to the Custodian concerning information provided in the
report. In the event the Participant neglects to file such written
objection, the report shall be deemed approved and in such case, the
Custodian shall be forever released and discharged with respect to all
matters and things included therein.
5.03 CUSTODIAN NOT RESPONSIBLE FOR CERTAIN ACTIONS - Notwithstanding the
foregoing, the Custodian shall have no responsibility for determining the
amount of or collecting contributions to the Account made pursuant to this
Agreement; determining the amount, character or timing of any distribution
to a Participant under this Agreement; determining a Participant's maximum
contribution amount; maintaining or defending any legal action in
connection with this Agreement, unless agreed upon by the Custodian,
Employer and Participant.
5.04 INDEMNIFICATION OF CUSTODIAN - The Employer and Participant shall, to the
extent permitted under law, indemnify and hold the Custodian harmless from
and against any liability which may occur in the administration of the
Account unless arising from the Custodian's breach of its responsibilities
under this Agreement. By execution of this Agreement, it is the specific
intention of the parties that no fiduciary duties be conferred upon the
Custodian nor shall any be implied from this Agreement or the acts of this
Custodian.
<PAGE>
5.05 CUSTODIAN'S FEES AND EXPENSES - The Custodian may charge fees in connection
with the Account. In addition, the Custodian has the right to be reimbursed
for any taxes or expenses incurred by or on behalf of the Account. All such
fees, taxes or expenses may be charged against the Account or, at the
option of the Custodian, may be paid directly by the Participant or
Employer. The Custodian reserves the right to change its fee schedule, or
add new fees, at any time upon 30 days prior written notice to the
Participant.
SECTION SIX: AMENDMENT AND TERMINATION
6.01 AMENDMENT OF AGREEMENT - This Agreement may be amended by an agreement in
writing between the Employee and Custodian. In addition, by execution of
this Agreement, the Employer and the Participant delegate to the Custodian
all authority to amend this Agreement by written notification from the
Custodian to the Participant as to any term hereof, at any time (including
retroactively) except that no amendment shall be made which may operate to
disqualify the Account under Section 403(b)(7) of the Code. The effective
date of any amendment hereto shall be the date specified in said amendment
or, 30 days subsequent to the time notification of amendment is delivered
by the Custodian to the Participant.
6.02 TERMINATION BY PARTICIPANT - The Participant reserves the right to
terminate further contributions to his or her Account pursuant to this
Agreement by executing and delivering to the Custodian an executed copy of
an agreement terminating said contributions. The Participant further
reserves the right to terminate his or her adoption of this Agreement in
the event that he or she shall be unable to secure a favorable ruling from
the Internal Revenue Service with respect to the Agreement. In the event of
such termination, the Custodian shall distribute the Account to the
Participant.
6.03 RESIGNATION OR REMOVAL OF CUSTODIAN - The Custodian may resign as Custodian
of any Participant's Account upon 30 days written notice to the
Participant. The Participant may remove a Custodian upon 30 days prior
written notice. Upon such resignation or removal, a successor Custodian
shall be named. Upon designation of a successor Custodian, the Custodian
shall transfer the assets held pursuant to the terms of this Agreement to
the successor Custodian. The Custodian may retain a portion of the assets
to the extent necessary to cover reasonable administrative fees and
expenses.
Where the Custodian is serving as a nonbank custodian pursuant to section
1.401-12(n) of the Treasury Regulations, the Participant will appoint a
successor custodian upon notification by the Commissioner of Internal
Revenue that such substitution is required because the Custodian has failed
to comply with the requirements of Section 1.401-12(n) or is not keeping
such records or making such returns or rendering such statements as
required by forms or regulations.
SECTION SEVEN: MISCELLANEOUS
7.01 APPLICABLE LAW - This Agreement is established with the intention that it
qualify as a tax-sheltered custodial account under Section 403(b)(7) of the
Code and that contributions to the same be treated accordingly. To the
extent not preempted by Federal law, this Agreement shall be construed,
administered and enforced in accordance with the laws of the Custodian's
state of incorporation.
If any provision of this Agreement shall for any reason be deemed invalid
or unenforceable, the remaining provisions shall, nevertheless, continue in
full force and effect and shall not be invalidated.
7.02 NONALIENATION - The assets of a Participant in his or her account shall be
nonforfeitable at all times and shall not be subject to alienation,
assignment, trustee process, garnishment, attachment, execution or levy of
any kind, nor shall such assets be subject to the claims of the
Participant's creditors.
7.03 TERMS OF EMPLOYMENT - Neither the fact of the implementation of this
Agreement nor the fact that a common law employee has become a Participant
shall give to such employee any right to continued employment; nor shall
either fact limit the right of the Employer to discharge or to deal
otherwise with an employee without regard to the effect such treatment may
have upon the employee's rights as a Participant under this Agreement.
7.04 NOTICES - Any notice or other communication which the Custodian may give to
a Participant shall be deemed given when sent by first class mail to the
Participant's last known address on the Custodian's records. Any notice or
other communication to the Custodian shall not become effective until the
Custodian actually receives it.
7.05 EMPLOYER CONTRIBUTIONS - The Employer may make contributions to the Account
on behalf of the Participant. The Custodian is not obligated to operate the
Account in accordance with any plan executed by the Employer unless the
Custodian so agrees and the Employer notifies the Custodian and provides to
the Custodian a copy of the Plan Document.
7.06 MATTERS RELATING TO DIVORCE - Upon receipt of a domestic relations order,
the Custodian may retain an independent third party to determine whether
the order is a Qualified Domestic Relations Order pursuant to Section
414(p) of the Code. The Custodian may charge to the Account any and all
expenses associated with the determination.
<PAGE>
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403(b)(7) SALARY DEFERRAL AGREEMENT AND INVESTMENT SELECTION
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPE THE INFORMATION REQUESTED BELOW AND FILE THIS FORM
WITH YOUR EMPLOYER. SAVE A COPY FOR YOUR RECORDS.
- --------------------------------------------------------------------------------
PARTICIPANT INFORMATION
- --------------------------------------------------------------------------------
Name____________________________________________________________________________
Home Address____________________________________________________________________
City____________________________________ State________________ Zip _____________
Daytime Phone No. (_____)_______________ Soc. Sec. No. _________________________
- --------------------------------------------------------------------------------
EMPLOYER INFORMATION
- --------------------------------------------------------------------------------
Name of Employer _______________________________________________________________
Address_________________________________________________________________________
NAME OF CUSTODIAN: State Street Bank and Trust Company
ADDRESS: P.O. Box 8511, Boston, MA 02266-8511
I, the undersigned Participant, hereby agree to defer the following amount or
percentage of my pay into a 403(b)(7) Tax-Sheltered Custodial Account each pay
period by way of payroll deduction: (check and complete only one)
[ ] $_____ (specify dollar amount)
[ ] _____ % (specify percentage of pay)
I agree that my pay will be reduced by the amount or percentage I have indicated
above and that my employer will contribute these dollars to my 403(b)(7)
Tax-Sheltered Custodial Account.
- --------------------------------------------------------------------------------
INVESTMENT SELECTION
- --------------------------------------------------------------------------------
I elect to have the Salary Deferral contributions, made on my behalf under this
agreement, invested as follows:
_______________________________________________________ _____________________ %
_______________________________________________________ _____________________ %
_______________________________________________________ _____________________ %
_______________________________________________________ _____________________ %
Total: 100%
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
This agreement shall be effective for the pay period which begins on____________
Date
_______________________________________ _________________________________
Signature of Participant Authorized Signature for Employer
_______________________________________ _________________________________
Date Title
403(b)(7) SAL. DEF. AGMT.
<PAGE>
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QUESTION AND ANSWERS ABOUT 403(b)(7)S
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Q. WHAT IS THE CGM 403(B)(7) TAX SHELTERED CUSTODIAL ACCOUNT?
A. The CGM 403(b)(7) Custodial Account is a voluntary savings plan that allows
you to set aside pre-tax money for retirement. Contributions are made by salary
reduction, and earnings are tax-deferred until you withdraw them.
Q. WHO IS ELIGIBLE?
A. Employees of public schools, colleges and universities, and those working for
home health care, hospital, church and nonprofit organizations recognized as
tax-exempt under Section 501(c)(3) of the Internal Revenue Code.
Q. HOW DOES IT WORK?
A. You decide each year what amount to set aside in your 403(b)(7) Custodial
Account, up to the annual IRS contribution limit. Then, you and your employer
complete a Salary Deferral Agreement, which indicates your contribution amount
and how often contributions will be made. (Monthly contributions are most
common.) Your employer then forwards your contribution to your CGM account for
investment.
Q. WHAT ARE MY INVESTMENT OPTIONS?
A. CGM offers four no-load mutual funds as investment choices. They are designed
to meet the needs of the long term investor.
o CGM MUTUAL FUND. A balanced fund investing in common stocks and bonds.
o CGM REALTY FUND. A diversified fund investing primarily in equity securities
of companies in the real estate industry (CGM Realty Fund is not available in
certain states, as described in the CGM Realty Fund prospectus.)
o CGM FIXED INCOME FUND. A total return bond fund that can invest in a variety
of bonds.
o CGM CAPITAL DEVELOPMENT FUND. A growth fund currently closed to new
investors.
We also offer two money market funds, sponsored by our affiliate, New England
Funds.
o NEW ENGLAND CASH MANAGEMENT - MONEY MARKET SERIES
o NEW ENGLAND CASH MANAGEMENT - U.S. GOVERNMENT SERIES
Your personal investment adviser can help you choose the combination of funds
that will best fit your investment goals. Before you invest or send money,
please read a current prospectus for the fund(s) selected for investment.
- --------------------------------------------------------------------------------
CONTRIBUTIONS
- --------------------------------------------------------------------------------
Q. HOW MUCH CAN I CONTRIBUTE TO MY PLAN THROUGH SALARY REDUCTION?
A. In order to determine the maximum amount that you can contribute, please
refer to the enclosed IRS Publication 571.
Q. ONCE MY SALARY REDUCTION HAS STARTED, CAN I CHANGE THE AMOUNT?
A. Yes. Your salary reduction amount may be changed by filing a new Salary
Deferral Agreement with your employer. You may make only one change per calendar
year.
Q. CAN I STOP MY CONTRIBUTIONS?
A. Yes. You can ask your employer to stop contributing to the plan at the end of
any payroll period. You can participate in the plan again at the beginning of
the next calendar year by filing a new Salary Deferral Agreement with your
employer.
Q. WILL MY SALARY REDUCTION REDUCE MY EARNINGS FOR SOCIAL SECURITY PURPOSES?
A. No. Your gross income before 403(b)(7) contributions is used for Social
Security tax calculations.
Q. IF 403(b)(7) ASSETS HAVE BEEN DISTRIBUTED TO ME, MAY I ROLL OVER THOSE ASSETS
INTO A CGM IRA?
A. Yes. If you are rolling over 403(b)(7) assets from another company, simply
invest the distributed amount into your CGM IRA within 60 days. To establish
your CGM IRA, send us the CGM IRA Account Application with your check (made
payable to State Street Bank and Trust Company). If you already have a CGM IRA
to accept the rollover money, you need only send us instructions (explaining
that you are rolling over your 403(b)(7) assets into your CGM IRA). Be sure to
reference your CGM IRA account number in your letter. You may wish to keep your
rolled-over 403(b)(7) assets in a separate IRA account for tax reasons. If so,
please send us a CGM IRA Account Application with your rollover check and
instruct us to establish a separate IRA account.
Q. CAN I TRANSFER AN EXISTING 403(b)(7) ACCOUNT INTO A CGM 403(b)(7) CUSTODIAL
ACCOUNT?
A. Yes. You can easily transfer the assets of your existing plan into your new
or existing CGM 403(b)(7) account. Please refer to the enclosed Checklist for
specific instructions.
403(b)(7) Q & A94
<PAGE>
- --------------------------------------------------------------------------------
QUESTION AND ANSWERS ABOUT 403(b)(7)s
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WITHDRAWALS
- --------------------------------------------------------------------------------
Q. HOW CAN I WITHDRAW FROM MY ACCOUNT BEFORE AGE 59 1/2 WITHOUT PENALTY?
A. You may withdraw from your account without penalty if you leave your job and
start a distribution plan based on your life expectancy, or the life expectancy
of you and your named beneficiary(ies). You may also withdraw without penalty if
you become disabled. Transfers of assets to another 403(b)(7) may be done at any
time. The IRS allows early withdrawals from your account for financial hardship,
but these withdrawals are subject to an IRS penalty of 10%.
Q. CAN I BORROW FROM MY CGM 403(b)(7) CUSTODIAL ACCOUNT?
A. No. the CGM 403(b)(7) Tax Sheltered Custodial Account does not permit loans.
Q. IF I LEAVE MY PRESENT EMPLOYER, WHAT HAPPENS TO MY 403(B)(7) CUSTODIAL
ACCOUNT?
A. Should you go to work for another "403(b)(7) eligible" employer, you can
transfer your 403(b)(7) account. If your new employer is not "403(b)(7)
eligible", then you may roll over your assets into a CGM IRA or another IRA in
order to retain their tax-sheltered status.
Q. WHEN CAN I ROLL OVER MY 403(b)(7) ASSETS INTO AN IRA?
A. You can roll over your 403(b)(7) assets into an IRA if you have separated
from service with your employer, attained age 59 1/2 or have become disabled. A
rollover of your entire account or just part of your account is permitted,
subject to certain restrictions. Ask you tax adviser for more details on the
rollover rules.
Q. WHAT HAPPENS TO MY CGM 403(b)(7) ASSETS WHEN I TERMINATE SERVICE WITH MY
EMPLOYER?
A. You may begin taking distributions from your account at age 59 1/2, and you
must begin distributions by age 70 1/2. The distribution options are described
fully in the enclosed 403(b)(7) Custodial Account Agreement.
- --------------------------------------------------------------------------------
IF YOU HAVE MORE QUESTIONS...
- --------------------------------------------------------------------------------
Q. WHO CAN ANSWER FURTHER QUESTIONS ABOUT MY CGM 403(b)(7) CUSTODIAL ACCOUNT?
A. It is important for you to read and understand the enclosed "403(b)(7)
Tax-Sheltered Custodial Account Agreement." That document constitutes the formal
legal arrangement for your CGM 403(b)(7) Plan, and you are bound by its
provisions and terms once you sign the CGM 403(b)(7) Account Application and
Salary Deferral Agreement. It is also essential that you receive and review a
prospectus for each mutual fund in which you invest. IRS Publication 571 also
provides useful information about 403(b)(7)s, and we are enclosing a copy of it
for your reference. We recommend that you consult your tax adviser or attorney
prior to establishing your plan.
- --------------------------------------------------------------------------------
ALL THE FORMS YOU NEED TO SET UP YOUR 403(b)(7) PLAN ARE INCLUDED IN THIS KIT.
IF YOU NEED ANY HELP COMPLETING THEM, PLEASE CALL US AT 800-345-4048.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
CGM 403(b)(7) TRANSFER FORM
- --------------------------------------------------------------------------------
IMPORTANT: To ensure timely processing of your transfer, please follow these
four steps:
o Phone your present 403(b) Custodian and verify the address of their Transfer
Department.
o Ask your present Custodian whether they require a signature guarantee on this
form.
o Complete the front of this form and mail it to: The CGM Funds, P.O. Box 449,
Boston, MA 02117
o If you are age 70 1/2 or older, ask your current Custodian to complete
Section A on the reverse side.
- --------------------------------------------------------------------------------
TO:
- --------------------------------------------------------------------------------
Name of Present Custodian
- --------------------------------------------------------------------------------
Street Address City State Zip Code
- --------------------------------------------------------------------------------
Name of Investment Account Number
- --------------------------------------------------------------------------------
I HAVE ESTABLISHED A 403(b)(7) TAX-SHELTERED CUSTODIAL ACCOUNT WITH THE CGM
FUNDS, AND HAVE APPOINTED STATE STREET BANK AND TRUST COMPANY, AS SUCCESSOR
CUSTODIAN. PLEASE ACCEPT THIS AS YOUR AUTHORIZATION AND INSTRUCTION TO LIQUIDATE
FROM MY 403(b) TSA ACCOUNT REFERENCED ABOVE (CHECK ONE):
[ ] $____________________ [ ] ALL ASSETS [ ] ALL ASSETS UPON MATURITY
PLEASE MAKE THE PROCEEDS CHECK PAYABLE TO:
STATE STREET BANK AND TRUST COMPANY, CUSTODIAN FOR THE 403(b)(7) ACCOUNT OF
- --------------------------------------------------------------------------------
Participant Name Social Security Number
- --------------------------------------------------------------------------------
Employer Name Employer's Phone Number
- --------------------------------------------------------------------------------
Name of Mutual Fund Account Number (if new, write "new")
MAIL CHECK TO: STATE STREET BANK AND TRUST COMPANY, P.O. BOX 8511, BOSTON, MA
02266
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE SIGN HERE:
- --------------------------------------------------------------------------------
Your Signature Date Your Daytime Phone Number
- --------------------------------------------------------------------------------
Your Address
- --------------------------------------------------------------------------------
Signature Guarantee (if required) Name of Firm By: Authorized Individual
- --------------------------------------------------------------------------------
403(b)(7) TRANSFER
<PAGE>
- --------------------------------------------------------------------------------
SECTION A: (CERTIFICATION BY PRESENT CUSTODIAN)
IF YOU ARE AGE 70 1/2 OR OLDER, THIS SECTION MUST BE COMPLETED BY YOUR PRESENT
CUSTODIAN BEFORE YOU SUBMIT THIS FORM TO THE CGM FUNDS.
1. PURSUANT TO IRS REGULATIONS, THE TRANSFEROR TRUSTEE/CUSTODIAN CERTIFIES
THAT THIS TRANSFER WILL NOT INCLUDE ANY MINIMUM AMOUNTS REQUIRED TO BE
DISTRIBUTED TO THE ABOVE-NAMED CUSTOMER WITH RESPECT TO ANY APPLICABLE
DISTRIBUTION CALENDAR YEAR.
2. DATE OF BIRTH OF THE DESIGNATED (MEASURING) BENEFICIARY BEING USED TO
CALCULATE MINIMUM REQUIRED DISTRIBUTIONS WITH RESPECT TO THE TRANSFEROR
PLAN IS:
___________/___________/____________ .
3. LIFE EXPECTANCY OF THE PARTICIPANT WAS BEING
RECALCULATED: [ ] YES [ ] NO
4. LIFE EXPECTANCIES OF THE PARTICIPANT AND/OR SPOUSE
BENEFICIARY WERE BEING RECALCULATED: [ ] YES [ ] NO
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE OF PRESENT TRUSTEE/CUSTODIAN DATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION B: (ACCEPTANCE BY SUCCESSOR CUSTODIAN)
THIS SECTION WILL BE COMPLETED BY YOUR SUCCESSOR CUSTODIAN, STATE STREET BANK
AND TRUST COMPANY. THE FORM WILL THEN BE FORWARDED BY STATE STREET BANK TO YOUR
PRESENT CUSTODIAN TO INITIATE AND AUTHORIZE YOUR 403(b) TRANSFER OF ASSETS.
STATE STREET BANK AND TRUST COMPANY HEREBY ACCEPTS FUNDS WHICH YOU HOLD.
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE, STATE STREET BANK AND TRUST COMPANY DATE
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
THE CGM FUNDS 403(b)(7) TAX-SHELTERED CUSTODIAL AGREEMENT ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. PARTICIPANT INFORMATION (PLEASE COMPLETE)
- --------------------------------------------------------------------------------
Name ___________________________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
Social Security #_______________________________________________________________
Date of Birth __________________________________________________________________
Daytime Telephone Number _______________________________________________________
- --------------------------------------------------------------------------------
2. EMPLOYER INFORMATION (PLEASE COMPLETE)
- --------------------------------------------------------------------------------
Employer's Name ________________________________________________________________
Employer's Address _____________________________________________________________
________________________________________________________________________________
- --------------------------------------------------------------------------------
3. INITIAL APPLICATION FEE (PLEASE SEND $5.00 CHECK)
- --------------------------------------------------------------------------------
[ ] I am attaching a check for $5.00 payable to State Street Bank and Trust
Company.
- --------------------------------------------------------------------------------
4. CONTRIBUTIONS ($1,000 MINIMUM INITIAL PURCHASE)
- --------------------------------------------------------------------------------
Contribution monies for my 403(b)(7) account will come to you from: (Please
check all that apply)
[ ] Employer Contributions (salary reductions). I have completed the 403(b)(7)
Salary Deferral Agreement and Investment Selection and have submitted it to
my Employer.
[ ] Transfer of Assets from another 403(b)(7) account. I have completed the
Transfer of Assets form and am attaching it to this application.
[ ] Rollover from an IRA whose assets previously had been invested in a 403(b)
or 403(b)(7) Plan.
- --------------------------------------------------------------------------------
SEND APPLICATION TO:
THE CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117-0499
403(b)(7) APP94
- --------------------------------------------------------------------------------
5. INVESTMENTS (PLEASE CHECK ALL BOXES THAT APPLY)
- --------------------------------------------------------------------------------
Contribution monies for my 403(b)(7) account will be invested in the following
mutual fund(s):
[ ] ____% CGM Mutual Fund
[ ] ____% CGM Realty Fund (CGM Realty Fund is not available in certain states,
as described in the CGM Realty Fund prospectus.)
[ ] ____% CGM Fixed Income Fund
[ ] ____% CGM Capital Development Fund
(CGM Capital Development Fund is closed. Please see Section 10 on the reverse
side. If you are an eligible investor, please fill in your existing CGM
Capital Development Fund account number: ___________________________ .)
[ ] ____% New England Cash Management Trust (Money Market Series)
[ ] ____% New England Management Trust (U.S. Government Series)
- --------------------------------------------------------------------------------
6. TELEPHONE EXCHANGE PRIVILEGES
- --------------------------------------------------------------------------------
[ ] Yes [ ] No
This service enables you to exchange monies ($1,000 minimum) by telephone among
accounts with the same registration in the CGM Funds or New England Money Market
Funds. CGM Capital Development Fund is closed. Please see Section 10 for full
details. CGM Realty Fund is not available in certain states, as described in
that Fund's prospectus. By completing this section, you authorize the Fund and
its agents to accept and act upon telephone instructions from you and
acknowledge receipt of the current prospectus of the Fund into which the
exchange is made.
- --------------------------------------------------------------------------------
7. SIGNATURES (BOTH YOU AND YOUR EMPLOYER MUST SIGN)
- --------------------------------------------------------------------------------
By this application, my employer and I direct the Custodian to open a separate
Custodial Investment Account for my benefit according to the CGM 403(b)(7)
Tax-Sheltered Custodial Account Agreement, and agree to the provisions contained
in the Agreement and to the provisions listed in Section 11 of this form. I
acknowledge that I have received a current prospectus for the fund(s) selected
for investment, and that I have completed the Beneficiary Information in Section
8 on the reverse side.
X_______________________________________________________________________________
Signature of Participant Date
X_______________________________________________________________________________
Signature of Employer Date
Douglass L. Coyne
X_______________________________________________________________________________
Accepted by State Street Bank and Trust Company
(A statement will be sent to you confirming the above transactions and will
serve as notification of State Street Bank's acceptance. Please note that there
is a $10.00 annual maintenance fee per mutual fund account.)
(OVER)
<PAGE>
- --------------------------------------------------------------------------------
8. DESIGNATION OF BENEFICIARIES (PLEASE COMPLETE)
- --------------------------------------------------------------------------------
I designate the individual(s) named below as my primary and contingent
Beneficiary(ies) of this Tax-Sheltered Custodial Account Agreement (TSA). I
revoke all prior TSA Beneficiary designations, if any, made by me with respect
to this TSA. I understand that I may change or add Beneficiaries at any time by
completing and delivering the proper form to the Custodian.
If any primary or contingent Beneficiary dies before me, his or her interest and
the interest of his or her heirs shall terminate completely, and the percentage
share of any remaining Beneficiary(ies) shall be increased on a pro rata basis.
PRIMARY BENEFICIARY(IES):
________________________________________________________________________________
Name
________________________________________________________________________________
Address
________________________________________________________________________________
________________________________________________________________________________
% Share Social Security Number Relationship
CONTINGENT BENEFICIARY(IES):
________________________________________________________________________________
Name
________________________________________________________________________________
Address
________________________________________________________________________________
________________________________________________________________________________
% Share Social Security Number Relationship
- --------------------------------------------------------------------------------
9. SPOUSAL CONSENT (PLEASE NOTE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS SECTION SHOULD BE REVIEWED IF EITHER THE CUSTODIAL ACCOUNT OR THE
RESIDENCE OF THE PARTICIPANT IS LOCATED IN A COMMUNITY OR MARITAL PROPERTY
STATE AND THE PARTICIPANT IS MARRIED. DUE TO THE IMPORTANT TAX CONSEQUENCES OF
GIVING UP ONE'S COMMUNITY OR PROPERTY INTEREST, INDIVIDUALS SIGNING THIS
SECTION SHOULD CONSULT WITH A COMPETENT TAX OR LEGAL ADVISOR.
- --------------------------------------------------------------------------------
I am the spouse of the above-named Participant. I acknowledge that I have
received a fair and reasonable disclosure of my spouse's property and financial
obligations. Due to the important tax consequences of giving up my interest in
this TSA, I have been advised to see a tax professional.
I hereby give the Participant any interest I have in the funds or property
deposited in this TSA and consent to the beneficiary designation(s) indicated
above. I assume full responsibility for any adverse consequences that may
result. No tax or legal advice was given to me by the Custodian.
X_______________________________________________________________________________
Signature of Spouse Date
- --------------------------------------------------------------------------------
10. WHO CAN PURCHASE SHARES OF CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
Only shareholders of the CGM Capital Development Fund as of September 24, 1993
who remain shareholders thereafter may purchase additional shares of the Fund.
The Fund reserves the right to reject any purchase order. This policy supersedes
all previous eligibility requirements. Fund shares are not generally available
to other persons except in special circumstances that have been approved by, or
under the authority of, the board of trustees of the Fund. The special
circumstances currently approved by the board of trustees of the Fund are
limited to the offer and sale of shares of the Fund to the following additional
persons: trustees of the Fund, employees of the Investment Manager and counsel
to the Fund and the Investment Manager.
- --------------------------------------------------------------------------------
11. PROVISIONS (PLEASE READ BEFORE SIGNING)
- --------------------------------------------------------------------------------
I am the Participant named above and I state that I have read the 403(b)(7)
Tax-Sheltered Custodial Account Agreement (TSA) and understand and agree to its
terms and provisions. I hereby establish an Account pursuant to that Agreement
and appoint State Street Bank and Trust Company, or its successors, as Custodian
of the Account. I assume complete responsibility for: (a) determining that I am
eligible for a TSA each year I make a contribution; (b) insuring that all
contributions I make are within the limits set forth by the tax laws; and (c)
the tax consequences of any contributions (including rollover or transfer
contributions) and distributions. I expressly certify that I take complete
responsibility for the type of investment instrument(s) I choose to fund my TSA,
and that the Custodian is released of any liability regarding the performance of
any investment choice I make. I acknowledge receipt of a copy of this Agreement
and of the current prospectus(es) of the mutual fund(s) selected.
If I have elected the "Telephone Exchange" service, I understand that the Fund
may terminate or modify this privilege at any time. The Fund will employ
reasonable procedures to confirm that instructions received by telephone are
genuine, such as requesting personal identification information that appears on
your account application and recording the telephone conversation. You will bear
the risk of loss due to unauthorized or fraudulent instructions regarding your
account, although the Fund may be liable if reasonable procedures are not
employed.
<PAGE>
CGM MUTUAL FUND
CGM FIXED INCOME FUND
[Logo} CGM CAPITAL DEVELOPMENT FUND
Post Office Box 449
Boston, Massachusetts 02117
800-345-4048
DEAR INVESTOR:
THANK YOU FOR YOUR INTEREST IN THE CGM FUNDS QUALIFIED RETIREMENT PLAN!
ENCLOSED ARE THE PROSPECTUSES AND INFORMATION YOU REQUESTED.
THE CGM PROTOTYPE OFFERS TWO TYPES OF PLANS -- A MONEY PURCHASE PENSION PLAN
AND A PROFIT SHARING PLAN. MONEY PURCHASE PENSION PLANS REQUIRE THAT YOU MAKE
ANNUAL CONTRIBUTIONS BASED ON A PERCENTAGE DESIGNATED BY YOU IN YOUR ADOPTION
AGREEMENT, REGARDLESS OF YOUR PROFITS. PROFIT SHARING PLANS ALLOW YOU TO VARY
THE AMOUNT THAT YOU CONTRIBUTE EACH YEAR DEPENDING ON YOUR PROFITS. PLEASE
REFER TO THE BASIC PLAN DOCUMENT AND PLAN ADMINISTRATOR'S GUIDE FOR ADDITIONAL
INFORMATION.
STATE STREET BANK AND TRUST COMPANY IN BOSTON, MASSACHUSETTS, SERVES AS
TRUSTEE FOR THE CGM PLAN. THE TRUSTEE CHARGES $5 AS AN ESTABLISHMENT FEE AND
$10 PER YEAR PER ACCOUNT AS A MAINTENANCE FEE. THERE IS ALSO A $5 CHARGE FOR
EACH LUMP SUM DISTRIBUTION OR RETURN OF AN EXCESS CONTRIBUTION.
YOU'LL FIND THE STEPS FOR ESTABLISHING YOUR PLAN ON THE NEXT PAGE. WE'RE HERE
TO ANSWER YOUR QUESTIONS IF YOU NEED ANY HELP COMPLETING THE FORMS. PLEASE
CALL US AT 800-345-4048.
THE CGM FUNDS
KEOLETTER
<PAGE>
HOW TO ESTABLISH YOUR CGM RETIREMENT PLAN
- --------------------------------------------------------------------------------
SET UP STEPS FOR ALL EMPLOYERS
[X] YOU SHOULD DETERMINE WHICH PLAN OR PLANS ARE BEST SUITED TO YOUR BUSINESS.
WE RECOMMEND THAT YOU SEEK INPUT FROM YOUR TAX AND LEGAL ADVISORS BEFORE
MAKING A FINAL DECISION. WE CANNOT ADVISE YOU IN YOUR PLAN SELECTION.
[X] ONCE YOU HAVE SELECTED THE APPROPRIATE PLAN(S), YOU SHOULD COMPLETE AND
SIGN THE ADOPTION AGREEMENT WHICH CORRESPONDS TO THAT PLAN. PLEASE REFER
TO THE "INSTRUCTIONS FOR COMPLETING THE ADOPTION AGREEMENT" FOR GUIDANCE.
SEND THE ORIGINAL FORM TO CGM, AND KEEP A COPY WITH YOUR PERMANENT
RECORDS.
[X] ASK EACH PARTICIPANT TO COMPLETE AND SIGN THE DESIGNATION OF BENEFICIARY
FORM. SEND THE ORIGINAL FORM TO CGM. BOTH YOU AND THE PARTICIPANT SHOULD
KEEP A COPY.
[X] COMPLETE THE INVESTMENT ALLOCATION FORM, AND SEND IT TO CGM. KEEP A COPY
FOR YOUR FILES.
[X] SUBMIT YOUR CHECK PAYABLE TO STATE STREET BANK, FOR THE TOTAL AMOUNT OF
INVESTMENTS AS WELL AS AN ADDITIONAL $5 TO COVER THE PLAN ESTABLISHMENT
FEE.
[X] IF YOU ARE TRANSFERRING ASSETS FROM ANOTHER INSTITUTION, COMPLETE THE
TRANSFER OF ASSETS FORM, AND SEND IT TO CGM. WE WILL COORDINATE THE
TRANSFER FOR YOU.
IMPORTANT REQUIREMENTS FOR EMPLOYERS WITH EMPLOYEES
[X] YOU MUST PROVIDE EACH EMPLOYEE WITH A COPY OF THE SUMMARY PLAN DESCRIPTION
(SPD). PLEASE CALL US AT 800-345-4048 FOR A SUPPLY OF SPD BOOKLETS ONCE
YOUR PLAN IS ESTABLISHED.
[X] YOU MUST COMPLETE THE SPD GENERAL INFORMATION SHEET AND POST THE NOTICE AT
THE WORKPLACE IN AN AREA CUSTOMARILY USED FOR NOTICES TO EMPLOYEES. PLEASE
CALL US AT 800-345-4048 FOR THE SPD GENERAL INFORMATION SHEET ONCE YOUR
PLAN IS SET UP.
MAIL ALL FORMS AND CHECKS TO:
-----------------------------
THE GGM FUNDS
P.O. BOX 449
BOSTON, MA. 02116
KEOESTAB
<PAGE>
FORMS YOU WILL FIND IN THIS FOLDER
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
FORM PURPOSE ACTION
- ----------------------------------------------------------------------------------------------------
Plan Document Legal document (prototype) Employer should review the
describing the Plan. Copies Plan document and retain it
of the IRS Opinion Letters for their permanent files.
are also enclosed.
- ----------------------------------------------------------------------------------------------------
Adoption Agreement Specifies Plan provisions and Employer completes, signs,
is the means by which the returns original to CGM, and
Employer formally adopts the retains a copy in for
Plan and agrees to be bound permancnt files.
by its terms.
- ----------------------------------------------------------------------------------------------------
Investment Allocation Lists Plan participants and Employers completes and
investment selection. returns original to CGM.
- ----------------------------------------------------------------------------------------------------
Transfer of Assets Authorizes the transfer of Employer completes and
assets from another sponsor. returns to CGM, if applicable.
- ----------------------------------------------------------------------------------------------------
Beneficiary Designation Specifies beneficiary. Participant completes, keeps
a copy and sends original to
CGM. Employer also keeps a
copy.
- ----------------------------------------------------------------------------------------------------
Plan Administrator's Guide Quick reference tool for Plan Administrators and Employers
Administrators and Employers. should review and retain.
- ----------------------------------------------------------------------------------------------------
How To Establish Your Plan Outlines the steps Employer Employer should review.
should follow to set up a new
CGM Plan.
- ----------------------------------------------------------------------------------------------------
</TABLE>
KEOCONTENTS
<PAGE>
TRANSFERRING YOUR RETIREMENT PLAN ASSETS TO THE CGM FUNDS
PLEASE FILL IN THE INFORMATION REQUESTED BELOW AND RETURN THIS FORM TO THE
CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117. PLEASE READ THE IMPORTANT NOTICE
ON THE BACK OF THIS FORM.
TO: ____________________________________________________________________________
Name of Current Trustee
____________________________________________________________________________
Address of Current Trustee (Please include contact person and
phone number at Current Trustee)
RE: ____________________________________________________________________________
Name of Investment Vehicle At Current Trustee Account Number
- --------------------------------------------------------------------------------
1 We have established a retirement plan under section 401(a) of the Internal
Revenue Code and have appointed State Street Bank and Trust Co., as
Successor Trustee.
2 Please accept this as your authorization and instruction to liquidate
$____________________________________________
(Indicate dollar amount, percentage or "all")
and transfer my assets (check one): [ ] Upon receipt of this letter or
[ ] Upon maturity of my investment
3 Make checks payable to:
State Street Bank and Trust Company, Trustee for the CGM
___________________________________________________________________ Plan of
(Please indicate either Profit Sharing Plan or Money Purchase Pension Plan)
___________________________________ FBO __________________________________
(Name of Employer) (Name of Participant)
4 Please indicate the following investment allocation on the check to be
sent to State Street Bank:
__________________________________________________________________________
Fund Account #(Write "new" if you don't have a CGM a/c#) Percentage(%)
__________________________________________________________________________
Fund Account #(Write "new" if you don't have a CGM a/c#) Percentage(%)
5 MAIL CHECK TO: STATE STREET BANK AND TRUST COMPANY
P.O. BOX 8511
BOSTON, MA 02266-8511
- --------------------------------------------------------------------------------
________________________________________________________________________________
Signature of Plan Administrator Date Daytime Phone Number
________________________________________________________________________________
Address of Plan Administrator City State Zip Code
Please do not write below this line:
- --------------------------------------------------------------------------------
State Street Bank and Trust Company hereby accepts the retirement plan assets
which you hold:
________________________________________________________________________________
Authorized Signature, State Street Bank and Trust Co. Date
KEOTRAN
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT INFORMATION IF YOU ARE TRANSFERRING ASSETS
FROM AN EXISTING PLAN TO CGM
- --------------------------------------------------------------------------------
BEFORE COMPLETING THE ENCLOSED SIMPLIFIED ADOPTION AGREEMENT, PLEASE COMPARE IT
WITH YOUR CURRENT PLAN DOCUMENT AND ADOPTION AGREEMENT TO MAKE CERTAIN THAT THE
PROVISIONS OF THE TWO PLANS ARE THE SAME.
FOR EXAMPLE, IF YOU NOW HAVE A PLAN THAT ALLOWS FOR DISTRIBUTIONS AS A RESULT OF
FINANCIAL HARDSHIP OR A PLAN THAT IS INTEGRATED WITH SOCIAL SECURITY, THE CGM
SIMPLIFIED ADOPTION AGREEMENT IS NOT COMPATIBLE WITH YOUR CURRENT PLAN. THERE
ARE OTHER PROVISIONS WHICH MAY PRECLUDE YOUR USE OF OUR "SIMPLIFIED" FORM. IF
YOU HAVE QUESTIONS ABOUT THE COMPATIBILITY OF YOUR CURRENT PLAN AND THE CGM
PLAN, PLEASE SPEAK WITH YOUR TAX ADVISER.
IF YOU DETERMINE THAT YOU NEED TO ADOPT A PLAN WITH BROADER PROVISIONS, PLEASE
CALL US AT 800-345-4048 AND REQUEST A STANDARDIZED ADOPTION AGREEMENT FOR YOUR
PROFIT SHARING OR MONEY PURCHASE PLAN.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT ALLOCATION FORM
FOR THE CGM PROFIT SHARING AND MONEY PURCHASE PLAN
- --------------------------------------------------------------------------------
TO: The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
________________________________________________________________________________
Name of Employer's Business
________________________________________________________________________________
Employer's Address Daytime Phone Number
- --------------------------------------------------------------------------------
1. PLEASE INDICATE THE TYPE OF PLAN: [ ] Profit Sharing (PS)
[ ] Money Purchase Pension (MP)
2. ARE YOU TRANSFERRING ASSETS TO CGM FROM ANOTHER PS OR MP PLAN? [ ] Yes
[ ] No
3. ARE YOU MAKING A CONTRIBUTION? [ ] Yes
(Although contributions are not required until 3 1/2 [ ] No
months after the close of your tax year, generally
April 15, plus extensions, new plans must be
established by the end of your tax year, generally
December 31.)
4. IF YOU ARE MAKING A CONTRIBUTION, PLEASE INDICATE
WHICH TAX YEAR: _________________
(If no tax year is indicated, the Trustee will
assume current tax year)
5. EMPLOYER ELECTS THE TELEPHONE EXCHANGE OPTION AS [ ] Yes
DESCRIBED IN THE FUND'S PROSPECTUS [ ] No
(All exchanges must be authorized and placed by the
employer or plan administrator.)
6. IMPORTANT: PLEASE TELL US ABOUT THE PARTICIPANTS IN YOUR PLAN ON THE REVERSE
SIDE.
- --------------------------------------------------------------------------------
By signing this application establishing the CGM Qualified Profit Sharing and/or
Money Purchase Pension Plan (CGM Qualified Plan), I (i) appoint State Street
Bank and Trust Company, or its successors, as Trustees of the Account, (ii)
state that I have received, read, accept, and specifically incorporate the Plan
and Trust by reference to this application, (iii) acknowledge receipt of the
current prospectus of the mutual fund(s) selected, (iv) consent to the Trustee's
fee (currently $10.00 per account), and (v) agree to promptly give instructions
to the Trustee necessary to enable the Trustee to carry out its duties under the
Plan and Trust. I hereby adopt The CGM Qualified Plan upon terms and conditions
thereof.
________________________________________________________________________________
Employer's Signature Date
KEOINVEST95 (OVER)
<PAGE>
- --------------------------------------------------------------------------------
PARTICIPANT INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
PARTICIPANT'S NAME, SOCIAL SECURITY NO., INVESTMENT OPTION CONTRIBUTION
AND PLAN STATUS AMOUNT
- -------------------------------------------------------------------------------------------------------
Name:
_______________________________________ [ ] CGM Mutual Fund $ ____________
Social Security Number: (Required) [ ] CGM Realty Fund* $ ____________
_______________________________________ [ ] CGM Fixed Income Fund $ ____________
Plan Type: [ ] Profit Sharing [ ] CGM Capital Development Fund** $ ____________
[ ] Money Purchase Pension
[ ] Both Profit Sharing & New England Cash Management Trust
Money Purchase Pension [ ] Money Market Series $ ____________
Status: [ ] Owner [ ] Employee [ ] U.S Government Series $ ____________
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Name:
_______________________________________ [ ] CGM Mutual Fund $ ____________
Social Security Number: (Required) [ ] CGM Realty Fund* $ ____________
_______________________________________ [ ] CGM Fixed Income Fund $ ____________
Plan Type: [ ] Profit Sharing [ ] CGM Capital Development Fund** $ ____________
[ ] Money Purchase Pension
[ ] Both Profit Sharing & New England Cash Management Trust
Money Purchase Pension [ ] Money Market Series $ ____________
Status: [ ] Owner [ ] Employee [ ] U.S Government Series $ ____________
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Name:
_______________________________________ [ ] CGM Mutual Fund $ ____________
Social Security Number: (Required) [ ] CGM Realty Fund* $ ____________
_______________________________________ [ ] CGM Fixed Income Fund $ ____________
Plan Type: [ ] Profit Sharing [ ] CGM Capital Development Fund** $ ____________
[ ] Money Purchase Pension
[ ] Both Profit Sharing & New England Cash Management Trust
Money Purchase Pension [ ] Money Market Series $ ____________
Status: [ ] Owner [ ] Employee [ ] U.S Government Series $ ____________
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Name:
_______________________________________ [ ] CGM Mutual Fund $ ____________
Social Security Number: (Required) [ ] CGM Realty Fund* $ ____________
_______________________________________ [ ] CGM Fixed Income Fund $ ____________
Plan Type: [ ] Profit Sharing [ ] CGM Capital Development Fund** $ ____________
[ ] Money Purchase Pension
[ ] Both Profit Sharing & New England Cash Management Trust
Money Purchase Pension [ ] Money Market Series $ ____________
Status: [ ] Owner [ ] Employee [ ] U.S Government Series $ ____________
- -------------------------------------------------------------------------------------------------------
</TABLE>
* CGM Realty Fund is not available in certain states, as described in the CGM
Realty Fund prospectus.
** Only shareholders of the CGM Capital Development Fund as of September 24,
1993 who remain shareholders thereafter may purchase additional shares of the
Fund. The Fund reserves the right to reject any purchase order. This policy
supersedes all previous eligibility requirements. Fund shares are not
generally available to other persons except in special circumstances that
have been approved by, or under the authority of, the board of trustees of
the Fund. The special circumstances currently approved by the board of
trustees of the Fund are limited to the offer and sale of shares of the Fund
to the following additional persons: trustees of the Fund, employees of the
Investment Manager and counsel to the Fund and the Investment Manager. If you
are eligible, please check this box [ ] and fill in your existing CGM Capital
Development Fund account number:_____________________________________________
TOTAL CONTRIBUTIONS: $ ______________
PLAN ESTABLISHMENT FEE: $ ______________
TOTAL AMOUNT OF CHECK: $ ______________
A statement will be sent to you confirming the above transactions and will serve
as State Street Bank's acceptance.
<PAGE>
T h e C G M F u n d s
Qualified DESIGNATION OF BENEFICIARY
- --------------------------------------------------------------------------------
Retirement Plan
- --------------------------------------------------------------------------------
GENERAL
INFORMATION
NAME OF PLAN ___________________________________________________________________
NAME OF EMPLOYER _______________________________________________________________
ADDRESS ________________________________________________________________________
CITY ____________________________________________ STATE _______ ZIP_____________
COUNTY __________________________________________ PHONE ________________________
NAME OF PARTICIPANT ____________________________________________________________
ADDRESS ________________________________________________________________________
CITY ____________________________________________ STATE _______ ZIP_____________
HOME PHONE _____________ SOCIAL SECURITY NO.___________DATE OF BIRTH____________
CURRENT
MARITAL STATUS
[ ] I AM NOT MARRIED I understand that if I become married in the future, my
spouse will be my Primary Beneficiary unless I complete a
new Designation of Beneficiary form and my spouse consents
to my designation.
[ ] I AM MARRIED I understand that my spouse will be my Primary Beneficiary.
However, I understand I may designate a Primary Beneficiary
other than my spouse on the space below if my spouse signs
the section below entitled "Consent of Spouse".
DESIGNATION OF
BENEFICIARY(IES)
The following individual(s) shall be my beneficiary(ies). Please check Primary
or Contingent for each individual beneficiary.
IF NEITHER IS CHECKED, THE INDIVIDUAL WILL BE DEEMED TO BE A PRIMARY
BENEFICIARY.
If any primary or contingent beneficiary dies before me, his or her interest and
the interest of his or her heirs shall terminate completely, and the percentage
share of any remaining beneficiary(ies) shall be increased on a pro rata basis.
If no primary beneficiary(ies) survives me, the contingent beneficiary(ies)
shall acquire the designated share of my Qualified Plan balance.
PRIMARY CONTINGENT
[ ] [ ]
NAME _________________________________ SOCIAL SECURITY NO. ____________________
ADDRESS ______________________________ DATE OF BIRTH _____________ SHARE _____%
______________________________ RELATIONSHIP ___________________________
PRIMARY CONTINGENT
[ ] [ ]
NAME _________________________________ SOCIAL SECURITY NO. ____________________
ADDRESS ______________________________ DATE OF BIRTH _____________ SHARE _____%
______________________________ RELATIONSHIP ___________________________
PRIMARY CONTINGENT
[ ] [ ]
NAME _________________________________ SOCIAL SECURITY NO. ____________________
ADDRESS ______________________________ DATE OF BIRTH _____________ SHARE _____%
______________________________ RELATIONSHIP ___________________________
- --------------------------------------------------------------------------------
CONSENT OF SPOUSE
If Non-Spouse Beneficiary(ies)
are named as Primary Beneficiary
I am the spouse of the participant named above. I hereby consent to the above
designation of beneficiary. I understand that if anyone other than me is
designated as Primary Beneficiary on this form, I am waiving any rights I may
have to receive benefits under the plan when my spouse dies.
PARTlCIPANT'S SPOUSE SIGNATURE____________________________ DATE _______________
(Must be notarized. See below.)
- --------------------------------------------------------------------------------
[ ] THE PLAN ADMINISTRATOR WILL CHECK HERE IF THE FOLLOWING ELECTION DOES NOT
APPLY. SEE INSTRUCTIONS ON REVERSE SIDE.
- --------------------------------------------------------------------------------
WAIVER ELECTION
For Qualified Pre-Retirement
Survivor Annuity
MARRIED PARTICIPANT'S ELECTION TO WAIVE THE QUALIFIED PRE-RETIREMENT SURVIVOR
ANNUITY
As a married participant in my employer's qualified retirement plan, I
acknowledge that I have read the information about Qualified Pre-Retirement
Survivor Annuities on the reverse side of this form. I understand that when I
die, any amount remaining in my plan account will be paid to my surviving spouse
in the form of a Pre-Retirement Survivor Annuity. I understand that I have a
right to waive that form of payment.
I hereby elect to waive the requirement that my surviving spouse be paid any
benefits that I may have in the plan at the time of my death in the form of a
Qualified Pre-Retirement Survivor Annuity. I understand and agree that this
waiver is valid only if my spouse has consented by reading and signing the
statement below.
PARTICIPANT'S SIGNATURE_________________________________ DATE __________________
I am the spouse of the participant named above. I hereby consent to my spouse's
election not to have benefits remaining in his or her plan paid in the form of a
Qualified Pre-Retirement Survivor Annuity at his or her death. I understand that
my consent cannot be revoked unless my spouse revokes the above waiver.
PARTICIPANT'S SPOUSE SIGNATURE _________________________ DATE __________________
(Must be notarized.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WITNESS OF SPOUSE'S CONSENT
The signature of the spouse must be witnessed by a notary public. (Witness
applies to either or both elections.)
- -------------------------
WITNESS: NOTARY PUBLIC
- -------------------------
Subscribed and sworn to before me on this
________ day of __________________, 19__.
SIGNATURE _______________________________
- --------------------------------------------------------------------------------
SIGNATURES
PARTICIPANT SIGNATURE _________________________________ DATE____________________
WITNESS SIGNATURE _____________________________________ DATE____________________
KEOBENE #481 IMPORTANT: PLEASE SAVE A COPY OF THIS FORM
(4/92)L90 WITH YOUR PERMANENT RECORDS. (C) 1992 Universal Pensions, Inc.,
Brainerd, MN 56401
<PAGE>
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR WAIVER ELECTION FOR
QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITIES
- --------------------------------------------------------------------------------
EMPLOYEE: You and your spouse must complete the Waiver Election section if the
box has not been checked.
EMPLOYER: The Waiver Election is applicable to all Money Purchase Pension Plans
and Target Benefit Plans. It also applies to Profit Sharing Plans and
401(k) Plans if you did not select the REA Safe Harbor found in the
Adoption Agreement. If you did select the REA Safe Harbor provision,
place a check mark in the indicated box.
- --------------------------------------------------------------------------------
IMPORTANT INFORMATION
- --------------------------------------------------------------------------------
ABOUT QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITIES
- --------------------------------------------------------------------------------
If you are a married participant in your employer's qualified retirement plan,
the law requires that any amount remaining in your plan account be paid to your
surviving spouse in a certain manner at your death. This manner of payment,
called a "Qualified Pre-Retirement Survivor Annuity," will provide your spouse
with a series of periodic payments over his or her life. The size of the
periodic payments will depend on the amount remaining in your plan account.
For example, assume that a participant dies with an account balance of $10,000.
If the balance is paid to the surviving spouse in the form of a qualified
pre-retirement survivor annuity, the annuity will provide the spouse with
monthly payments of $76.60. (This payment amount is an estimate based on the
Individual Annuity Mortality Tables - 71 using a 5% interest rate with payments
commencing at age 65.)
You may elect to waive the following:
1. The requirement that your surviving spouse be paid in the form of a Qualified
Pre-Retirement Survivor Annuity, and,
2. The requirement that your spouse be your beneficiary (only if applicable).
You may make either or both of the above elections beginning with the first day
after which you become a participant in the plan. Any waiver election you sign
before age 35 will become invalid the first day of the plan year in which you
attain age 35. At that time you may again waive the Qualified Pre-Retirement
Survivor Annuity and the requirement that your spouse be your beneficiary.
Your spouse must consent in writing to either waiver. You have the right to
revoke any waiver that you have made at any time before your death. Your spouse
must also consent to any subsequent changes of beneficiary.
If your vested account balance is $3,500 or less at the time of your death, the
plan administrator may make a distribution to your surviving spouse in a single
sum cash payment even if you did not waive the Qualified Pre-Retirement Survivor
Annuity.
Because a spouse has certain rights under the law, you should inform your plan
administrator immediately of any changes in your marital status. A change in
your marital status may require you to complete a new Designation of Beneficiary
form.
For more information regarding Pre-Retirement Survivor Annuities, contact your
plan administrator (employer).
<PAGE>
THE CGM FUNDS
PLAN
ADMINISTRATOR'S
GUIDE
<PAGE>
INTRODUCTION
This Guide is a quick reference tool for plan administrators using our Defined
Contribution Qualified Retirement Plan. Under all qualified retirement plans,
the plan administrator is the person directly responsible for managing the daily
operations of the plan. Under most plans, the employer sponsoring the plan
serves as the plan administrator. Depending upon your company, the employer may
perform the duties of plan administrator or they may be delegated to a
representative of the employer. For ease of reading, all references to "you" or
"employer" in this Guide include persons working on behalf of or assisting the
employer in carrying out the responsibilities of the plan administrator.
This booklet is intended to alert you to various concepts and issues which are
common to the operation of a qualified retirement plan. This Guide serves its
purpose by bringing your attention to important issues and requirements
characteristic of qualified retirement plans. It is not intended as a
comprehensive reference book for assuring compliance with all rules under the
Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code
(IRC) which govern pension plans. The Guide is not a substitute for the
competent tax and legal advice which you may require from time to time while
performing your duties as plan administrator. It will enable you, however, to
identify those situations which can occur during plan administration which may
require the assistance of tax professionals.
Your Basic Plan Document and adoption agreement specify the areas of plan
operations for which you are responsible as plan administrator. Depending upon
your relationship with your prototype plan sponsor, you may directly or
indirectly be involved in the following areas:
o Formulating plan policy consistent with plan documentation,
o Determining participation, contribution and distribution eligibility,
o Maintaining plan records,
o Preparing and filing government reports, or
o Communicating regularly with employees participating in the plan.
It is helpful to clarify areas of plan administration responsibility with your
prototype plan sponsor to assure that you perform all plan operations for which
you are responsible in a timely manner.
<PAGE>
I. PLAN OPERATIONS AND ADMINISTRATION
Now that you have adopted your qualified retirement plan, there are several
areas of plan operation and administration of which you should be aware.
A. FORMAL ADOPTION OF THE PLAN
Depending upon the legal status of your company, formal steps may be
required to adopt the plan. For example, if your company is organized as a
corporation, a resolution by the board of directors adopting the plan
should be placed on the corporate books. If your company is a partnership,
you should consult the partnership agreement to determine the steps
necessary, if any, to formally adopt your plan. If you do not have a
written partnership agreement, consult with your attorney to determine
whether your state law requires any special procedures be followed to
adopt the plan.
B. PLAN APPROVAL
If you have adopted a standardized plan and have never maintained another
qualified plan, you may rely on the favorable opinion or notification
letter issued to your prototype sponsor concerning the tax qualification
of your plan. In the event you have adopted a nonstandardized plan or have
maintained another qualified plan, however, you may wish to obtain a
determination letter from your IRS Key District Office approving the tax
qualified status of your plan. Your adoption agreement indicates whether
your plan is a standardized or a nonstandardized plan.
C. BONDING REQUIREMENTS
ERISA requires that certain persons who have direct or indirect access to
or control over plan assets be bonded by a corporate surety company unless
the employer sponsoring the plan has no common law employees. All plan
fiduciaries and others handling plan assets must be insured for acts of
fraud or dishonesty involving plan assets. Generally, the bond must equal
10% of the value of the assets administered during a plan year, although
there is a minimum coverage amount of $1,000 and a ceiling of $500,000.
<PAGE>
D. PLAN ELIGIBILITY AND PARTICIPATION
After initial enrollment in your plan has been completed, you will
periodically need to review the conditions for plan eligibility and
participation as new employees become eligible to participate in the plan.
As new employees become eligible, you should provide them with information
about the plan, including the Summary Plan Description. Refer to your
adoption agreement for plan specifics concerning minimum age and service
requirements and plan entry dates and procedures.
E. PLAN CONTRIBUTIONS
If you have adopted a profit sharing plan, each plan year you will decide
whether a contribution will be made on behalf of your employees. Profit
sharing contributions may be made from accumulated or current year
profits. To insure the tax deductibility of your profit sharing
contribution, funds must be deposited into the plan no later than the
deadline for filing your company's federal income tax return (or any
extensions) for the year.
Once made to the plan, the profit sharing contribution will be allocated
to the individual accounts of plan participants. Refer to your adoption
agreement to determine if any special allocation rules apply to your plan.
If you have adopted a money purchase plan, a contribution must be made for
each plan year in an amount equal to the contribution percentage specified
in your adoption agreement. The contribution must be deposited into the
plan prior to your company's federal income tax filing deadline (or any
extensions) to assure income tax deductibility.
You should refer to your adoption agreement to determine the vesting
schedule, if any, which applies to your plan. The vesting schedule
determines the amount of benefits to which an employee will be entitled
upon separation from service with your company.
F. TESTING FOR DISCRIMINATION
To maintain its favorable tax status, contributions made to your plan must
pass several tax qualification and nondiscrimination
<PAGE>
tests each plan year. Some tests must be met each day of the plan year
while others need be satisfied one day out of each quarter of the plan
year. In either event, the purpose of the various tests is to insure that
those employees who are "highly compensated" do not receive nor have made
available to them disproportionately more valuable benefits than those
received by or made available to nonhighly compensated employees.
The Internal Revenue Code (IRC) defines highly compensated employees in
detail. Generally, each employer will have at least one highly compensated
employee against whom the benefits received by or made available to
nonhighly compensated employees will be measured.
The various qualification and nondiscrimination tests to which your
qualified retirement plan is subject include the following:
o GENERAL NONDISCRIMINATION RULES--IRC Sec. 401(a)(4) prohibits
qualified retirement plans from discriminating in favor of highly
compensated employees. Under these rules, plan contributions and
benefits must be nondiscriminatory in amount; plan benefits,
rights and features must be available to employees in a
nondiscriminatory manner and the plan cannot be discriminatory in
operation under special circumstances. The IRC Section 401(a)(4)
proposed regulations provide special safe harbor rules to meet
these tests.
o MINIMUM PARTICIPATION RULES--IRC Sec. 401(a)(26) requires that a
minimum number of nonhighly compensated employees participate in
the plan. Generally, it is necessary that the lesser of 40% of
all employees or 50 employees be participating in the plan. This
test need only be satisfied on one day of each plan year provided
the testing date is representative of the entire plan year.
o MINIMUM COVERAGE RULES--IRC Sec. 410(b) requires that a minimum
number of nonhighly compensated employees be covered by the plan
in relation to the number of highly compensated employees covered
by the plan. Generally, a plan passes this test if at least 70%
of the nonhighly compensated employees are covered by the plan on
one day of each quarter during the plan year.
<PAGE>
o TOP-HEAVY RULES--IRC Sec. 416 provides that a plan is top-heavy
if more than 60% of all plan assets are held in the accounts of
"key employees." The IRC defines "key employees" in detail.
In the event your plan is top-heavy, special rules which must be
followed include a minimum contribution for nonkey employees and
an accelerated vesting schedule.
o ANNUAL ADDITIONS RULE--IRC Sec. 415 limits the contribution
amount which may be allocated to an employee for any plan year.
The maximum amount which may be allocated to any employee during
any plan year is limited to the lesser of 25% of the employee's
compensation or $30,000. The IRC defines "annual additions" in
detail.
o FEDERAL INCOME TAX AND EMPLOYMENT TAX--Employer profit sharing
and money purchase contributions are not subject to federal
income tax withholding, FICA or FUTA tax.
G. HANDLING PAYOUTS--ELIGIBLE ROLLOVER DISTRIBUTIONS
The Unemployment Compensation Amendments of 1992 (UCA-92), which became
effective in 1993, liberalizes the types of plan payouts that may be
rolled over to an IRA or another employer's qualified plan. Such
"rollable" distributions are called "eligible rollover distributions."
Eligible rollover distributions are all distributions from the plan except
the following:
o required minimum distributions;
o certain distributions that are part of a series of equal (or
almost equal) periodic payments that will last for the
participant's lifetime (or joint lives of the participant and
beneficiary) or for a specified period of 10 years or more;
o distributions to nonspouse beneficiaries of deceased
participants;
o distributions of after-tax employee contributions; and
o certain distributions to correct plan excess contributions.
<PAGE>
20% Withholding If Eligible Rollover Distribution Is Not Rolled Over
Eligible rollover distributions which are not directly rolled over to an
IRA or another employer plan are subject to mandatory 20% federal income
tax withholding. In other words, a participant in the plan who does not
request a direct rollover of his or her eligible rollover distribution
(that is, the participant requests a check payable to himself or herself
instead) will receive only 80% of the payment. This is because you (as the
plan administrator) are required to withhold 20% of the payment and send
it to the IRS as income tax withholding to be credited against the
participant's taxes. Note that the participant cannot waive withholding on
any eligible rollover distribution that is paid directly to the
participant.
Must Give Participant A Notice
Under UCA-92, the plan administrator must give participants who request a
payment from the plan a notice that describes their tax treatment options
regarding the payment. Generally, you must furnish this notice to the
participant at least 30 but no more than 90 days prior to the payout.
Procedure For Making A Direct Rollover
The IRS regulations under UCA-92 allow the plan administrator to establish
reasonable procedures that participants must follow to elect a direct
rollover. You may also ask participants and the provider of the receiving
IRA (or a representative of the new employer's plan) to provide reasonable
information about the IRA or plan as a condition to the direct rollover.
When issuing a check for a direct rollover, the regulations specify that
the check is to be made payable to the trustee, custodian or issuer of the
new IRA or plan. For example, if your former employee John Q. Smith elects
a direct rollover to his IRA at ABC Bank, the payee line of the check
would read "ABC Bank as the trustee of John Q. Smith's IRA."
H. OTHER DISTRIBUTION ISSUES
Your plan documents specify the forms of benefit distribution available
under the plan. Many plans require that plan benefits be distributed in
the form of an annuity unless this option is properly waived. Your
adoption agreement will indicate whether distributions from your plan may
be taken in forms other than an annuity.
<PAGE>
Under your plan, a participant or his/her beneficiary may begin receiving
a distribution of benefits upon the occurrence of the following:
o Retirement
o Death
o Disability
o Separation from service
o Plan termination or
o Sale of all corporate assets
Special distribution rules come into play when plan participants reach age
70-1/2. Similar rules also apply to distributions to beneficiaries of
deceased individuals. Generally, plan participants must begin taking
distributions when they reach their required beginning date. The required
beginning date is generally April 1 of the year following the year in
which a participant turns age 70-1/2. Once triggered, a minimum
distribution must be taken annually by December 31. In general, the amount
of the annual minimum distribution will be determined by dividing the
balance in the participant's individual account by the participant's life
expectancy or the joint life expectancy of the participant and his/her
beneficiary.
Your plan may permit in-service withdrawals of benefits to be taken from
the plan. Some plans limit in-service withdrawals to hardship
circumstances. Refer to your adoption agreement to determine if in-service
withdrawals are permitted under your plan and, if so, the circumstances
necessary to trigger an in-service withdrawal.
Under limited circumstances, a distribution of a participant's benefits
may be made pursuant or incident to a divorce or legal separation. In this
event, you must take steps to insure that any distribution relating to
child support, alimony, or marital property remains tax qualified. To
accomplish this, it will be necessary that you obtain a qualified domestic
relations order (QDRO). Your plan documents incorporate the IRC rules
governing QDROs. It is recommended that you have your legal counsel review
any domestic relations order which concerns plan assets in connection with
your plan documents to determine whether the order is a qualified domestic
relations order under the plan. Once this determination has been made, you
<PAGE>
must notify all persons affected by your decision within a reasonable
time. Any distribution of benefits made pursuant to a QDRO is nontaxable
to the participant if the alternate payee is the spouse or former spouse
of the participant.
Generally, plan assets may not be levied upon by creditors of plan
participants. A limited exception to this general rule exists for the
benefit of the Internal Revenue Service which is recognized as the tax
collector for the United States Government. The IRS may attempt to satisfy
a tax lien through levy upon plan assets. Under these circumstances, an
IRS form called a "Notice of Levy" will be served upon the financial
organization in custody of your plan assets. It will then be incumbent
upon the financial organization to follow the appropriate steps required
by law.
I. PLAN LOANS
Under certain circumstances, plan participants may be eligible to receive
loans of the plan assets. Refer to your adoption agreement to determine if
your plan offers a plan loan program.
If a plan loan program is authorized under your plan documents, a separate
loan disclosure form must be completed and distributed to employees along
with the Summary Plan Description. This disclosure will contain the
information and procedures unique to your qualified plan loan program.
Generally, all qualified plan loan programs must have the following
characteristics:
o Loans must be made available to all participants and
beneficiaries on a reasonably equivalent basis;
o Loans must not be made available to highly compensated employees,
officers or shareholders in an amount greater than the amount
available to other employees;
o Loans must be made in accordance with specific provisions
regarding loans as described in your loan disclosure;
o Loans must bear a reasonable rate of interest; and
o Loans must be adequately secured.
<PAGE>
II. SUMMARY OF DISCLOSURE AND REPORTING REQUIREMENTS
The following is a summary of the disclosure and reporting requirements
necessary for administration of your qualified retirement plan. Your attorney or
tax advisor should be consulted about questions which arise during the course of
your plan operations.
1. EMPLOYEE DISCLOSURE/REPORTING
REQUIREMENT REQUIRED DOCUMENT(S)
A. Notification to Employees Notice to Employees
of Adoption of Plan
TIMING - If the notice is personally delivered or posted, it must be
presented not less than 9 days nor more than 23 days from the date the
plan is adopted. If delivered by mail, the notice must be mailed not
less than 6 nor more than 20 days from date of filing application.
B. Notification to Employees Notice to Employees
of District Submission for
Determination Letter
TIMING - If the notice is personally delivered or posted, it must be
presented not less than 7 days nor more than 21 days prior to the date
the application for determination is filed with the IRS. If delivered by
mail, the notice must be mailed not less than 10 nor more than 24 days
prior to the date of filing application.
C. Designation of Beneficiary; Beneficiary Designation
Waiver of Pre-Retirement
Survivor Annuity (PSA)**
TIMING - The beneficiary designation should be completed when an
employee begins participation in plan.
D. Disclosure to Employees of Summary Plan Description*
Vital Plan Features (SPD)
TIMING - Distribute the summary plan description to employees and file
it with DOL within 120 days after the adoption of plan. Likewise,
distribute it to each new participant within 90 days after plan entry
and to each beneficiary within 90 days after commencement of benefits.
<PAGE>
E. Disclosure to Employees of Summary of Material
Plan Changes Modifications* (SMM)
TIMING - Distribute the summary to employees and file it with DOL within
210 days after the end of the plan year during which change was adopted.
The summary of material modifications must be distributed to each
beneficiary receiving benefits and to each plan participant.
F. Summary of Benefits Summary Annual Report*
(SAR)
TIMING - The summary annual report must be distributed to each plan
participant and beneficiary receiving benefits annually within nine
months after the close of the plan year.
G. Appealing a Claim Denial Explanation of Claim Denial
TIMING - All participants or claimants must receive a written
explanation of claim denial within the time allowed in the plan
documents.
H. Distribution Incident To A Qualified Domestic Relations
Domestic Relations Order Order (QDRO)
TIMING - Each participant must be notified promptly after receipt by the
plan administrator of a QDRO. The plan administrator must determine
whether the QDRO meets plan specifications and thereafter notify
effected parties of such decision within a reasonable time.
I. Distribution Reporting IRS Form 1099-R
Requirements
TIMING - Payors of distributions must provide each participant who
receives a distribution a Form 1099-R by January 31 of the year after
the distribution. NOTE: Prior to 1991 reporting, Form W-2P reported
partial distributions.
J. Withholding on Distributions IRS Form W-4P or Substitute
Form
TIMING - Payors of distributions must provide notice of federal income
tax withholding requirements to all recipients.
<PAGE>
Generally, the notice must be given once a year to persons receiving
periodic payments and each time a person receives a nonperiodic payment.
K. Description of Benefits Statement of Accrued Benefits
Accrued
TIMING - The statement must be furnished within 270 days after the close
of the plan year.
L. Pre-Retirement Survivor PSA Notice Form**
Annuity (PSA) Notice
TIMING - The notice must be given to each participant between the 1st
day of the plan year in which he or she attains age 32 and the last day
of the plan year in which he/she reaches age 34. If a participant enters
the plan after age 32, provide notice within 3 years after the 1st day
of the plan year in which participant enters the plan. If a participant
separates from service prior to reaching age 32, PSA must be provided
within 1 year from separation.
M. Joint and Survivor Annuity JSA Notice Form**
Notice (JSA)
TIMING - The JSA notice form must be given to each participant no more
than 90 and no less than 30 days before distributions start.
N. Notice of Tax Treatment of Any notice meeting requirements of
Distributions IRC Sec. 402(f). The IRS has written
a model notice for this purpose.
TIMING - The notice must generally be provided to the recipient no more
than 90 and no less than 30 days before distributions start.
O. Notice of Distribution Distribution Notice Form
Options
TIMING - The notice must generally be provided to the recipient no more
than 90 and no less than 30 days before distributions start.
<PAGE>
NOTE: The notices described in M, N and O are often combined on one
form.
2. IRS DISCLOSURE/REPORTING
REQUIREMENT REQUIRED DOCUMENT(S)
A. Application for Determination Adoption Agreement, IRS Form
Letter (District Submission) 5307, IRS Form 5302, IRS Form 8717,
Favorable Opinion Letter, Prior
Determination Letter
TIMING - The documents must be timely filed with the Key District IRS
Office after Notice to Interested Parties is given (See above).
B. Annual Plan Reporting IRS Form 5500-EZ for plans with more
than $100,000 in assets covering sole
proprietors and spouse or partners
and spouses; IRS Form 5500-C/R for
plans covering less than 100
participants; IRS Form 5500 for plans
with 100 or more participants; IRS
Schedule SSA must be filed with Form
5500, 5500-C/R; IRS Schedule A must
be included if plan benefits are
provided in whole or in part by an
insurance company; IRS Schedule P
must be signed by the trustee or
custodian and filed with the annual
report
TIMING - The reports must be filed with the IRS by the last day of the
7th month following the close of the plan year.
C. Distribution Reporting IRS Form 1099-R
Requirements
TIMING - Must be filed with the IRS by February 28 of year after
distribution.
<PAGE>
D. Quarterly Return of Form 941 or 941-E
Withheld Federal Income Tax
TIMING - Must generally be filed quarterly with the IRS.
3. DEPARTMENT OF LABOR DISCLOSURE/REPORTING
REQUIREMENT REQUIRED DOCUMENT(S)
A. Disclosure of Vital Plan Summary Plan Description*
Features to Employees (SPD)
TIMING - File with DOL within 120 days after the adoption of plan.
B. Disclosure of Plan Changes Summary of Material
to Employees Modifications* (SMM)
TIMING - File with DOL within 210 days after the end of the plan year
during which the change was adopted.
*The SPD, SMM, and SAR are not required if the business is wholly owned by an
individual or the individual and spouse, and the individual and/or spouse are
the only plan participants or if the plan covers only partners of the business
and/or their spouses.
**These requirements do not apply to Retirement Equity Act (REA) safe harbor
plans. Refer to your adoption agreement to determine whether your plan is a
REA safe harbor plan.
<PAGE>
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POST OFFICE BOX 449, BOSTON, MASSACHUSETTS 02117 800-345-4048
#237(1/94) (C)1994 Universal Pensions, Inc., Brainerd, MN 56401
KEOADMIN
<PAGE>
The CGM Funds
BASIC PLAN DOCUMENT
PROFIT SHARING PLAN
MONEY PURCHASE PENSION PLAN
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION ONE DEFINITIONS
1.01 Adoption Agreement.......................................... 1
1.02 Basic Plan Document......................................... 1
1.03 Break In Eligibility Service ............................... 1
1.04 Break In Vesting Service.................................... 1
1.05 Code........................................................ 1
1.06 Compensation................................................ 1
1.07 Custodian................................................... 2
1.08 Disability.................................................. 2
1.09 Earned Income............................................... 2
1.10 Effective Date.............................................. 2
1.11 Eligibility Computation Period ............................. 2
1.12 Employee.................................................... 2
1.13 Employer.................................................... 2
1.14 Employer Contribution ...................................... 2
1.15 Entry Dates ................................................ 2
1.16 ERISA....................................................... 2
1.17 Forfeiture.................................................. 2
1.18 Fund........................................................ 2
1.19 Highly Compensated Employee................................. 2
1.20 Hours Of Service............................................ 3
1.21 Individual Account ......................................... 3
1.22 Investment Fund ............................................ 3
1.23 Key Employee ............................................... 3
1.24 Leased Employee ............................................ 3
1.25 Normal Retirement Age ...................................... 3
1.26 Owner-Employee.............................................. 3
1.27 Participant................................................. 4
1.28 Plan........................................................ 4
1.29 Plan Administrator ......................................... 4
1.30 Plan Year................................................... 4
1.31 Prior Plan.................................................. 4
1.32 Prototype Sponsor........................................... 4
1.33 Self-Employed Individual ................................... 4
1.34 Separate Fund............................................... 4
1.35 Taxable Wage Base........................................... 4
1.36 Termination Of Employment................................... 4
1.37 Top-Heavy Plan.............................................. 4
1.38 Trustee..................................................... 4
1.39 Valuation Date.............................................. 4
1.40 Vested...................................................... 4
1.41 Year Of Eligibility Service ................................ 4
1.42 Year Of Vesting Service..................................... 4
SECTION TWO ELIGIBILITY AND PARTICIPATION
2.01 Eligibility To Participate.................................. 5
2.02 Plan Entry.................................................. 5
2.03 Transfer To Or From Ineligible Class........................ 5
2.04 Return As A Participant After Break In Eligibility Service.. 5
2.05 Determinations Under This Section........................... 5
2.06 Terms of Employment......................................... 5
SECTION THREE CONTRIBUTIONS
3.01 Employer Contributions...................................... 5
3.02 Employee Contributions...................................... 7
3.03 Rollover Contributions...................................... 7
3.04 Transfer Contributions...................................... 7
3.05 Limitation On Allocations................................... 7
<PAGE>
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 Individual Accounts ........................................ 11
4.02 Valuation Of Fund .......................................... 11
4.03 Valuation Of Individual Accounts ........................... 11
4.04 Segregation Of Assets ...................................... 11
4.05 Statement Of Individual Accounts ........................... 11
4.06 Modification Of Method For Valuing Individual Accounts ..... 11
SECTION FIVE TRUSTEE OR CUSTODIAN
5.01 Creation Of Fund ........................................... 11
5.02 Investment Authority........................................ 11
5.03 Financial Organization Custodian Or Trustee
Without Full Trust Powers .................................. 12
5.04 Financial Organization Trustee With Full Trust Powers
And Individual Trustee ..................................... 12
5.05 Division Of Fund Into Investment Funds ..................... 13
5.06 Compensation And Expenses................................... 13
5.07 Not Obligated To Question Data ............................. 13
5.08 Liability For Withholding On Distributions.................. 13
5.09 Resignation Or Removal Of Trustee (Or Custodian) ........... 13
5.10 Degree Of Care ............................................. 14
5.11 Indemnification Of Prototype Sponsor And Trustee
(Or Custodian) ............................................. 14
5.12 Investment Managers......................................... 14
5.13 Matters Relating To Insurance .............................. 14
5.14 Direction Of Investments By Participant .................... 15
SECTION SIX VESTING AND DISTRIBUTION
6.01 Distribution To Participant ................................ 15
6.02 Form Of Distribution To A Participant....................... 17
6.03 Distributions Upon The Death Of A Participant .............. 18
6.04 Form Of Distribution To Beneficiary......................... 18
6.05 Joint And Survivor Annuity Requirements .................... 18
6.06 Distribution Requirements .................................. 21
6.07 Annuity Contracts........................................... 23
6.08 Loans To Participants ...................................... 24
6.09 Distribution In Kind ....................................... 24
6.10 Direct Rollovers of Eligible Rollover Distributions......... 24
SECTION SEVEN CLAIMS PROCEDURE
7.01 Filing A Claim For Plan Distributions ...................... 25
7.02 Denial Of Claim ............................................ 25
7.03 Remedies Available ......................................... 25
SECTION EIGHT PLAN ADMINISTRATOR
8.01 Employer Is Plan Administrator ............................. 25
8.02 Powers And Duties Of The Plan Administrator................. 25
8.03 Expenses And Compensation .................................. 26
8.04 Information From Employer .................................. 26
SECTION NINE AMENDMENT AND TERMINATION
9.01 Right Of Prototype Sponsor To Amend The Plan ............... 26
9.02 Right Of Employer To Amend The Plan......................... 26
9.03 Limitation On Power To Amend ............................... 26
9.04 Amendment Of Vesting Schedule .............................. 27
9.05 Permanency.................................................. 27
9.06 Method And Procedure For Termination ....................... 27
9.07 Continuance Of Plan By Successor Employer................... 27
9.08 Failure Of Plan Qualification............................... 27
<PAGE>
SECTION TEN MISCELLANEOUS
10.01 State Community Property Laws .............................. 27
10.02 Headings.................................................... 27
10.03 Gender And Number........................................... 27
10.04 Plan Merger Or Consolidation ............................... 27
10.05 Standard Of Fiduciary Conduct............................... 27
10.06 General Undertaking Of All Parties ......................... 27
10.07 Agreement Binds Heirs, Etc.................................. 28
10.08 Determination Of Top-Heavy Status .......................... 28
10.09 Special Limitations For Owner-Employees..................... 29
10.10 Inalienability Of Benefits.................................. 29
<PAGE>
QUALIFIED RETIREMENT PLAN AND TRUST
Defined Contribution Basic Plan Document 03
_________________________________________________________________
SECTION ONE DEFINITIONS
The following words and phrases when used in the Plan with
initial capital letters shall, for the purpose of this Plan, have
the meanings set forth below unless the context indicates that
other meanings are intended:
1.01 ADOPTION AGREEMENT
Means the document executed by the Employer through which it
adopts the Plan and Trust and thereby agrees to be bound by all
terms and conditions of the Plan and Trust.
1.02 BASIC PLAN DOCUMENT
Means this prototype Plan and Trust document.
1.03 BREAK IN ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with an
Eligibility Computation Period during which an Employee fails to
complete more than 500 Hours of Service (or such lesser number of
Hours of Service specified in the Adoption Agreement for
this purpose).
1.04 BREAK IN VESTING SERVICE
Means a Plan Year during which an Employee fails to complete more
than 500 Hours of Service (or such lesser number of Hours of
Service specified in the Adoption Agreement for this purpose).
1.05 CODE
Means the Internal Revenue Code of 1986 as amended from
time-to-time.
1.06 COMPENSATION
For Plan Years beginning on or after January 1, 1989, the
following definition of Compensation shall apply:
Compensation will mean Compensation as that term is defined in
Section 3.05(E)(2) of the Plan. For any Self-Employed Individual
covered under the Plan, Compensation will mean Earned Income.
Compensation shall include only that Compensation which is
actually paid to the Participant during the applicable period.
Except as provided elsewhere in this Plan, the applicable period
shall be the Plan Year unless the Employer has selected another
period in the Adoption Agreement.
Unless otherwise indicated in the Adoption Agreement,
Compensation shall include any amount which is contributed by the
Employer pursuant to a salary reduction agreement and which is
not includible in the gross income of the Employee under Sections
125, 402(a)(8), 402(h) or 403(b) of the Code.
For years beginning after December 31, 1988, the annual
Compensation of each Participant taken into account under the
Plan for any year shall not exceed $200,000. This limitation
shall be adjusted by the Secretary at the same time and in the
same manner as under Section 415(d) of the Code, except that the
dollar increase in effect on January l of any calendar year is
effective for years beginning in such calendar year and the first
adjustment to the $200,000 limitation is effected on January 1,
1990. If a 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.
In determining the Compensation of a Participant for purposes of
this limitation, the rules of Section 414(q)(6) of the Code shall
apply, except in applying such rules, the term "family" shall
include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 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 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.
Unless otherwise indicated in the Adoption Agreement, where an
Employee enters the Plan (and thus becomes a Participant) on an
Entry Date other than the first Entry Date in a Plan Year, his
Compensation will include any such earnings paid to him during
the whole of such Plan Year.
Where this Plan is being adopted as an amendment and restatement
to bring a Prior Plan into compliance with the Tax Reform Act of
1986, such Prior Plan's definition of Compensation shall apply
for Plan Years beginning before January 1, 1989.
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
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 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.
<PAGE>
1.07 CUSTODIAN
Means an entity specified in the Adoption Agreement as Custodian
or any duly appointed successor as provided in Section 5.09.
1.08 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 permanence and degree of
such impairment shall be supported by medical evidence.
1.09 EARNED INCOME
Means the net earnings from self-employment in the trade or
business with respect to which the Plan is established, for which
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 Section 404 of the Code.
Net earnings shall be determined with regard to the deduction
allowed to the Employer by Section 164(f) of the Code for taxable
years beginning after December 31, 1989.
1.10 EFFECTIVE DATE
Means the date the Plan becomes effective as indicated in the
Adoption Agreement. However, where a separate date is stated in
the Plan as of which a particular Plan provision becomes
effective, such date will control with respect to that provision.
1.11 ELIGIBILITY COMPUTATION PERIOD
An Employee's initial Eligibility Computation Period shall be the
12 consecutive month period commencing with the date such
Employee first performs an Hour of Service (employment
commencement date). His subsequent Eligibility Computation
Periods shall be the 12 consecutive month periods commencing on
the anniversaries of his employment commencement date; provided,
however, if pursuant to the Adoption Agreement, an Employee is
required to complete one or less Years of Eligibility Service to
become a Participant, then his subsequent Eligibility Computation
Periods shall be the Plan Years commencing with the Plan Year
beginning during his initial Eligibility Computation Period.
1.12 EMPLOYEE
Means any person employed by the Employer maintaining the Plan or
of any other employer required to be aggregated with such
Employer under Sections 414(b),(c),(m) or (o) of the Code.
The term Employee shall also include any Leased Employee deemed
to be an Employee of any Employer described in the previous
paragraph as provided in Sections 414(n) or (o) of the Code.
1.13 EMPLOYER
Means any corporation, partnership, sole-proprietorship or other
entity named in the Adoption Agreement and any successor who by
merger, consolidation, purchase or otherwise assumes the
obligations of the Plan. A partnership is considered to be the
Employer of each of the partners and a sole-proprietorship is
considered to be the Employer of a sole proprietor.
1.14 EMPLOYER CONTRIBUTION
Means the amount contributed by the Employer each year as
determined under this Plan.
1.15 ENTRY DATES
Means the first day of the Plan Year and the first day of the
seventh month of the Plan Year, unless the Employer has specified
more frequent dates in the Adoption Agreement.
1.16 ERISA
Means the Employee Retirement Income Security Act of 1974 as
amended from time-to-time.
1.17 FORFEITURE
Means that portion of a Participant's Individual Account as
derived from Employer Contributions which he or she is not
entitled to receive (i.e., the nonvested portion).
1.18 FUND
Means the Plan assets held by the Trustee or Custodian for the
Participants' exclusive benefit.
1.19 HIGHLY COMPENSATED EMPLOYEE
The term Highly Compensated Employee includes highly compensated
active employees and highly compensated former employees.
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: (a) received Compensation
from the Employer in excess of $75,000 (as adjusted pursuant to
Section 415(d) of the Code); (b) received Compensation from the
Employer in excess of $50,000 (as adjusted pursuant to Section
415(d) of the Code) and was a member of the top-paid group for
such year; or (c) was an officer of the Employer and received
Compensation during such year that is greater than 50% of the
dollar limitation in effect under Section 415(b)(1)(A) of the
Code. The term Highly Compensated Employee also includes: (a)
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 (b) Employees who are 5% owners at any time during the
look-back year or determination year.
If no officer has satisfied the Compensation requirement of (c)
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 12 month period immediately
preceding the determination year.
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 55th
birthday.
If an Employee is, during a determination year or look-back year,
a family member of either a 5% owner who is an active or former
Employee or a Highly Compensated Employee who is one of the 10
most Highly Compensated Employees ranked
<PAGE>
on the basis of Compensation paid by the Employer during such
year, then the family member and the 5% owner or top 10 Highly
Compensated Employee shall be aggregated. In such case, the
family member and 5% owner or top 10 Highly Compensated Employee
shall be treated as a single Employee receiving Compensation and
Plan contributions or benefits equal to the sum of such
Compensation and contributions or benefits of the family member
and 5% owner or top 10 Highly Compensated Employee. For purposes
of this Section, family member includes the spouse, lineal
ascendants and descendants of the Employee or former Employee and
the spouses of such lineal ascendants and descendants.
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 Section 414(q) of
the Code and the regulations thereunder.
1.20 HOURS 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 will be credited to the Employee for the computation
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 501
Hours of Service will be credited under this paragraph for any
single continuous period (whether or not such period occurs in
a single computation period). Hours under this paragraph shall
be calculated and credited pursuant to Section 2530.200b-2 of
the Department of Labor Regulations which is 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 will not be credited both under
paragraph (A) or paragraph (B), as the case may be, and under
this paragraph (C). These hours will 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
Eligibility Service or a Break in Vesting Service has occurred
in a computation period (the computation period for purposes
of determining whether a Break in Vesting Service has occurred
is the Plan Year), 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, 8 Hours of Service per day of
such absence. For purposes of this paragraph, an absence from
work for maternity or paternity reasons means an absence (1)
by reason of the pregnancy of the individual, (2) by reason of
a birth of a child of the individual, (3) by reason of the
placement of a child with the individual in connection with
the adoption of such child by such individual, or (4) for
purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of
Service credited under this paragraph shall be credited (1) in
the Eligibility Computation Period or Plan Year in which the
absence begins if the crediting is necessary to prevent a
Break in Eligibility Service or a Break in Vesting Service in
the applicable period, or (2) in all other cases, in the
following Eligibility Computation Period or Plan Year.
E. Hours of Service will be credited for employment with other
members of an affiliated service group (under Section 414(m)
of the Code), a controlled group of corporations (under
Section 414(b) of the Code), or a group of trades or
businesses under common control (under Section 414(c) of the
Code) of which the adopting Employer is a member, and any
other entity required to be aggregated with the Employer
pursuant to Section 414(o) of the Code and the regulations
thereunder.
Hours of Service will also be credited for any individual
considered an Employee for purposes of this Plan under Code
Sections 414(n) or 414(o) and the regulations thereunder.
F. Where the Employer maintains the plan of a predecessor
employer, service for such predecessor employer shall be
treated as service for the Employer.
G. The above method for determining Hours of Service may be
altered as specified in the Adoption Agreement.
1.21 INDIVIDUAL ACCOUNT
Means the account established and maintained under this Plan for
each Participant in accordance with Section 4.01.
1.22 INVESTMENT FUND
Means a subdivision of the Fund established pursuant to Section
5.05.
1.23 KEY EMPLOYEE
Means any person who is determined to be a Key Employee under
Section 10.08.
1.24 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 Section 414(n)(6) of the Code) 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: (1) such employee is covered by a money purchase
pension plan providing: (a) a nonintegrated employer contribution
rate of at least 10% of compensation, as defined in Section
415(c)(3) of the Code, but including amounts contributed pursuant
to a salary reduction agreement which are excludible from the
employee's gross income under Section 125, Section 402(a)(8),
Section 402(h) or Section 403(b) of the Code, (b) immediate
participation, and (c) full and immediate vesting; and (2) Leased
Employees do not constitute more than 20% of the recipient's
nonhighly compensated work force.
1.25 NORMAL RETIREMENT AGE
Means the age specified in the Adoption Agreement. However, if
the Employer enforces a mandatory retirement age which is less
than the Normal Retirement Age, such mandatory age is deemed to
be the Normal Retirement Age. If no age is specified in the
Adoption Agreement, the Normal Retirement Age shall be age
59 1/2.
1.26 OWNER-EMPLOYEE
Means an individual who is a sole proprietor, or who is a partner
owning more than 10% of either the capital or profits interest of
the partnership.
<PAGE>
1.27 PARTICIPANT
Means any Employee or former Employee of the Employer who has met
the Plan's eligibility requirements, has entered the Plan and who
is or may become eligible to receive a benefit of any type from
this Plan or whose Beneficiary may be eligible to receive any
such benefit.
1.28 PLAN
Means the prototype defined contribution plan adopted by the
Employer. The Plan consists of this Basic Plan Document plus the
corresponding Adoption Agreement as completed and signed by the
Employer.
1.29 PLAN ADMINISTRATOR
Means the person or persons determined to be the Plan
Administrator in accordance with Section 8.01.
1.30 PLAN YEAR
Means the 12 consecutive month period which coincides with the
Employer's tax year or such other 12 consecutive month period as
is designated in the Adoption Agreement.
1.31 PRIOR PLAN
Means a plan which was amended or replaced by adoption of this
Plan document, as indicated in the Adoption Agreement.
1.32 PROTOTYPE SPONSOR
Means the entity specified in the Adoption Agreement. Such entity
must meet the definition of a sponsoring organization set forth
in Section 3.07 of Revenue Procedure 89-9.
1.33 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;
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.
1.34 SEPARATE FUND
Means a subdivision of the Fund held in the name of a particular
Participant representing certain assets held for that
Participant. The assets which comprise a Participant's Separate
Fund are those assets earmarked for him and those assets subject
to the Participant's individual direction pursuant to Section
5.14.
1.35 TAXABLE WAGE BASE
Means, with respect to any taxable year, the maximum amount of
earnings which may be considered wages for such year under
Section 3121(a)(1) of the Code.
1.36 TERMINATION OF EMPLOYMENT
A Termination of Employment of an Employee of an Employer shall
occur whenever his status as an Employee of such Employer ceases
for any reason other than his death. An Employee who does not
return to work for the Employer on or before the expiration of an
authorized leave of absence from such Employer shall be deemed to
have incurred a Termination of Employment when such leave ends.
1.37 TOP-HEAVY PLAN
This Plan is a Top-Heavy Plan for any Plan Year if it is
determined to be such pursuant to Section 10.08.
1.38 TRUSTEE
Means an individual, individuals or corporation specified in the
Adoption Agreement as Trustee or any duly appointed successor as
provided in Section 5.09. Trustee shall mean Custodian in the
event the financial organization named as Trustee does not have
full trust powers.
1.39 VALUATION DATE
Means the last day of the Plan Year and each other date
designated by the Plan Administrator which is selected in a
uniform and nondiscriminatory manner when the assets of the Fund
are valued at their then fair market value.
1.40 VESTED
Means nonforfeitable, that is, a claim which is unconditional and
legally enforceable against the Plan obtained by a Participant or
his Beneficiary to that part of an immediate or deferred benefit
under the Plan which arises from a Participant's Years of
Vesting Service.
1.41 YEAR OF ELIGIBILITY SERVICE
Means a 12-consecutive month period which coincides with an
Eligibility Computation period during which an Employee completes
at least 1,000 Hours of Service (or such lesser number of Hours
of Service specified in the Adoption Agreement for this purpose).
1.42 YEAR OF VESTING SERVICE
Means a Plan Year during which an Employee completes at least
1,000 Hours of Service (or such lesser number of Hours of Service
specified in the Adoption Agreement for this purpose).
In the case of a Participant who has 5 or more consecutive Breaks
in Vesting Service, all Years of Vesting Service after such
Breaks in Vesting Service will be disregarded for the purpose of
determining the Vested portion of his Individual Account derived
from Employer Contributions that accrued before such breaks. Such
Participant's prebreak service will count in vesting the
postbreak Individual Account derived from Employer Contributions
only if either:
(A) such Participant had any Vested right to any portion of
his Individual Account derived from Employer
Contributions at the time of his Termination of
Employment; or
(B) upon returning to service, the number of consecutive
Breaks in Vesting Service is less than his number of
Years of Vesting Service before such breaks.
Separate subaccounts will be maintained for the Participant's
prebreak and postbreak portions of his Individual Account derived
from Employer Contributions. Both subaccounts will share in the
gains and losses of the Fund.
<PAGE>
Years of Vesting Service shall not include any period of time
excluded from Years of Vesting Service in the Adoption Agreement.
In the event the Plan Year is changed to a new 12-month period,
Employees shall receive credit for Years of Vesting Service, in
accordance with the preceding provisions of this definition, for
each of the Plan Years (the old and new Plan Years) which overlap
as a result of such change.
SECTION TWO ELIGIBILITY AND PARTICIPATION
2.01 ELIGIBILITY TO PARTICIPATE
Each Employee of the Employer, except those Employees who belong
to a class of Employees which is excluded from participation as
indicated in the Adoption Agreement, shall be eligible to
participate in this Plan upon the satisfaction of the age and
Years of Eligibility Service requirements specified in the
Adoption Agreement.
2.02 PLAN ENTRY
A. If this Plan is a replacement of a Prior Plan by amendment or
restatement, each Employee of the Employer who was a
Participant in said Prior Plan before the Effective Date shall
continue to be a Participant in this Plan.
B. An Employee will become a Participant in the Plan as of the
Effective Date if he has met the eligibility requirements of
Section 2.01 as of such date. After the Effective Date, each
Employee shall become a Participant on the first Entry Date
following the date the Employee satisfies the eligibility
requirements of Section 2.01.
C. The Plan Administrator shall notify each Employee who becomes
eligible to be a Participant under this Plan and shall furnish
him with the application form, enrollment forms or other
documents which are required of Participants. The eligible
Employee shall execute such forms or documents and make
available such information as may be required in the
administration of the Plan.
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS
If an Employee who had been a Participant becomes ineligible to
participate because he is no longer a member of an eligible
class of Employees, but has not incurred a Break in Eligibility
Service, such Employee shall participate immediately upon his
return to an eligible class of Employees. If such Employee incurs
a Break in Eligibility Service, his eligibility to participate
shall be determined by Section 2.04.
An Employee who is not a member of the eligible class of
Employees will become a Participant immediately upon becoming a
member of the eligible class provided such Employee has satisfied
the age and Years of Eligibility Service requirements. If such
Employee has not satisfied the age and Years of Eligibility
Service requirements as of the date he becomes a member of the
eligible class, he shall become a Participant on the first Entry
Date following the date he satisfies said requirements.
2.04 RETURN AS A PARTICIPANT AFTER BREAK IN ELIGIBILITY SERVICE
A. EMPLOYEE NOT PARTICIPANT BEFORE BREAK -- If an Employee incurs
a break in Eligibility Service before satisfying the Plan's
eligibility requirements, such Employee's Years of Eligibility
Service before such Break in Eligibility Service will not be
taken into account.
B. NONVESTED PARTICIPANTS -- In the case of a Participant who
does not have a Vested interest in his Individual Account
derived from Employer Contributions, Years of Eligibility
Service before a period of consecutive Breaks in Eligibility
Service will not be taken into account for eligibility
purposes if the number of consecutive Breaks in Eligibility
Service in such period equals or exceeds the greater of 5 or
the aggregate number of Years of Eligibility Service before
such break. Such aggregate number of Years of Eligibility
Service will not include an Years of Eligibility Service
disregarded under the preceding sentence by reason of prior
breaks.
If a Participant's Years of Eligibility Service are
disregarded pursuant to the preceding paragraph, such
Participant will be treated as a new Employee for eligibility
purposes. If a Participant's Years of Eligibility Service may
not be disregarded pursuant to the preceding paragraph, such
Participant shall continue to participate in the Plan, or, if
terminated, shall participate immediately upon reemployment.
C. VESTED PARTICIPANTS -- A Participant who has sustained a Break
in Eligibility Service and who had a Vested interest in all or
a portion of his Individual Account derived from Employer
Contributions shall continue to participate in the Plan, or,
if terminated, shall participate immediately upon
reemployment.
2.05 DETERMINATIONS UNDER THIS SECTION
The Plan Administrator shall determine the eligibility of each
Employee to be a Participant. This determination shall be
conclusive and binding upon all persons except as otherwise
provided herein or by law.
2.06 TERMS OF EMPLOYMENT
Neither the fact of the establishment of the Plan nor the fact
that a common law Employee has become a Participant shall give to
that common law Employee any right to continued employment; nor
shall either fact limit the right of the Employer to discharge or
to deal with a common law Employee without regard to the effect
such treatment may have upon the Employee's rights under the
Plan.
SECTION THREE CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS
A. OBLIGATION TO CONTRIBUTE -- The Emmployer shall make
contributions to the Plan in accordance with the contribution
formula specified in the Adoption Agreement. If this Plan is a
profit sharing plan, the Employer shall, in its sole
discretion, make contributions without regard to current or
accumulated earnings or profits.
B. ALLOCATION FORMULA AND THE RIGHT TO SHARE IN THE EMPLOYER
CONTRIBUTION --
1. General -- The Employer Contribution for a Plan Year will
be allocated or contributed to the Individual Accounts of
qualifying Participants in accordance with the allocation
or contribution formula specified in the Adoption
Agreement. The Employer Contribution for any Plan Year will
be allocated to each Participant's Individual Account as of
the last day of that Plan Year.
<PAGE>
Any Employer Contribution for a Plan Year must satisfy
Section 401(a)(4) and the regulations thereunder for such
Plan Year.
2. Qualifying Participants -- A Participant is a qualifying
Participant and is entitled to share in the Employer
Contribution for any Plan Year if (l) he was a Participant
on at least one day during the Plan Year, (2) if this Plan
is a nonstandardized plan, he completes a Year of Vesting
Service during the Plan Year and (3) where the Employer has
selected the "last day requirement" in the Adoption
Agreement, he is an Employee of the Employer on the last
day of the Plan Year (except that this last requirement (3)
shall not apply if the Participant has died during the Plan
Year or incurred a Termination of Employment during the
Plan Year after having reached his Normal Retirement Age or
having incurred a Disability). Notwithstanding anything in
this paragraph to the contrary, a Participant will not be a
qualifying Participant for a Plan Year if he incurs a
Termination of Employment during such Plan Year with not
more than 500 Hours of Service if he is not an Employee on
the last day of the Plan Year. The determination of whether
a Participant is entitled to share in the Employer
Contribution shall be made as of the last day of each Plan
Year.
3. Special Rules for Integrated Plans -- If the Employer has
selected the integrated contribution or allocation formula
in the Adoption Agreement, then the maximum disparity rate
shall be determined in accordance with the following table.
<TABLE>
<CAPTION>
MAXIMUM DISPARITY RATE
Money Top-Heavy Nontop-Heavy
Integration Level Purchase Profit Sharing Profit Sharing
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable Wage Base (TWB) 5.7% 2.7% 5.7%
More than $0 but not more than X* 5.7% 2.7% 5.7%
More than X* of TWB but not more
than 80% of TWB 4.3% 1.3% 4.3%
More than 80% of TWB but not
more than TWB 5.4% 2.4% 5.4%
*X means the greater of $10,000 or 20% of TWB.
</TABLE>
C. ALLOCATION OF FORFEITURES - Forfeitures for a Plan Year which
arise as a result of the application of Section 6.01(D) shall
be allocated as followers:
1. Profit Sharing Plan - If this is a profit sharing plan,
Forfeitures shall be allocated in the manner provided in
Section 3.01(B) (for Employer Contributions) to the
Individual Accounts of Participants who are entitled to
share in the Employer Contribution for such Plan Year.
2. Money, Purchase Pension and Target Benefit Plan - If this
Plan is a money purchase pension plan or a target benefit
plan, Forfeitures shall be applied towards the reduction of
Employer Contributions to the Plan. However, if the
Employer has indicated in the Adoption Agreement that
Forfeitures shall be allocated to the lndividual Accounts
of Participants' then Forfeitures shall be allocated in the
manner provided in Section 3.01(B) (for Employer
Contributions) to the Individual Accounts of Participants
who are entitled to share in the Employer Contributions for
such Plan Year.
D. TIMING OF EMPLOYER CONTRIBUTION - The employer Contribution
for each Plan Year shall be delivered to the Trustee (or
Custodian, if applicable) not later than the due date for
filing the Employer's income tax return for its fiscal year in
which the Plan Year ends, including extensions thereof.
E. MINIMUM ALLOCATION FOR TOP-HEAVY PLANS - The contribution and
allocation provisions of this Section 3.01(E) shall apply for
any Plan Year with respect to which this Plan is a Top-Heavy
Plan.
1. Except as otherwise provided in (3) and (4) below, the
Employer Contributions and Forfeitures allocated on behalf
of any Participant who is not a Key Emplovee shall not be
less than the lesser of 3% of such Participant's
Compensation or (in the case where the Employer has no
defined benefit plan which designates this Plan to satisfy
Section 401 of the Code) the largest percentage of Employer
Contributions and Forfeitures, as a percentage of the first
$200,000 (increased by any cost of living adjustment made
by the Secretary of Treasury or his delegate) of the Key
Employee's Compensation, allocated on behalf of any Key
Employee for that year. The minimum allocation is
determined without regard to any Social Security
contribution. This minimum allocation shall be made even
though under other Plan provisions, the Participant would
not otherwise be entitled to receive an allocation, or
would have received a lesser allocation for the year
because of (a) the Participant's failure to complete 1,000
Hours of Service (or any equivalent provided in the Plan),
or (b) the Participant's failure to make mandatory Employee
Contributions to the Plan, or (c) Compensation less than a
stated amount.
2. For purposes of computing the minimum allocation,
Compensation shall mean Compensation as defined in Section
1.06 of the Plan.
3. The provision in (1) above shall not apply to any
Participant who was not employed by the Employer on the
last day of the Plan Year.
4. The provision in (1) 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.
5. The minimum allocation required under this Section 3.01(E)
and Section 3.01(F)(1) (to the extent required to be
nonforfeitable under Code Section 416(b)) may not be
forfeited under Code Section 411(a)(3)(B) or 411(a)(3)(D).
F. SPECIAL REQUIREMENTS FOR PAIRED PLANS - The Employer maintains
paired plans if the Employer has adopted both a standardized
profit sharing plan and a standardized money purchase pension
plan using this Basic Plan Document.
<PAGE>
1. Minimum Allocation - The mandatory minimum allocation
provision of Section 3.01(E) shall not apply to any
Participant if the Employer maintains paired plans. Rather,
for each Plan Year, the Employer will provide a minimum
contribution equal to 3% of Compensation for each non-Key
Employee who is entitled to a minimum contribution. Such
minimum contribution shall only be made to one of the
Plans. If an Employee is a Participant in only one of the
Plans, the minimum contribution shall be made to that Plan.
If the Employee is a Participant in both Plans, the minimum
contribution shall be made to the money purchase plan.
2. Only One Plan can be Integrated - If the Employer
maintains paired plans, only one of the Plans may provide
for the disparity in contributions which is permitted under
Section 401(l) of the Code. In the event that both Adoption
Agreements provide for such integration, only the money
purchase pension plan shall be deemed to be integrated.
G. RETURN OF THE EMPLOYER CONTRIBUTION TO THE EMPLOYER UNDER
SPECIAL CIRCUMSTANCES - Any contribution made by the Employer
because of a mistake of fact must be returned to the Employer
within one year of the contribution.
In the event that the Commissioner of Internal Revenue
determines that the Plan is not initially qualified under the
Code, any contributions made incident to that initial
qualification by the Employer must be returned to the Employer
within one year after the date the initial qualification is
denied, 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.
In the event that a contribution made by the Employer under
this Plan is conditioned on deductibility and is not
deductible under Code Section 404, the contribution, to the
extent of the amount disallowed, must be returned to the
Employer within one year after the deduction is disallowed.
H. OMISSION OF PARTICIPANT
1. If the Plan is a money purchase plan or a target benefit
plan and, if in any Plan Year, any Employee who should be
included as a Participant is erroneously omitted and
discovery of such omission is not made until after a
contribution by the Employer for the year has been made and
allocated, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the
amount which the Employer would have contributed with
respect to that Employee had he not been omitted.
2. If the Plan is a profit sharing plan, and if in any Plan
Year, any Employee who should be included as a Participant
is erroneously omitted and discovery of such omission is
not made until after the Employer Contribution has been
made and allocated, then the Plan Administrator must re-do
the allocation (if a correction can be made) and inform the
Employee. Alternatively, the Employer may choose to
contribute for the omitted Employee the amount which the
Employer would have contributed for him.
3.02 EMPLOYEE CONTRIBUTIONS
This Plan will not accept nondeductible employee contributions
and matching contributions for Plan Years beginning after the
Plan Year in which this Plan is adopted by the Employer. Employee
contributions for Plan Years beginning after December 31, 1986,
together with any matching contributions as defined in Section
401(m) of the Code, will be limited so as to meet the
nondiscrimination test of Section 401(m) of the Code.
A separate account will be maintained by the Plan Administrator
for the nondeductible employee contributions of each Participant.
A Participant may, upon a written request submitted to the Plan
Administrator, withdraw the lesser of the portion of his Indiv-
idual Account attributable to his nondeductible employee
contributions or the amount he contributed as nondeductible
employee contributions.
Employee contributions and earnings thereon shall be
nonforfeitable at all times. No Forfeiture will occur solely as a
result of an Employee's withdrawal of employee contributions.
The Plan Administrator will not accept deductible employee
contributions which are made for a taxable year beginning after
December 31, 1986. 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 and losses of the
Fund in the same manner as described in Section 4.03 of the Plan.
No part of the deductible employee contribution account will be
used to purchase life insurance. Subject to Section 6.05, joint
and survivor annuity requirements (if applicable), the
Participant may withdraw any part of the deductible employee
contribution account by making a written application to the Plan
Administrator.
3.03 ROLLOVER CONTRIBUTIONS
If the Plan Administrator so permits in a uniform and
nondiscriminatory manner, an Employee may contribute a rollover
contribution to the Plan; provided that such Employee submits a
written certification, satisfactory to the Trustee (or
Custodian), that the contribution qualifies as a rollover
contribution.
A separate account shall be maintained by the Plan Administrator
for each Employee's rollover contributions which will be
nonforfeitable at all times. Such account will share in the
income and gains and losses of the Fund in the manner described
in Section 4.03 and shall be subject to the Plan's provisions
governing distributions.
For purposes of this Section 3.03, "rollover contribution" means
a contribution described in Sections 402(a)(5), 403(a)(4) or
408(d)(3) of the Code or in any other provision which may be
added to the Code which may authorize rollovers to the Plan.
3.04 TRANSFER CONTRIBUTIONS
If the Plan Administrator so permits in a uniform and
nondiscriminatory manner, the Trustee (or Custodian, if
applicable) may receive any amounts transferred to it from the
trustee or custodian of another plan qualified under Code
Section 401(a).
A separate account shall be maintained by the Plan Administrator
for each Employee's transfer contributions which will be
nonforfeitable at all times. Such account will share in the
income and gains and losses of the Fund in the manner described
in Section 4.03 and shall be subject to the Plan's provisions
governing distributions.
3.05 LIMITATION ON ALLOCATIONS
A. 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 Section
419(e) of the Code maintained by the Employer, or an
individual medical account, as defined in Section 415(l)(2) of
the Code, maintained by the Employer, which provides an annual
addition as defined in Section 305(E)(1), the following rules
shall apply:
<PAGE>
1. The amount of annual additions which may be credited to
the Participant's Individual Account for any limitation
year will 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 Individual
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.
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 the
limitation year will be determined on the basis of the
Participant's actual compensation for the limitation year.
4. If pursuant to Section 3.05(A)(3) or as a result of the
allocation of Forfeitures there is an excess amount, the
excess will be disposed of as follows:
a. Any nondeductible voluntary employee contributions, to
the extent they would reduce the excess amount, will be
returned to the Participant;
b. If after the application of paragraph (a) 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 Individual 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;
c. If after the application of paragraph (a) 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;
d. 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 the Fund's 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 be allocated and
reallocated to Participants' Individual 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. If, in addition to this Plan, the Participant is covered under
another qualified master or prototype defined contribution
plan maintained by the Employer, a welfare benefit fund as
defined in Section 419(e) of the Code maintained by the
Employer, or an Individual medical account, as defined in
Section 415(l)(2) of the Code, maintained by the Employer,
which provides an annual addition as defined in Section
3.05(E)(1), during any limitation year, the following rules
apply:
1. The annual additions which may be credited to a
Participant's Individual Account under this Plan for any
such limitation year will not exceed the maximum
permissible amount reduced by the annual additions credited
to a Participant's Individual Account 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
Individual Account under this Plan should 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 Individual
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 3.05(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 3.05(B)(3) or as a result of the
allocation of Forfeitures, 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,
a. the total excess amount allocated as of such date, times
b. the ratio of (i) the annual additions allocated to the
Participant for the limitation year as of such date
under this Plan to (ii) the total annual additions
allocated to the Participant for the limitation year as
of such date under this and all the other qualified
master or prototype defined contribution plans.
6. Any excess amount attributed to this Plan will be disposed
in the manner described in Sction 3.05(A)(4).
C. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a
master or prototype plan, annual additions which may be
credited to the Participant's Individual Account under this
Plan for any limitation year will be limited in accordance
with Sections 3.05(B)(1) through 3.05(B)(6) as though the
other plan were a master or prototype plan unless the Employer
provides other limitations in the Section of the Adoption
Agreement titled "Limitation on Allocation - More Than One
Plan."
<PAGE>
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 Individual Account under
this Plan for any limitation year will be limited in
accordance with the Section of the Adoption Agreement titled
"Limitation on Allocation - More Than One Plan."
E. The following terms shall have the following meanings when
used in this Section 3.05:
1. Annual additions: The sum of the following amounts credited
to a Participant's Individual Account for the limitation
year:
a. Employer Contributions,
b. Employee contributions,
c. Forfeitures, and
d. amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Section
415(l)(2) of the Code, which is part of a pension or
annuity plan maintained by the Employer are treated as
annual additions to a defined contribution plan. Also
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 Section 419A(d)(3) of the Code,
under a welfare benefit fund, as defined in Section
419(e) of the Code, maintained by the Employer are
treated as annual additions to a defined contribution
plan.
For this purpose, any excess amount applied under
Section 3.05(A)(4) or 3.05(B)(6) in the limitation year
to reduce Employer Contributions will be considered
annual additions for such limitation year.
2. Compensation: As elected by the Employer in the Adoption
Agreement (and if no election is made, Section 3401(a)
wages will be deemed to have been selected), Compensation
shall mean all of a Participant's:
a. Section 3121 wages. Wages as defined in Section 3121(a)
of the Code, for purposes of calculating Social Security
taxes, but determined without regard to the wage base
limitation in Section 3121(a)(1), the special rules in
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 Section
3121(b)(1) through (20)).
b. Section 3401(a) wages. Wages as defined in Section
3401(a) of the Code, 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 Section 3401(a)(2)).
c. 415 safe-harbor compensation. 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
Plan to the extent that the amounts are includable 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,
reimbursements, and expense allowances), 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 described in Section 403(b) of
the Code (whether or not the amounts are actually
excludible from the gross income of the Employee).
For any Self-Employed Individual, Compensation will
mean Earned Income. For limitation years beginning
after December 31, 1991, for purposes of applying the
limitations of this Section 3.05, 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
Section 22(e)(3) of the 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 (as defined in Section
414(q) of the Code) and contributions made on behalf
of such Participant are nonforfeitable when made.
3. Defined benefit fraction: 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% of the dollar
limitation determined for the limitation year under Section
415(b) and (d) of the Code or 140% of the highest average
compensation, including any adjustments under Section
415(b) of the Code.
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% of the sum of the
annual benefits under such plans which the participant had
accrued as of the close of the last limitation year
beginning
<PAGE>
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 Section 415 of the Code for all limitation
years beginning before January 1, 1987.
4. Defined contribution dollar limitation: $30,000 or if
greater, one-fourth of the defined benefit dollar
limitation set forth in Section 415(b)(1) of the Code as in
effect for the limitation year.
5. Defined contribution fraction: 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 employee contributions to all
defined benefit plans, whether or not terminated,
maintained by the Employer, and the annual additions
attributable to all welfare benefit funds, as defined in
Section 419(e) of the Code, and individual medical
accounts, as defined in Section 415(l)(2) of the Code,
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% of the dollar
limitation determined under Section 415(b) and (d) of the
Code in effect under Section 415(c)(1)(A) of the Code or
35% of the Participant's compensation for such 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 6, 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 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 recomputed to treat
all employee contributions as annual additions.
6. Employer: For purposes of this Section 3.05, Employer shall
mean the Employer that adopts this Plan, and all members of
a controlled group of corporations (as defined in Section
414(b) of the Code as modified by Section 415(h)), all
commonly controlled trades or businesses (as defined in
Section 414(c) as modified by Section 415(h)) or affiliated
service groups (as defined in Section 4l4(m)) of which the
adopting Employer is a part, and any other entity required
to be aggregated with the Employer pursuant to regulations
under Section 414(o) of the Code.
7. Excess amount: The excess of the Participant's annual
additions for the limitation year over the maximum
permissible amount.
8. Highest average compensation: The average compensation for
the three consecutive years of service with the Employer
that produces the highest average.
9. Limitation year: A calendar year, or the 12-consecutive
month period elected by the Employer in the Section of the
Adoption Agreement titled "Limitation on Allocation - More
Than One Plan." 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: A plan the form of which is the
subject of a favorable opinion letter from the Internal
Revenue Service.
11. Maximum permissible amount: The maximum annual addition
that may be contributed or allocated to a Participant's
Individual Account under the Plan for any limitation year
shall not exceed the lesser of:
a. the defined contribution dollar limitation, or
b. 25%, of the Participant's compensation for the
limitation year.
The compensation limitation referred to in (b) shall not
apply to any contribution for medical benefits (within
the meaning of Section 401(h) or Section 419A(f)(2) of
the Code) which is otherwise treated as an annual
addition under Section 415(l)(1) or 419A(d)(2) of the
Code.
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
limitation multiplied by the following fraction:
Number of months in the short limitation year
_____________________________________________
12
12. Projected annual benefit: 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:
a. the Participant will continue employment until normal
retirement age under the Plan (or current age, if
later), and
b. 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.
<PAGE>
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 INDIVIDUAL ACCOUNTS
A. The Plan Administrator shall establish and maintain an
individual Account in the name of each Participant to reflect
the total value of his interest in the Fund. Each Individual
Account established hereunder shall consist of such
subaccounts as may be needed for each Participant including:
1. a subaccount to reflect Employer Contributions and
Forfeitures allocated on behalf of a Participant;
2. a subaccount to reflect a Participant's rollover
contributions;
3. a subaccount to reflect a Participant's transfer
contributions;
4. a subaccount to reflect a Participant's nondeductible
employee contributions; and
5. a subaccount to reflect a Participant's deductible
employee contributions.
Such subaccounts are primarily for accounting purposes, and do
not necessarily require a segregation of the Fund.
B. The Plan Administrator may establish additional accounts as it
may deem necessary for the proper administration of the Plan,
including, but not limited to, a suspense account for
Forfeitures as required pursuant to Section 6.01(D).
4.02 VALUATION OF FUND
The Fund will be valued each Valuation Date at fair market value.
4.03 VALUATION OF INDIVIDUAL ACCOUNTS
A. Where all or a portion of the assets of a Participant's
Individual Account are invested in a Separate Fund for the
Participant, then the value of that portion of such
Participant's Individual Account at any relevant time equals
the sum of the fair market values of the assets in such
Separate Fund, less any applicable charges or penalties.
B. The fair market value of the remainder of each Individual
Account is determined in the following manner:
1. First, the portion of the Individual Account invested in
each Investment Fund as of the previous Valuation Date is
determined. Each such portion is reduced by any withdrawal
made from the applicable Investment Fund to or for the
benefit of a Participant or his Beneficiary, further
reduced by any amounts forfeited by the Participant
pursuant to Section 6.01(D) and further reduced by any
transfer to another Investment Fund since the previous
Valuation Date and is increased by any amount transferred
from another Investment Fund since the previous Valuation
Date. The resulting amounts are the net Individual Account
portions invested in the Investment Funds.
2. Secondly, the net Individual Account portions invested in
each Investment Fund are adjusted upwards or downwards,
pro rata (i.e., ratio of each net Individual Account
portion to the sum of all net Individual Account portions)
so that the sum of all the net Individual Account portions
invested in an Investment Fund will equal the then fair
market value of the Investment Fund. Notwithstanding the
previous sentence, for the first Plan Year only, the net
Individual Account portions shall be the sum of all
contributions made to each Participant's Individual
Account during the first Plan Year.
3. Thirdly, any contributions to the Plan and Forfeitures are
allocated in accordance with the appropriate allocation
provisions of Section 3. For purposes of Section 4,
contributions made by the Employer for any Plan Year but
after that Plan Year will be considered to have been made
on the last day of that Plan Year regardless of when paid
to the Trustee (or Custodian, if applicable).
Amounts contributed between Valuation Dates will not be
credited with investment gains or losses until the next
following Valuation Date.
4. Finally, the portions of the Individual Account invested
in each Investment Fund (determined in accordance with
(1), (2) and (3) above) are added together.
4.04 SEGREGATION OF ASSETS
If a Participant elects a mode of distribution other than a lump
sum, the Plan Administrator may place that Participant's account
balance into a segregated Investment Fund for the purpose of
maintaining the necessary liquidity to provide benefit
installments on a periodic basis.
4.05 STATEMENT OF INDIVIDUAL ACCOUNTS
No later than 270 days after the close of each Plan Year, the
Plan Administrator shall furnish a statement to each Participant
indicating the Individual Account balances of such Participant as
of the last Valuation Date in such Plan Year.
4.06 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS
If necessary or appropriate, the Plan Administrator may establish
different or additional procedures (which shall be uniform and
nondiscriminatory) for determining the fair market value of the
Individual Accounts.
SECTION FIVE TRUSTEE OR CUSTODIAN
5.01 CREATION OF FUND
By adopting this Plan, the Employer establishes the Fund which
shall consist of the assets of the Plan held by the Trustee (or
Custodian, if applicable) pursuant to this Section 5. Assets
within the Fund may be pooled on behalf of all Participants,
earmarked on behalf of each Participant or be a combination of
pooled and earmarked. To the extent that assets are earmarked for
a particular Participant, they will be held in a Separate Fund
for that Participant.
No part of the corpus or income of the Fund may be used for, or
diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries.
5.02 INVESTMENT AUTHORITY
Except as provided in Section 5.14 (relating to individual
direction of investments by Participants), the Employer, not the
<PAGE>
Trustee (or Custodian, if applicable), shall have exclusive
management and control over the investment of the Fund into any
permitted investment. Notwithstanding the preceding sentence, a
Trustee with full trust powers (under applicable law) may make an
agreement with the Employer whereby the Trustee will manage the
investment of all or a portion of the Fund. Any such agreement
shall be in writing and set forth such matters as the Trustee
deems necessary or desirable.
5.03 FINANCIAL ORGANIZATION CUSTODIAN OR TRUSTEE WITHOUT FULL TRUST
POWERS
This Section 5.03 applies where a financial organization has
indicated in the Adoption Agreement that it will serve, with
respect to this Plan, as Custodian or as Trustee without full
trust powers (under applicable law). Hereinafter, a financial
organization Trustee without full trust powers (under applicable
law) shall be referred to as a Custodian.
A. PERMISSIBLE INVESTMENTS - The assets of the Plan shall be
invested only in those investments which are available through
the Custodian in the ordinary course of business which the
Custodian may legally hold in a qualified plan and which the
Custodian chooses to make available to Employers for qualified
plan investments.
B. RESPONSIBILITIES OF THE CUSTODIAN - The responsibilities of
the Custodian shall be limited to the following:
1. To receive Plan contributions and to hold, invest and
reinvest the Fund without distinction between principal
and interest; provided, however, that nothing in this Plan
shall require the Custodian to maintain physical custody
of stock certificates (or other indicia of ownership of
any type of asset) representing assets within the Fund;
2. To maintain accurate records of contributions, earnings,
withdrawals and other information the Custodian deems
relevant with respect to the Plan;
3. To make disbursements from the Fund to Participants or
Beneficiaries upon the proper authorization of the Plan
Administrator; and
4. To furnish to the Plan Administrator a statement which
reflects the value of the investments in the hands of the
Custodian as of the end of each Plan Year.
C. POWERS OF THE CUSTODIAN - Except as otherwise provided in this
Plan, the Custodian shall have the power to take any action
with respect to the Fund which it deems necessary or advisable
to discharge its responsibilities under this Plan including,
but not limited to, the following powers:
1. To invest all or a portion of the Fund (including idle
cash balances) in time deposits, savings accounts, money
market accounts or similar investments bearing a
reasonable rate of interest in the Custodian's own savings
department or the savings department of another financial
organization;
2. 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 or subscription rights 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
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;
3. To hold securities or other property of the Fund in its
own name, in the name of its nominee or in bearer form;
and
4. 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.
5.04 FINANCIAL ORGANIZATION TRUSTEE WITH FULL TRUST POWERS AND
INDIVIDUAL TRUSTEE
This Section 5.04 applies where a financial organization has
indicated in the Adoption Agreement that it will serve as Trustee
with full trust powers. This Section also applies where one or
more individuals are named in the Adoption Agreement to serve as
Trustee(s).
A. PERMISSIBLE INVESTMENTS - The Trustee may invest the assets of
the Plan in property of any character, real or personal,
including, but not limited to the following: stocks, including
shares of open-end investment companies (mutual funds); bonds;
notes; debentures; options; limited partnership interests;
mortgages; real estate or any interests therein; unit
investment trusts; Treasury Bills, and other U.S. Government
obligations; common trust funds, combined investment trusts,
collective trust funds or commingled funds maintained by a
bank or similar financial organization (whether or not the
Trustee hereunder); savings accounts, time deposits or money
market accounts of a bank or similar financial organization
(whether or not the Trustee hereunder); annuity contracts;
life insurance policies; or in such other investments as is
deemed proper without regard to investments authorized by
statute or rule of law governing the investment of trust funds
but with regard to ERISA and this Plan.
Notwithstanding the preceding sentence, the Prototype Sponsor
may, as a condition of making the Plan available to the
Employer for adoption, limit the types of property in which
the Trustee (other than a financial organization Trustee with
full trust powers), is permitted to invest.
B. RESPONSIBILITIES OF THE TRUSTEE - The responsibilities of the
Trustee shall be limited to the following:
1. To receive Plan contributions and to hold, invest and
reinvest the Fund without distinction between principal
and interest; provided, however, that nothing in this Plan
shall require the Trustee to maintain physical custody of
stock certificates (or other indicia of ownership)
representing assets within the Fund;
2. To maintain accurate records of contributions, earnings,
withdrawals and other information the Trustee deems
relevant with respect to the Plan;
3. To make disbursements from the Fund to Participants or
Beneficiaries upon the proper authorization of the Plan
Administrator; and
4. To furnish to the Plan Administrator a statement which
reflects the value of the investments in the hands of the
Trustee as of the end of each Plan Year.
C. POWERS OF THE TRUSTEE - Except as otherwise provided in this
Plan, the Trustee shall have the power to take any action with
respect to the Fund which it deems necessary or advisable to
discharge its responsibilities under this Plan including, but
not limited to, the following powers:
<PAGE>
l. To hold any securities or other property of the Fund in
its own name, in the name of its nominee or in bearer
form;
2. To purchase or subscribe for securities issued, or real
property owned, by the Employer or any trade or business
under common control with the Employer but only if the
prudent investment and diversification requirements of
ERISA are satisfied;
3. To sell, exchange, convey, transfer 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;
4. 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 or subscription rights 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;
5. To invest any part or all of the Fund (including idle cash
balances) in certificates of deposit, demand or time
deposits, savings accounts, money market accounts or
similar investments of the Trustee (if the Trustee is a
bank or similar financial organization), the Prototype
Sponsor or any affiliate of such Trustee or Prototype
Sponsor, which bear a reasonable rate of interest;
6. To provide sweep services without the receipt by the
Trustee of additional compensation or other consideration
(other than reimbursement of direct expenses properly and
actually incurred in the performance of such services);
7. To hold in the form of cash for distribution or investment
such portion of the Fund as, at any time and from
time-to-time, the Trustee shall deem prudent and deposit
such cash in interest bearing or noninterest bearing
accounts;
8. 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;
9. 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;
10. To employ suitable agents and counsel, to contract with
agents to perform administrative and recordkeeping duties
and to pay their reasonable expenses, fees and
compensation, and such agent or counsel may or may not be
agent or counsel for the Employer;
11. To cause any part or all of the Fund, without limitation
as to amount, to be commingled with the funds of other
trusts (including trusts for qualified employee benefit
plans) by causing such money to be invested as a part of
any pooled, common, collective or commingled trust fund
heretofore or hereafter created by any trustee (if the
Trustee is a bank), by the Prototype Sponsor, by any
affiliate bank of such a Trustee or the Prototype Sponsor,
or by such a Trustee, the Prototype Sponsor or such an
affiliate in participation with others; the instrument or
instruments establishing such trust fund or funds, as
amended, being made part of this Plan and trust so long as
any portion of the Fund shall be invested through the
medium thereof.
12. Generally to do all such acts, execute all such
instruments, initiate all such proceedings, and exercise
all such rights and privileges with relation to property
constituting the Fund as if the Trustee were the absolute
owner thereof.
5.05 DIVISION OF FUND INTO INVESTMENT FUNDS
The Employer may direct the Trustee (or Custodian, if applicable)
from time-to-time to divide and redivide the Fund into one or
more Investment Funds. Such Investment Funds may include, but not
be limited to, Investment Funds representing the assets under the
control of an investment manager pursuant to Section 5.12 and
Investment Funds representing investment options available for
individual direction by Participants pursuant to Section 5.14.
Upon each division or redivision, the Employer may specify the
part of the Fund to be allocated to each such Investment Fund and
the terms and conditions, if any, under which the assets in such
Investment Fund shall be invested.
5.06 COMPENSATION AND EXPENSES
The Trustee (or Custodian, if applicable) shall receive such
reasonable compensation as may be agreed upon by the Trustee (or
Custodian) and the Employer. The Trustee (or Custodian) shall be
entitled to reimbursement by the Employer for all proper expenses
incurred in carrying out his duties under this Plan, including
reasonable legal, accounting and actuarial expenses. If not paid
by the Employer, such compensation and expenses may be charged
against the Fund.
All taxes of any kind that may be levied or assessed under
existing or future laws upon, or in respect of, the Fund or the
income thereof shall be paid from the Fund.
5.07 NOT OBLIGATED TO QUESTION DATA
The Employer shall furnish the Trustee (or Custodian, if
applicable) and Plan Administrator the information which each
party deems necessary for the administration of the Plan
including, but not limited to, changes in a Participant's status,
eligibility, mailing addresses and other such data as may be
required. The Trustee (or Custodian) and Plan Administrator shall
be entitled to act on such information as is supplied them and
shall have no duty or responsibility to further verify or
question such information.
5.08 LIABILITY FOR WITHHOLDING ON DISTRIBUTIONS
The Plan Administrator shall be responsible for withholding
federal income taxes from distributions from the Plan, unless the
Participant (or Beneficiary, where applicable) elects not to have
such taxes withheld. However, the Trustee (or Custodian, if
applicable) shall act as agent for the Plan Administrator to
withhold such taxes and to make the appropriate distribution
reports, subject to the Plan Administrator's obligation to
furnish all the necessary information to so withhold to the
Trustee (or Custodian).
5.09 RESIGNATION OR REMOVAL OF TRUSTEE (OR CUSTODIAN)
The Trustee (or Custodian, if applicable) may resign at any time
by giving 30 days advance written notice to the Employer. The
resignation shall become effective 30 days after receipt of such
notice unless a shorter period is agreed upon.
<PAGE>
The Employer may remove any Trustee (or Custodian) at any time by
giving written notice to such Trustee (or Custodian) and such
removal shall be effective 30 days after receipt of such notice
unless a shorter period is agreed upon. The Employer shall have
the power to appoint a successor Trustee (or Custodian).
Upon such resignation or removal, if the resigning or removed
Trustee (or Custodian) is the sole Trustee (or Custodian), he
shall transfer all of the assets of the Fund then held by him as
expeditiously as possible to the successor Trustee (or
Custodian) after paying or reserving such reasonable amount as
he shall deem necessary to provide for the expense in the
settlement of the accounts and the amount of any compensation due
him and any sums chargeable against the Fund for which he may be
liable. If the Funds as reserved are not sufficient for such
purpose, then he shall be entitled to reimbursement from the
successor Trustee (or Custodian) out of the assets in the
successor Trustee's (or Custodian's) hands under this Plan. If
the amount reserved shall be in excess of the amount actually
needed, the former Trustee (or Custodian) shall return such
excess to the successor Trustee (or Custodian).
Upon receipt of such assets, the successor Trustee (or Custodian)
shall thereupon succeed to all of the powers and responsibilities
given to the Trustee (or Custodian) by this Plan.
The resigning or removed Trustee (or Custodian) shall render an
accounting to the Employer and unless objected to by the
Employer within 30 days of its receipt, the accounting shall
be deemed to have been approved and the resigning or removed
Trustee (or Custodian) shall be released and discharged as to all
matters set forth in the accounting. Where a financial
organization is serving as Trustee (or Custodian) and it is
merged with or bought by another organization (or comes under
the control of any federal or state agency), that organization
shall serve as the successor Trustee (or Custodian) of this Plan,
but only if it is the type of organization that can so serve
under applicable law.
Where the Trustee or Custodian is serving as a nonbank trustee or
custodian pursuant to Section 1.401-12(n) of the Income Tax
Regulations, the Employer will appoint a successor Trustee (or
Custodian) upon notification by the Commissioner of Internal
Revenue that such substitution is required because the Trustee
(or Custodian) has failed to comply with the requirements of
Section 1.401-12(n) or is not keeping such records or making such
returns or rendering such statements as are required by forms or
regulations.
5.10 DEGREE OF CARE
Limitations of Liability - The Trustee (or Custodian, if
applicable) shall not be liable for any losses incurred by the
Fund by any lawful direction to invest communicated by the
Employer, Plan Administrator or any Participant or Beneficiary.
The Trustee (or Custodian) shall be under no liability for
distributions made or other action taken or not taken at the
written direction of the Plan Administrator. It is specifically
understood that the Trustee (or Custodian) shall have no duty or
responsibility with respect to the determination of matters
pertaining to the eligibility of any Employee to become a
Participant or remain a Participant hereunder, the amount of
benefit to which a Participant or Beneficiary shall be entitled
to receive hereunder, whether a distribution to Participant or
Beneficiary is appropriate under the terms of the Plan or the
size and type of any policy to be purchased from any insurer for
any Participant hereunder or similar matters; it being understood
that all such responsibilities under the Plan are vested in the
Plan Administrator.
5.11 INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE (OR CUSTODIAN)
Notwithstanding any other provision herein, and except as may
be otherwise provided by ERISA, the Employer shall indemnify and
hold harmless the Trustee (or Custodian, if applicable) and the
Prototype Sponsor, their officers, directors, employees, agents,
their heirs, executors, successors and assigns, from and against
any and all liabilities, damages, judgments, settlements, losses,
costs, charges, or expenses (including legal expenses) at any
time arising out of or incurred in connection with any action
taken by such parties in the performance of their duties with
respect to this Plan, unless there has been a final adjudication
of gross negligence or willful misconduct in the performance of
such duties.
Further, except as may be otherwise provided by ERISA, the
Employer will indemnify the Trustee (or Custodian) and
Prototype Sponsor from any liability, claim or expense
(including legal expense) which the Trustee (or Custodian) and
Prototype Sponsor shall incur by reason of or which results, in
whole or in part, from the Trustee's (or Custodian's) or
Prototype Sponsor's reliance on the facts and other directions
and elections the Employer communicates or fails to
communicate.
5.12 INVESTMENT MANAGERS
A. DEFINITION OF INVESTMENT MANAGER - The Employer may appoint
one or more investment managers to make investment
decisions with respect to all or a portion of the Fund. The
investment manager shall be any firm or individual registered
as an investment adviser under the Investment Advisers Act of
1940, a bank as defined in said Act or an insurance company
qualified under the laws of more than one state to perform
services consisting of the management, acquisition or
disposition of any assets of the Plan.
B. INVESTMENT MANAGER'S AUTHORITY - A separate Investment Fund
shall be established representing the assets of the Fund
invested at the direction of the investment manager. The
investment manager so appointed shall direct the Trustee (or
Custodian, if applicable) with respect to the investment of
such Investment Fund. The investments which may be acquired
at the direction of the investment manager are limited to
those described in Section 5.03(A) (for Custodians) or Section
5.04(A) (for Trustees).
C. WRITTEN AGREEMENT - The appointment of any investment manager
shall be by written agreement between the Employer and the
investment manager and a copy of such agreement (and any
modification or termination thereof) must be given to the
Trustee (or Custodian).
The agreement shall set forth, among other matters, the
effective date of the investment manager's appointment and an
acknowledgment by the investment manager that it is a
fiduciary of the Plan under ERISA.
D. CONCERNING THE TRUSTEE (OR CUSTODIAN) - Written notice of each
appointment of an investment manager shall be given to the
Trustee (or Custodian) in advance of the effective date of
such appointment. Such notice shall specify which portion of
the Fund will constitute the Investment Fund subject to the
investment manager's direction. The Trustee (or Custodian)
shall comply with the investment direction given to it by the
investment manager and will not be liable for any loss
which may result by reason of any action (or inaction) it
takes at the direction of the investment manager.
5.13 MATTERS RELATING TO INSURANCE
A. If a life insurance policy is to be purchased for a
Participant, the aggregate premium for certain life insurance
for each Participant must be less than a certain percentage of
the aggregate Employer Contributions and Forfeitures allocated
to Participant's Individual Account at any particular time
as follows:
<PAGE>
1. Ordinary Life Insurance - For purposes of these
incidental insurance provisions, ordinary life insurance
contracts are contracts with both nondecreasing death
benefits and nonincreasing premiums. If such contracts are
purchased less than 50% of the aggregate Employer
Contributions and Forfeitures allocated to any
Participant's Individual Account will be used to pay the
premiums attributable to them.
2. Term and Universal Life Insurance - No more than 25% of
the aggregate Employer Contributions and Forfeitures
allocated to any Participant's Individual Account will be
used to pay the premiums on term life insurance contracts,
universal life insurance contracts, and all other life
insurance contracts which are not ordinary life.
3. Combination - The sum of 50% of the ordinary life
insurance premiums and all other life insurance premiums
will not exceed 25% of the aggregate Employer
Contributions and Forfeitures allocated to any
Participant's Individual Account.
B. Any dividends or credits earned on insurance contracts for a
Participant shall be allocated to such Participant's
Individual Account.
C. Subject to Section 6.05, the contracts on a Participant's life
will be converted to cash or an annuity or distributed to the
Participant upon commencement of benefits.
D. The Trustee (or Custodian if applicable) shall apply for and
will be the owner of any insurance contract(s) purchased under
the terms of this Plan. The insurance contract(s) must provide
that proceeds will be payable to the Trustee (or Custodian),
however, the Trustee (or Custodian) shall be required to pay
over all proceeds of the contract(s) to the Participant's
designated Beneficiary in accordance with the distribution
provisions of this Plan. A Participant's spouse will be the
designated Beneficiary of the proceeds in all circumstances
unless a qualified election has been made in accordance with
Section 6.05, Joint and Survivor Annuity Requirements, if
applicable. Under no circumstances shall the Fund retain any
part of the proceeds. 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.
E. The Employer may direct the Trustee (or Custodian) to sell and
distribute insurance or annuity contracts to a Participant (or
other party as may be permitted) in accordance with applicable
law or regulations.
5.14 DIRECTION OF INVESTMENTS BY PARTICIPANT
If so indicated in the Adoption Agreement, each Participant may
individually direct the Trustee (or Custodian, if applicable)
regarding the investment of part or all of his Individual
Account. To the extent so directed, the Employer Plan
Administrator, Trustee (or Custodian) and all other fiduciaries
are relieved of their fiduciary responsibility under Section 404
of ERISA.
The Plan Administrator shall direct that a Separate Fund be
established in the name of each Participant who directs the
investment of part or all of his Individual Account. Each
Separate Fund shall be charged or credited (as appropriate) with
the earnings, gains, losses or expenses attributable to such
Separate Fund. No fiduciary shall be liable for any loss which
results from a Participant's individual direction. The assets
subject to individual direction shall not be invested in
collectibles as that term is defined in Section 408(m) of the
Code.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules relating to individual direction as it
deems necessary or advisable including, but not limited to, rules
describing (1) which portions of Participant's Individual Account
can be individually directed; (2) the frequency of investment
changes; (3) the forms and procedures for making investment
changes; and (4) the effect of a Participant's failure to make a
valid direction.
Subject to the approval of the Prototype Sponsor, the Plan
Administrator may, in a uniform and nondiscriminatory manner,
limit the available investments for Participants' individual
direction to certain specified investment options (including, but
not limited to, certain mutual funds, investment contracts,
deposit accounts and group trusts). The Plan Administrator may
permit, in a uniform and nondiscriminatory manner, a Beneficiary
of a deceased Participant to individually direct in accordance
with this Section.
SECTION SIX VESTING AND DISTRIBUTION
6.01 DISTRIBUTION TO PARTICIPANT
A. WHEN DISTRIBUTABLE
1. Entitlement to Distribution - The Vested portion of a
Participant's Individual Account shall be distributable to
the Participant upon the occurrence of any of the
following events:
a. the Participant's Termination of Employment;
b. the Participant's attainment of Normal Retirement Age;
c. the Participant's Disability; or
d. the termination of the Plan.
2. Written Request: When Distributed - A Participant entitled
to distribution who wishes to receive a distribution must
submit a written request to the Plan Administrator. Such
request shall be made upon a form provided by the Plan
Administrator. Upon a valid request, the Plan
Administrator shall direct the Trustee (or Custodian,
if applicable) to commence distribution no later than 90
days following the later of:
a. the close of the Plan Year within which the event
occurs which entitles the Participant to distribution;
or
b. the close of the Plan Year in which the request is
received.
3. Special Rules For Withdrawals During Service - If this is
a profit sharing plan and the Adoption Agreement so
provides a Participant who is not otherwise entitled to a
distribution under Section 6.01(A)(1) may elect to receive
a distribution of all or a part of the Vested portion of
his Individual Account, subject to the requirements of
Section 6.05 and further subject to the following limits:
<PAGE>
a. Participant for 5 or more years. An Employee who has
been a Participant in the Plan for 5 or more years may
withdraw up to his entire Vested portion of his
Individual Account.
b. Participant for less than 5 years. An Employee who has
been a Participant in the Plan for less than 5 years
may withdraw only the amount which has been in his
Vested Individual Account attributable to Employer
Contributions for at least 2 full Plan Years.
However, if the distribution is on account of
hardship, the Participant may withdraw up to his
entire Vested portion of his Individual Account. For
purposes of the preceding sentence, hardship is
defined as an immediate and heavy financial need of
the Participant where such Participant lacks other
available resources. The following are the only
financial needs considered immediate and heavy:
expenses incurred or necessary for medical care,
described in Section 213(d) of the Code, of the
Employee, the Employee's spouse or dependents; the
purchase (excluding mortgage payments) of a principal
residence for the Employee; payment of tuition and
related educational fees for the next 12 months of
post-secondary education for the Employee, the
Employee's spouse, children or dependents; or the need
to prevent the eviction of the Employee from, or a
foreclosure on the mortgage of, the Employee's
principal residence.
A distribution will be considered as necessary to
satisfy an immediate and heavy financial need of the
Employee only if:
1) The employee has obtained all distributions, other
than hardship distributions, and all nontaxable
loans under all plans maintained by the Employer;
2) The distribution is not in excess of the amount of
an immediate and heavy financial need (including
amounts necessary to pay any federal, state or
local income taxes or penalties reasonably
anticipated to result from the distribution).
4. Commencement of Benefits - Notwithstanding any other
provision, unless the Participant elects otherwise,
distribution of benefits will begin no later than the 60th
day after the latest of the close of the Plan Year in
which:
a. the Participant attains Normal Retirement Age;
b. occurs the 10th anniversary of the year in which the
Participant commenced participation in the Plan; or
c. the Participant incurs a Termination of Employment.
Notwithstanding the foregoing, the failure of a
Participant and spouse to consent to a distribution
while a benefit is immediately distributable, within
the meaning of Section 6.02(B), shall be deemed to be
an election to defer commencement of payment of any
benefit sufficient to satisfy this Section 6.01(A)(4).
B. DETERMINING THE VESTED PORTION - In determining the Vested
portion of a Participant's Individual Account, the following
rules apply:
1. Employer Contributions and Forfeitures - The Vested
portion of a Participant's Individual Account derived from
Employer Contributions and Forfeitures is determined by
applying the vesting schedule selected in the Adoption
Agreement (or the vesting schedule described in Section
6.01(C) if the Plan is a Top-Heavy Plan).
2. Rollover and Transfer Contributions - A Participant is
fully Vested in his rollover contributions and transfer
contributions.
3. Fully Vested Under Certain Circumstances - A Participant
is fully Vested in his Individual Account if any of the
following occurs:
a. the Participant reaches Normal Retirement Age;
b. the Participant incurs a Disability;
c. the Participant dies;
d. the Plan is terminated or partially terminated; or
e. there exists a complete discontinuance of
contributions under the Plan (if this Plan is a profit
sharing plan).
4. Participants in a Prior Plan - If a Participant was a
participant in a Prior Plan on the Effective Date, his
Vested percentage shall not be less than it would have
been under such Prior Plan as computed on the Effective
Date.
C. MINIMUM VESTING SCHEDULE FOR TOP-HEAVY PLANS - The following
vesting provisions apply for any Plan Year in which this Plan
is a Top-Heavy Plan.
Notwithstanding the other provisions of this Section 6.01 or
the vesting schedule selected in the Adoption Agreement
(unless those provisions or that schedule provide for more
rapid vesting), a Participant's Vested portion of his Individ-
ual Account attributable to Employer Contributions and
Forfeitures shall be determined in accordance with the
following minimum vesting schedule:
YEARS OF VESTING SERVICE VESTED PERCENTAGE
1 0
2 20
3 40
4 60
5 80
6 100
<PAGE>
This minimum vesting schedule applies to all benefits within
the meaning of Section 411(a)(7) of the Code, except those
attributable to employee contributions including benefits
accrued before the effective date of Section 416 of the Code
and benefits accrued before the Plan became a Top-Heavy Plan.
Further, no decrease in a Participant's Vested percentage may
occur in the event the Plan's status as a Top-Heavy Plan
changes for any Plan Year. However, this Section 6.01(C) does
not apply to the Individual Account of any Employee who does
not have an Hour of Service after the Plan has initially
become a Top-Heavy Plan and such Employee's Individual Account
attributable to Employer Contributions and Forfeitures will be
determined without regard to this Section.
If this Plan ceases to be a Top-Heavy Plan, then in accordance
with the above restrictions, the vesting schedule as selected
in the Adoption Agreement will govern. If the vesting schedule
under the Plan shifts in or out of top-heavy status, such
shift is an amendment to the vesting schedule and the election
in Section 9.04 applies.
D. BREAK IN VESTING SERVICE AND FORFEITURES - If a Participant
incurs a Termination of Employment, any portion of his
Individual Account which is not Vested shall be held in a
suspense account. Such suspense account shall share in any
increase or decrease in the fair market value of the assets of
the Fund in accordance with Section 4 of the Plan. The
disposition of such suspense account shall be as follows:
1. No Breaks in Vesting Service - If a Participant neither
receives nor is deemed to receive a distribution pursuant
to Section 6.01(D)(2) or (3) and the Participant returns
to the service of the Employer before incurring 5
consecutive Breaks in Vesting Service, there shall be no
Forfeiture and the amount in such suspense account shall
be recredited to such Participant's Individual Account.
2. Cash-out of Certain Participants - If the value of the
Vested portion of such Participant's Individual Account
derived from Employee and Employer Contributions does not
exceed $3,500, the Participant shall receive a
distribution of the entire Vested portion of such
Individual Account and the portion which is not Vested
shall be treated as a Forfeiture. For purposes of this
Section, if the value of the Vested portion of a
Participant's Individual Account is zero, the Participant
shall be deemed to have received a distribution of such
Vested Individual Account. A Participant's Vested
Individual Account balance shall not include accumulated
deductible employee contributions within the meaning of
Section 72(o)(5)(B) of the Code for Plan Years beginning
prior to January 1, 1989.
3. Participants Who Elect to Receive Distributions - If such
Participant elects to receive a distribution, in
accordance with Section 6.02(B), of the value of the
Vested portion of his Individual Account derived from
Employee and Employer Contributions, the portion which is
not Vested shall be treated as a Forfeiture.
4. Re-employed Participants - If a Participant receives or is
deemed to receive a distribution pursuant to Section
6.01(D)(2) or (3) above and the Participant resumes
employment covered under this Plan, the Participant's
Employer-derived Individual Account balance will be
restored to the amount on the date of distribution if the
Participant 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 Breaks in
Vesting Service following the date of the distribution.
Amounts forfeited under Section 6.01(D) shall be allocated
in accordance with Section 3.01(C) as of the last day of
the Plan Year during which the Forfeiture arises. Any
restoration of a Participant's Individual Account pursuant
to Section 6.01(D)(4) shall be made from other
Forfeitures, income or gain to the Fund or contributions
made by the Employer.
E. DISTRIBUTION PRIOR TO FULL VESTING - If a distribution is
made to a Participant who was not then fully Vested in his
Individual Account derived from Employer Contributions and the
Participant may increase his Vested percentage in his
Individual Account, then the following rules shall apply:
1. a separate account will 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 will be equal to an amount ("X")
determined by the formula: X=P (AB + (R x D)) - (R x D)
where "P" is the Vested percentage at the relevant time,
"AB" is the separate account balance at the relevant
time; "D" is the amount of the distribution; and "R" is
the ratio of the separate account balance at the relevant
time to the separate account balance after distribution.
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT
A. VALUE OF INDIVIDUAL ACCOUNT DOES NOT EXCEED $3,500 - If the
value of the Vested portion of a Participant's Individual
Account derived from Employee and Employer Contributions does
not exceed $3,500, distribution from the Plan shall be made to
the Participant in a single lump sum in lieu of all other
forms of distribution from the Plan.
B. VALUE OF INDIVIDUAL ACCOUNT EXCEEDS $3,500
1. If the value of the Vested portion of a Participant's
Individual Account derived from Employee and Employer
Contributions exceeds (or at the time of any prior
distribution exceeded) $3,500, and the Individual Account
is immediately distributable, the Participant and the
Participant's spouse (or where either the Participant or
the spouse died, the survivor) must consent to any
distribution of such Individual Account. The consent of
the Participant and the Participant's spouse shall be
obtained in writing within the 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 Plan Administrator
shall notify the Participant and the Participant's spouse
of the right to defer any distribution until the
Participant's Individual Account 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 Section 417(a)(3) of the Code,
and shall be provided no less than 30 days and no more
than 90 days prior to the annuity starting date. 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:
a. the Plan 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
b. the Participant, after receiving the notice,
affirmatively elects a distribution.
<PAGE>
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
Individual Account 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 Section 401(a)(9) or Section 415 of
the Code. In addition upon termination of this Plan if the
Plan does not offer an annuity option (purchased from a
commercial provider), the Participant's Individual Account
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 Section 4975(e)(7) of the Code) within
the same controlled group.
An individual Account is immediately distributable if any
part of the Individual Account could be distributed to the
Participant (or surviving spouse) before the Participant
attains or would have attained (if not deceased) the later
of Normal Retirement Age or age 62.
2. 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, the Vested portion of a
Participant's Individual Account shall not include amounts
attributable to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of
the Code.
C. OTHER FORMS OF DISTRIBUTION TO PARTICIPANT - If the value of
the Vested portion of a Participant's Individual Account
exceeds $3,500 and the Participant has properly waived the
joint and survivor annuity, as described in Section 6.05, the
Participant may request in writing that the Vested portion of
his Individual Account be paid to him in one or more of the
following forms of payment: (1) in a lump sum; (2) in
installment payments over a period not to exceed the life
expectancy of the Participant or the joint and last survivor
life expectancy of the Participant and his designated
Beneficiary; or (3) applied to the purchase of an annuity
contract.
Notwithstanding anything in this Section 6.02 to the contrary,
a Participant cannot elect payments in the form of an annuity
if the safe harbor rules of Section 6.05(F) apply.
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT
A. DESIGNATION OF BENEFICIARY - SPOUSAL CONSENT - Each
Participant may designate, upon a form provided by and
delivered to the Plan Administrator, one or more primary and
contingent Beneficiaries to receive all or a specified portion
of his Individual Account in the event of his death. A
Participant may change or revoke such Beneficiary designation
from time to time by completing and delivering the proper form
to the Plan Administrator.
In the event that a Participant wishes to designate a primary
Beneficiary who is not his spouse, his spouse must consent in
writing to such designation, and the spouse's consent must
acknowledge the effect of such designation and be witnessed by
a notary public. Notwithstanding this consent requirement, if
the Participant establishes to the satisfaction of the Plan
Administrator that such written consent may not be obtained
because there is no spouse or the spouse cannot be located, no
consent shall be required. Any change of Beneficiary will
require a new spousal consent.
B. PAYMENT TO BENEFICIARY - If a Participant dies before his
entire Individual Account has been paid to him, such deceased
Participant's Individual Account shall be payable to any
surviving Beneficiary designated by the Participant, or, if no
Beneficiary survives the Participant, to the Participant's
estate.
C. WRITTEN REQUEST: WHEN DISTRIBUTED - A Beneficiary of a
deceased Participant entitled to a distribution who wishes to
receive a distribution must submit a written request to the
Plan Administrator. Such request shall be made upon a form
provided by the Plan Administrator. Upon a valid request, the
Plan Administrator shall direct the Trustee (or Custodian) to
commence distribution no later than 90 days following the
later of:
1. the close of the Plan Year within which the Participant
dies; or
2. the close of the Plan Year in which the request is
received.
D. 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
expiration of 5 years after it becomes payable, remain unpaid
solely by reason of the inability of the Plan 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 forfeited
and allocated in accordance with the terms of the Plan. In the
event a Participant or Beneficiary is located subsequent to
his benefit being forfeited, such benefit shall be restored;
provided, however, if all or a portion of such amount has been
lost by reason of escheat under state law, the Participant or
Beneficiary shall cease to be entitled to the portion so lost.
6.04 FORM OF DISTRIBUTION TO BENEFICIARY
A. VALUE OF INDIVIDUAL ACCOUNT DOES NOT EXCEED $3,500 - If the
value of the Participant's Individual Account derived from
Employee and Employer Contributions does not exceed $3,500 the
Plan Administrator shall direct the Trustee (or Custodian, if
applicable) to make a distribution to the Beneficiary in a
single lump sum in lieu of all other forms of distribution
from the Plan.
B. VALUE OF INDIVIDUAL ACCOUNT EXCEEDS $3,500 - If the value of a
Participant's Individual Account derived from Employee and
Employer Contributions exceeds $3,500 the preretirement
survivor annuity requirements of Section 6.05 shall apply
unless waived in accordance with that Section or unless the
safe harbor rules of Section 6.05(F) apply.
C. OTHER FORMS OF DISTRIBUTION TO BENEFICIARY - If the value of a
Participant's Individual Account exceeds $3,500 and the
Participant has properly waived the preretirement survivor
annuity, as described in Section 6.05 (if applicable) the
Beneficiary may, subject to the requirements of Section 6.06,
request in writing that the Participant's Individual Account
be paid to him as follows: (1) in a lump sum; or (2) in
installment payments over a period not to exceed the life
expectancy of such Beneficiary.
6.05 JOINT AND SURVIVOR ANNUITY REQUIREMENTS
A. The provisions of this Section shall apply to any Participant
who is credited with at least one Hour of Eligibility Service
with the Employer on or after August 23, 1984, and such other
participants as provided in Section 6.05(G).
<PAGE>
B. QUALIFIED JOINT AND SURVIVOR ANNUITY - Unless an optional form
of benefit is selected pursuant to a qualified election within
the 90-day period ending on the annuity starting date, a
married Participant's Vested account balance will be paid in
the form of a qualified joint and survivor annuity and an
unmarried Participant's Vested account balance will be paid in
the form of a life annuity. The Participant may elect to have
such annuity distributed upon attainment of the earliest
retirement age under the Plan.
C. QUALIFIED PRERETIREMENT SURVIVOR ANNUITY - Unless an optional
form of benefit has been selected within the election period
pursuant to a qualified election, if a Participant dies before
the annuity starting date then the Participant's Vested
account balance shall be applied toward the purchase of an
annuity 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.
D. DEFINITIONS
1. Election Period - 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. lf a
Participant separates from service prior to the first day
of the Plan year in which age 35 is attained, with respect
to the account balance as of the date of separation, the
election period shall begin on the date of separation.
Pre-age 35 waiver - A Participant who will not yet attain
age 35 as of the end of any current Plan Year may make a
special qualified election to waive the qualified
preretirement survivor annuity for the period beginning on
the date of such election and ending on the first day of
the Plan Year in which the Participant will attain age 35.
Such election shall not be valid unless the Participant
receives a written explanation of the qualified
preretirement survivor annuity in such terms as are
comparable to the explanation required under Section
6.05(E)(1). Qualified preretirement survivor annuity
coverage will be automatically reinstated as of the first
day of the Plan Year in which the Participant attains age
35. Any new waiver on or after such date shall be subject
to the full requirements of this Section 6.05.
2. Earliest Retirement Age - The earliest date on which,
under the Plan, the Participant could elect to receive
retirement benefits.
3. Qualified Election - A waiver of a qualified joint and
survivor annuity or a qualified preretirement survivor
annuity. Any waiver of a qualified joint and survivor
annuity or a qualified preretirement survivor annuity
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 qualified 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 waiver 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
has received notice as provided in Section 6.05(E) below.
4. Qualified Joint and Survivor Annuity - An immediate
annuity for the life of the Participant with a survivor
annuity for the life of the spouse which is not less than
50% and not more than 100% 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 percentage of the survivor annuity under the
Plan shall be 50% (unless a different percentage is
elected by the Employer in the Adoption Agreement).
5. Spouse (surviving spouse) - The spouse or surviving spouse
of the Participant, provided that a former spouse will be
treated as the spouse or surviving spouse and a current
spouse will not be treated as the spouse or surviving
spouse to the extent provided under a qualified domestic
relations order as described in Section 414(p) of the
Code.
6. Annuity Starting Date - The first day of the first period
for which an amount is paid as an annuity or any other
form.
7. Vested Account Balance - The aggregate value of the
Participant's Vested account balances derived from
Employer and Employee contributions (including rollovers),
whether Vested before or upon death, including the
proceeds of insurance contracts, if any, on the
Participant's life. The provisions of this Section 6.05
shall apply to a Participant who is Vested in amounts
attributable to Employer Contributions, Employee
contributions (or both) at the time of death or
distribution.
E. NOTICE REQUIREMENTS
1. In the case of a qualified joint and survivor annuity, the
Plan Administrator shall no less than 30 days and not more
than 90 days prior to the annuity starting date provide
each Participant a written explanation of: (a) the terms
and conditions of a qualified joint and survivor annuity;
(b) the Participant's right to make and the effect of an
election to waive the qualified joint and survivor annuity
form of benefit; (c) the rights of a Participant's spouse;
and (d) the right to make, and the effect of, a revocation
of a previous election to waive the qualified joint and
survivor annuity.
2. In the case of a qualified preretirement survivor annuity
as described in Section 6.05(C), the Plan Administrator
shall provide each Participant within the applicable
period for such Participant a written explanation of the
qualified preretirement survivor annuity in such terms and
in such manner as would be comparable to the explanation
provided for meeting the requirements of Section
6.05(E)(1) applicable to a qualified joint and survivor
annuity.
<PAGE>
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 Section 6.05(E)(3) ceases
to apply to the Participant; (d) a reasonable period
ending after this Section 6.05 first applies to the
Participant. Notwithstanding the foregoing, notice must be
provided within a reasonable period ending after
separation from service in 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), (c) and (d) 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.
3. Notwithstanding the other requirements of this Section
6.05(E), the respective notices prescribed by this Section
6.05(E), need not be given to a Participant if (a) the
Plan "fully subsidizes" the costs of a qualified joint and
survivor annuity or qualified preretirement survivor
annuity, and (b) the Plan does not allow the Participant
to waive the qualified joint and survivor annuity or
qualified preretirement survivor annuity and does not
allow a married Participant to designate a nonspouse
beneficiary. For purposes of this Section 6.05(E)(3), a
plan fully subsidizes the costs of a benefit if no
increase in cost, or decrease in benefits to the
Participant may result from the Participant's failure to
elect another benefit.
F. SAFE HARBOR RULES
1. If the Employer so indicates in the Adoption Agreement,
this Section 6.05(F) shall apply to a Participant in a
profit sharing plan, and shall always apply 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 Section
72(o)(5)(B) of the Code, and maintained on behalf of a
Participant in a money purchase pension plan, (including a
target benefit plan) if the following conditions are
satisfied:
a. the Participant does not or cannot elect payments in
the form of a life annuity; and
b. on the death of a participant, the Participant's
Vested account balance will be paid to the
Participant's surviving spouse, but if there is no
surviving spouse, or if the surviving spouse has
consented in a manner conforming to a qualified
election, then to the Participant's designated
beneficiary. The surviving spouse may elect to have
distribution of the Vested account balance commence
within the 90-day period following the date of the
Participant's death. The account balance shall be
adjusted for gains or losses occurring after the
Participant's death in accordance with the provisions
of the Plan governing the adjustment of account
balances for other types of distributions. This
Section 6.05(F) shall not be operative with respect to
a Participant in a profit sharing plan if the plan is
a direct or indirect transferee of a defined benefit
plan, money purchase plan, a target benefit plan,
stock bonus, or profit sharing plan which is subject
to the survivor annuity requirements of Section
401(a)(11) and Section 417 of the Code. lf this
Section 6.05(F) is operative, then the provisions of
this Section 6.05 other than Section 6.05(G) shall be
inoperative.
2. The Participant may waive the spousal death benefit
described in this Section 6.05(F) at any time provided
that no such waiver shall be effective unless it satisfies
the conditions of Section 6.05(D)(3) (other than the
notification requirement referred to therein) that would
apply to the Participant's waiver of the qualified
preretirement survivor annuity.
3. For purposes of this Section 6.05(F), Vested account
balance shall mean, in the case of a money purchase
pension plan or a target benefit plan, the Participant's
separate account balance attributable solely to
accumulated deductible employee contributions within the
meaning of Section 72(o)(5)(B) of the Code. In the case of
a profit sharing plan, vested account balance shall have
the same meaning as provided in Section 6.05(D)(7).
G. TRANSITIONAL RULES
1. Any living Participant not receiving benefits on August
23, 1984, who would otherwise not receive the benefits
prescribed by the previous subsections of this Section
6.05 must be given the opportunity to elect to have the
prior subsections of this Section apply if such
Participant is credited with at least one Hour of Service
under this Plan or a predecessor plan in a Plan Year
beginning on or after January 1, 1976, and such
Participant had at least 10 Years of Vesting Service when
he or she separated from service.
2. Any living Participant not receiving benefits on August
23, 1984, who was credited with at least one Hour of
Service under this Plan or a predecessor plan on or after
September 2, 1974, and who is not otherwise credited with
any service in a Plan Year beginning on or after January
1, 1976, must be given the opportunity to have his or her
benefits paid in accordance with Section 6.05(G)(4).
3. The respective opportunities to elect (as described in
Section 6.05(G)(1) and (2) above) must be afforded to the
appropriate Participants during the period commencing on
August 23, 1984, and ending on the date benefits would
otherwise commence to said Participants.
4. Any Participant who has elected pursuant to Section
6.05(G)(2) and any Participant who does not elect under
Section 6.05(G)(1) or who meets the requirements of
Section 6.05(G)(1) except that such Participant does not
have at least 10 Years of Vesting Service when he or she
separates from service, shall have his or her benefits
distributed in accordance with all of the following
requirements if benefits would have been payable in the
form of a life annuity:
a. Automatic Joint and Survivor Annuity - If benefits in
the form of a life annuity become payable to a married
Participant who:
1. begins to receive payments under the Plan on or
after Normal Retirement Age; or
2. dies on or after Normal Retirement Age while still
working for the Employer; or
<PAGE>
3. begins to receive payments on or after the
qualified early retirement age; or
4. separates from service on or after attaining Normal
Retirement Age (or the qualified early retirement
age) and after satisfying the eligibility
requirements for the payment of benefits under the
Plan and thereafter dies before beginning to
receive such benefits;
then such benefits will be received under this Plan
in the form of a qualified joint and survivor
annuity, unless the Participant has elected
otherwise during the election period. The election
period must begin at least 6 months before the
Participant attains qualified early retirement age
and ends not more than 90 days before the
commencement of benefits. Any election hereunder
will be in writing and may be changed by the
Participant at any time.
b. Election of Early Survivor Annuity - A Participant who
is employed after attaining the qualified early
retirement age will be given the opportunity to elect,
during the election period, to have a survivor annuity
payable on death. If the Participant elects the
survivor annuity, payments under such annuity must not
be less than the payments which would have been made
to the spouse under the qualified joint and survivor
annuity if the Participant had retired on the day
before his or her death. Any election under this
provision will be in writing and may be changed by the
Participant at any time. The election period begins on
the later of (1) the 90th day before the Participant
attains the qualified early retirement age, or (2) the
date on which participation begins, and ends on the
date the Participant terminates employment.
c. For purposes of Section 6.05(G)(4):
1. Qualified early retirement age is the latest of:
a. the earliest date, under the Plan, on which the
Participant may elect to receive retirement
benefits,
b. the first day of the 120th month beginning
before the Participant reaches Normal
Retirement Age, or
c. the date the Participant begins participation.
2. Qualified joint and survivor annuity is an annuity
for the life of the Participant with a survivor
annuity for the life of the spouse as described in
Section 6.05 (D)(4) of this Plan.
6.06 DISTRIBUTION REQUIREMENTS
A. GENERAL RULES
1. Subject to Section 6.05, Joint and Survivor Annuity
Requirements, the requirements of this Section shall apply
to any distribution of a Participant's interest and will
take precedence over any inconsistent provisions of this
Plan. Unless otherwise specified, the provisions of this
Section 6.06 apply to calendar years beginning after
December 31, 1984.
2. All distributions required under this Section 6.06 shall
be determined and made in accordance with the Income Tax
Regulations under Section 401(a)(9), including the minimum
distribution incidental benefit requirement of Section
1.401(a)(9)-2 of the regulations.
B. REQUIRED BEGINNING DATE - The entire interest of a Participant
must be distributed or begin to be distributed no later than
the Participant's required beginning date.
C. LIMITS ON DISTRIBUTION PERIODS - As of the first distribution
calendar year, distributions, if not made in a single sum, may
only be made over one of the following periods (or a
combination thereof):
1. the life of the Participant,
2. the life of the Participant and a designated Beneficiary,
3. a period certain not extending beyond the life expectancy
of the Participant, or
4. a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
Beneficiary.
D. DETERMINATION OF AMOUNT TO BE DISTRIBUTED EACH YEAR - If the
Participant's interest is to be distributed in other than a
single sum, the following minimum distribution rules shall
apply on or after the required beginning date:
1. Individual Account
a. If a Participant's benefit is to be distributed over
(1) a period not extending beyond the life expectancy
of the Participant or the joint life and last survivor
expectancy of the Participant and the Participant's
designated Beneficiary or (2) a period not extending
beyond the life expectancy of the designated
Beneficiary, the amount required to be 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.
b. 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 50% of the present value of the
amount available for distribution is paid within the
life expectancy of the Participant.
c. For calendar years beginning after December 31, 1988,
the amount to be distributed each year, beginning with
distributions for the first distribution calendar year
shall not be less than the quotient obtained by
dividing the Participant's benefit by the lesser of
(1) the applicable life expectancy or (2) 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 life expectancy in Section
6.06(D)(1)(a) above as the relevant divisor without
regard to regulations 1.401(a)(9)-2.
<PAGE>
d. The minimum distribution required for the
Participant's first distribution calendar year must be
made on or before the Participant's required beginning
date. The minimum distribution for other calendar
years, including the minimum distribution for the
distribution calendar year in which the Employee's
required beginning date occurs, must be made on or
before December 31 of that distribution calendar year.
2. Other Forms - If the Participant's benefit is distributed
in the form of an annuity purchased from an insurance
company, distributions thereunder shall be made in
accordance with the requirements of Section 401(a)(9) of
the Code and the regulations thereunder.
E. DEATH DISTRIBUTION PROVISIONS
1. Distribution Beginning Before Death - If the Participant
dies after distribution of his or her interest has begun,
the remaining portion of such interest will continue to be
distributed at least as rapidly as under the method of
distribution being used prior to the Participant's death.
2. Distribution Beginning After Death - If the Participant
dies before distribution of his or her interest begins,
distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing
the fifth anniversary of the Participant's death except to
the extent that an election is made to receive
distributions in accordance with (a) or (b) below:
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 (1) December 31 of the
calendar year immediately following the calendar year
in which the Participant dies or (2) December 31 of
the calendar year in which the Participant would have
attained age 70 1/2.
If the Participant has not made an election pursuant
to this Section 6.06(E)(2) by the time of his or her
death, the Participant's designated Beneficiary must
elect the method of distribution no later than the
earlier of (1) December 31 of the calendar year in
which distributions would be required to begin under
this Section 6.06(E)(2), or (2) 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 must be completed by December 31 of the
calendar year containing the fifth anniversary of the
Participant's death.
3. For purposes of Section 6.06(E)(2) above, if the surviving
spouse dies after the Participant, but before payments to
such spouse begin, the provisions of Section 6.06(E)(2),
with the exception of paragraph (b) therein, shall be
applied as if the surviving spouse were the Participant.
4. For purposes of this Section 6.06(E), 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.
5. For purposes of this Section 6.06(E), distribution of a
Participant's interest is considered to begin on the
Participant's required beginning date (or, if Section
6.06(E)(3) above is applicable, the date distribution is
required to begin to the surviving spouse pursuant to
Section 6.06(E)(2) above). If distribution in the form of
an annuity irrevocably commences to the Participant before
the required beginning date, the date distribution is
considered to begin is the date distribution actually
commences.
F. DEFINITIONS
1. Applicable Life Expectancy - The life expectancy (or joint
and last survivor expectancy) calculated using the
attained age of the Participant (or designated
Beneficiary) as of the Participant's (or designated
Beneficiary's) birthday in the applicable calendar year
reduced by one for each calendar year which has elapsed
since the date life expectancy was first calculated. If
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.
2. Designated Beneficiary - The individual who is designated
as the Beneficiary under the Plan in accordance with
Section 401(a)(9) of the Code and the regulations
thereunder.
3. Distribution Calendar Year - 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 Section
6.06(E) above.
4. Life Expectancy - Life expectancy and joint and last
survivor 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.
Unless otherwise elected by the Participant (or spouse, in
the case of distributions described in Section
6.06(E)(2)(b) above) 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.
5. Participant's Benefit
a. The account balance as of the last valuation date in
the valuation calendar year (the calendar year
immediately preceding the distribution 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.
<PAGE>
b. Exception for second distribution calendar year. For
purposes of paragraph (a) above, 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.
6. Required Beginning Date
a. General Rule - The required beginning date of a
Participant is the first day of April of the calendar
year following the calendar year in which the
Participant attains age 70 1/2.
b. Transitional Rules - The required beginning date of a
Participant who attains age 70 1 /2 before January 1,
1988, shall be determined in accordance with (1) or
(2) below:
1. Non 5% Owners - The required beginning date of a
Participant who is not a 5% 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 70-1/2 occurs.
2. 5% Owners - The required beginning date of a
Participant who is a 5% owner during any year
beginning after December 31, 1979, is the first day
of April following the later of:
a. the calendar year in which the Participant
attains age 70 1/2, or
b. the earlier of the calendar year with or within
which ends the Plan Year in which the
Participant becomes a 5% owner, or the calendar
year in which the Participant retires.
The required beginning date of a Participant
who is not a 5% owner who attains age 70-1/2
during 1988 and who has not retired as of
January 1, 1989, is April 1, 1990.
c. 5% Owner - A Participant is treated as a 5% owner for
purposes of this Section 6.06(F)(6) if such
Participant is a 5% owner as defined in Section 416(i)
of the Code (determined in accordance with 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
66 1/2 or any subsequent Plan Year.
d. Once distributions have begun to a 5% owner under this
Section 6.06(F)(6) they must continue to be
distributed, even if the Participant ceases to be a 5%
owner in a subsequent year.
G. TRANSITIONAL RULE
1. Notwithstanding the other requirements of this Section
6.06 and subject to the requirements of Section 6.05,
Joint and Survivor Annuity Requirements, distribution on
behalf of any Employee, including a 5% owner, may be made
in accordance with all of the following requirements
(regardless of when such distribution commences):
a. The distribution by the Fund is one which would not
have disqualified such Fund under Section 401(a)(9) of
the Code as in effect prior to amendment by the
Deficit Reduction Act of 1984.
b. The distribution is in accordance with a method of
distribution designated by the Employee whose interest
in the Fund is being distributed or, if the Employee
is deceased, by a Beneficiary of such Employee.
c. Such designation was in writing, was signed by the
Employee or the Beneficiary, and was made before
January 1, 1984.
d. The Employee had accrued a benefit under the Plan as
of December 31, 1983.
e. The method of distribution designated by the Employee
or the Beneficiary specifies the time at which
distribution will commence, the period over which
distributions will be made, and in the case of any
distribution upon the Employee's death, the
Beneficiaries of the Employee listed in order of
priority.
2. A distribution upon death will not be covered by this
transitional rule unless the information in the
designation contains the required information described
above with respect to the distributions to be made upon
the death of the Employee.
3. For any distribution which commences before January 1,
1984, but continues after December 31, 1983, the Employee,
or the Beneficiary, to whom such distribution is being
made, will be presumed to have designated the method of
distribution under which the distribution is being made if
the method of distribution was specified in writing and
the distribution satisfies the requirements in Sections
6.06(G)(l)(a) and (e).
4. If a designation is revoked, any subsequent distribution
must satisfy the requirements of Section 401(a)(9) of the
Code and the regulations thereunder. 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 Section 401(a)(9) of the Code and the regulations
thereunder, but for the 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). In the case in which an amount
is transferred or rolled over from one plan to another
plan, the rules in Q&A J-2 and Q&A J-3 shall apply.
6.07 ANNUITY CONTRACTS
Any annuity contract distributed under the Plan (if permitted or
required by this Section 6) must be nontransferable. The terms of
any annuity contract purchased and distributed by the Plan to a
Participant or spouse shall comply with the requirements of the
Plan.
<PAGE>
6.08 LOANS TO PARTICIPANTS
If the Adoption Agreement so indicates, a Participant may receive
a loan from the Fund, subject to the following rules:
A. Loans shall be made available to all Participants on a
reasonably equivalent basis.
B. Loans shall not be made available to Highly Compensated
Employees (as defined in Section 414(q) of the Code) in an
amount greater than the amount made available to other
Employees.
C. Loans must be adequately secured and bear a reasonable
interest rate.
D. No Participant loan shall exceed the present value of the
Vested portion of a Participant's Individual Account.
E. A Participant must obtain the consent of his or her spouse, if
any, to the use of the Individual Account as security for the
loan. Spousal consent shall be obtained no earlier than the
beginning of the 90 day period that ends on the date on which
the loan is to be so secured. The consent must be in writing,
must acknowledge the effect of the loan, and must be witnessed
by a plan representative or notary public. Such consent shall
thereafter be binding with respect to the consenting spouse or
any subsequent spouse with respect to that loan. A new consent
shall be required if the account balance is used for
renegotiation, extension, renewal, or other revision of the
loan.
F. In the event of default, foreclosure on the note and
attachment of security will not occur until a distributable
event occurs in the Plan.
G. No loans will be made to any shareholder-employee or Owner-
Employee. For purposes of this requirement, a shareholder-
employee means an employee or officer of an electing small
business (Subchapter S) corporation who owns (or is considered
as owning within the meaning of Section 318(a)(1) of the
Code), on any day during the taxable year of such corporation,
more than 5% of the outstanding stock of the corporation.
If a valid spousal consent has been obtained in accordance with
6.08(E), then, notwithstanding any other provisions of this Plan,
the portion of the Participant's Vested Individual Account used
as a security interest held by the Plan by reason of a loan
outstanding to the Participant shall be taken into account for
purposes of determining the amount of the account balance payable
at the time of death or distribution, but only if the reduction
is used as repayment of the loan. If less than 100% of the
Participant's Vested Individual Account (determined without
regard to the preceding sentence) is payable to the surviving
spouse, then the account balance shall be adjusted by first
reducing the Vested Individual Account by the amount of the
security used as repayment of the loan, and then determining the
benefit payable to the surviving spouse.
No loan to any Participant can be made to the extent that such
loan when added to the outstanding balance of all other loans to
the Participant would exceed the lesser of (a) $50,000 reduced by
the excess (if any) of the highest outstanding balance of loans
during the one year period ending on the day before the loan is
made, over the outstanding balance of loans from the Plan on the
date the loan is made, or (b) 50% of the present value of the
nonforfeitable Individual Account of the Participant or, if
greater, the total Individual Account up to $10,000. For the
purpose of the above limitation, all loans from all plans of the
Employer and other members of a group of employers described in
Sections 414(b), 414(c), and 414(m) of the Code are aggregated.
Furthermore, any loan shall by its terms require that repayment
(principal and interest) be amortized in level payments, not less
frequently than quarterly, over a period not extending beyond 5
years from the date of the loan, unless such loan is used to
acquire a dwelling unit which within a reasonable time
(determined at the time the loan is made) will be used as the
principal residence of the Participant. An assignment or pledge
of any portion of the Participant's interest in the Plan and a
loan, pledge, or assignment with respect to any insurance
contract purchased under the Plan, will be treated as a loan
under this paragraph.
The Plan Administrator shall administer the loan program in
accordance with a written document. Such written document shall
include, at a minimum, the following: (i) the identity of the
person or positions authorized to administer the Participant loan
program; (ii) the procedure for applying for loans; (iii) the
basis on which loans will be approved or denied; (iv) limitations
(if any) on the types and amounts of loans offered; (v) the
procedure under the program for determining a reasonable rate of
interest; (vi) the types of collateral which may secure a
Participant loan; and (vii) the events constituting default and
the steps that will be taken to preserve Plan assets in the event
of such default.
6.09 DISTRIBUTION IN KIND
The Plan Administrator may cause any distribution under this Plan
to be made either in a form actually held in the Fund, or in cash
by converting assets other than cash into cash, or in any
combination of the two foregoing ways.
6.10 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS
A. DIRECT ROLLOVER OPTION - This Section applies to distributions
made on or after January 1, 1993. Notwithstanding any
provision of the Plan to the contrary that would otherwise
limit a distributee's election under this Section, a
distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of
an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct
rollover.
B. DEFINITIONS
l. Eligible rollover distribution - An eligible rollover
distribution is any distribution of all or any portion of
the balance to the credit of the distributee, except that
an eligible rollover distribution does not include:
a. any distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or
joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a
specified period of ten years or more;
b. any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and
c. the portion of any distribution that is not includible
in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect
to employer securities).
2. Eligible retirement plan - An eligible retirement plan is
an individual retirement account described in
<PAGE>
Section 403(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code,
that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or
individual retirement annuity.
3. Distributee - A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section
414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
4. Direct rollover - A direct rollover is a payment by the
Plan to the eligible retirement plan specified by the
distributee.
SECTION SEVEN CLAIMS PROCEDURE
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS
A Participant or Beneficiary who desires to make a claim for the
Vested portion of the Participant's Individual Account shall file
a written request with the Plan Administrator on a form to be
furnished to him by the Plan Administrator for such purpose. The
request shall set forth the basis of the claim. The Plan
Administrator is authorized to conduct such examinations as may
be necessary to facilitate the payment of any benefits to which
the Participant or Beneficiary may be entitled under the terms of
the Plan.
7.02 DENIAL OF CLAIM
Whenever a claim for a Plan distribution by any Participant or
Beneficiary has been wholly or partially denied, the Plan
Administrator must furnish such Participant or Beneficiary
written notice of the denial within 60 days of the date the
original claim was filed. This notice shall set forth the
specific reasons for the denial, specific reference to pertinent
Plan provisions on which the denial is based, a description of
any additional information or material needed to perfect the
claim, an explanation of why such additional information or
material is necessary and an explanation of the procedures for
appeal.
7.03 REMEDIES AVAILABLE
The Participant or Beneficiary shall have 60 days from receipt of
the denial notice in which to make written application for review
by the Plan Administrator. The Participant or Beneficiary may
request that the review be in the nature of a hearing. The
Participant or Beneficiary shall have the right to
representation, to review pertinent documents and to submit
comments in writing. The Plan Administrator shall issue a
decision on such review within 60 days after receipt of an
application for review as provided for in Section 7.02. Upon a
decision unfavorable to the Participant or Beneficiary, such
Participant or Beneficiary shall be entitled to bring such
actions in law or equity as may be necessary or appropriate to
protect or clarify his right to benefits under this Plan.
SECTION EIGHT PLAN ADMINISTRATOR
8.01 EMPLOYER IS PLAN ADMINISTRATOR
A. The Employer shall be the Plan Administrator unless the
managing body of the Employer designates a person or persons
other than the Employer as the Plan Administrator and so
notifies the Prototype Sponsor and the Trustee (or Custodian,
if applicable). The Employer shall also be the Plan
Administrator if the person or persons so designated cease to
be the Plan Administrator
B. If the managing body of the Employer designates a person or
persons other than the Employer as Plan Administrator, such
person or persons shall serve at the pleasure of the Employer
and shall serve pursuant to such procedures as such managing
body may provide. Each such person shall be bonded as may be
required by law.
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR
A. The Plan Administrator may, by appointment, allocate the
duties of the Plan Administrator among several individuals or
entities. Such appointments shall not be effective until the
party designated accepts such appointment in writing.
B. The Plan Administrator shall have the authority to control and
manage the operation and administration of the Plan. The Plan
Administrator shall administer the Plan for the exclusive
benefit of the Participants and their Beneficiaries in
accordance with the specific terms of the Plan.
C. The Plan Administrator shall be charged with the duties of the
general administration of the Plan, including, but not limited
to, the following:
1. To determine all questions of interpretation or policy in
a manner consistent with the Plan's documents and the Plan
Administrator's construction or determination in good
faith shall be conclusive and binding on all persons
except as otherwise provided herein or by law. Any
interpretation or construction shall be done in a
nondiscriminatory manner and shall be consistent with the
intent that the Plan shall continue to be deemed a
qualified plan under the terms of Section 401(a) of the
Code, as amended from time-to-time, and shall comply with
the terms of ERISA, as amended from time-to-time;
2. To determine all questions relating to the eligibility of
Employees to become or remain Participants hereunder;
3. To compute the amounts necessary or desirable to be
contributed to the Plan;
4. To compute the amount and kind of benefits to which a
Participant or Beneficiary shall be entitled under the
Plan and to direct the Trustee (or Custodian, if
applicable) with respect to all disbursements under the
Plan, and, when requested by the Trustee (or Custodian),
to furnish the Trustee (or Custodian) with instructions,
in writing, on matters pertaining to the Plan and the
Trustee (or Custodian) may rely and act thereon;
5. To maintain all records necessary for the administration
of the Plan;
6. To be responsible for preparing and filing such disclosure
and tax forms as may be required from time-to-time by the
Secretary of Labor or the Secretary of the Treasury; and
<PAGE>
7. To furnish each Employee, Participant or Beneficiary such
notices, information and reports under such circumstances
as may be required by law.
D. The Plan Administrator shall have all of the powers necessary
or appropriate to accomplish his duties under the Plan,
including, but not limited to, the following:
1. To appoint and retain such persons as may be necessary to
carry out the functions of the Plan Administrator;
2. To appoint and retain counsel, specialists or other
persons as the Plan Administrator deems necessary or
advisable in the administration of the Plan;
3. To resolve all questions of administration of the Plan;
4. To establish such uniform and nondiscriminatory rules
which it deems necessary to carry out the terms of the
Plan;
5. To make any adjustments in a uniform and nondiscriminatory
manner which it deems necessary to correct any
arithmetical or accounting errors which may have been made
for any Plan Year; and
6. To correct any defect, supply any omission 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.
8.03 EXPENSES AND COMPENSATION
All reasonable expenses of administration including, but not
limited to, those involved in retaining necessary professional
assistance may be paid from the assets of the Fund.
Alternatively, the Employer may, in its discretion, pay such
expenses. The Employer shall furnish the Plan Administrator with
such clerical and other assistance as the Plan Administrator may
need in the performance of his duties.
8.04 INFORMATION FROM EMPLOYER
To enable the Plan Administrator to perform his duties, the
Employer shall supply full and timely information to the Plan
Administrator (or his designated agents) on all matters relating
to the Compensation of all Participants, their regular
employment, retirement, death, Disability or Termination of
Employment, and such other pertinent facts as the Plan
Administrator (or his agents) may require. The Plan Administrator
shall advise the Trustee (or Custodian, if applicable) of such of
the foregoing facts as may be pertinent to the Trustee's (or
Custodian's) duties under the Plan. The Plan Administrator (or
his agents) is entitled to rely on such information as is
supplied by the Employer and shall have no duty or responsibility
to verify such information.
SECTION NINE AMENDMENT AND TERMINATION
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN
A. The Employer, by adopting the Plan, expressly delegates to the
Prototype Sponsor the power, but not the duty, to amend the
Plan without any further action or consent of the Employer as
the Prototype Sponsor deems necessary for the purpose of
adjusting the Plan to comply with all laws and regulations
governing pension or profit sharing plans. Specifically, it is
understood that the amendments may be made unilaterally by the
Prototype Sponsor. However, it shall also be understood that
the Prototype Sponsor shall be under no obligation to amend
the Plan documents and the Employer expressly waives any
rights or claims against the Prototype Sponsor for not
exercising this power to amend. For purposes of Prototype
Sponsor amendments, the mass submitter shall be recognized as
the agent of the Prototype Sponsor. If the Prototype Sponsor
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. An amendment by the Prototype Sponsor shall be accomplished by
giving written notice to the Employer of the amendment to be
made. The notice shall set forth the text of such amendment
and the date such amendment is to be effective. Such amendment
shall take effect unless within the 30 day period after such
notice is provided, or within such shorter period as the
notice may specify, the Employer gives the Prototype Sponsor
written notice of refusal to consent to the amendment. Such
written notice of refusal shall have the effect of withdrawing
the Plan as a prototype plan and shall cause the Plan to be
considered an individually designed plan. The right of the
Prototype Sponsor to cause the Plan to be amended shall
terminate should the Plan cease to conform as a prototype plan
as provided in this or any other section.
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN
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 Section 415 or Section
416 of the Code 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 individually
designed. An Employer that amends the Plan for any other reason,
including a waiver of the minimum funding requirement under
Section 412(d) of the Code, will no longer participate in this
prototype plan and will be considered to have an individually
designed plan.
An Employer who wishes to amend the Plan to change the options it
has chosen in the Adoption Agreement must complete and deliver a
new Adoption Agreement to the Prototype Sponsor and Trustee (or
Custodian, if applicable). Such amendment shall become effective
upon execution by the Employer and Trustee (or Custodian).
The Employer further reserves the right to replace the Plan in
its entirety by adopting another retirement plan which the
Employer designates as a replacement plan.
9.03 LIMITATION ON POWER TO AMEND
No amendment to the Plan shall be effective to the extent that it
has the effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's
Individual Account may be reduced to the extent permitted under
Section 412(c)(8) of the Code. For purposes of this paragraph, a
plan amendment which has the effect of decreasing a Participant's
Individual Account 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 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 Vested percentage (determined as of such date) of such
Employee's Individual Account derived from Employer Contributions
will not be less than the percentage computed under the Plan
without regard to such amendment.
<PAGE>
9.04 AMENDMENT OF VESTING SCHEDULE
If the Plan's vesting schedule is amended, or the Plan is amended
in any way that directly or indirectly affects the computation of
the Participant's Vested percentage, or if the Plan is deemed
amended by an automatic change to or from a top-heavy vesting
schedule, each Participant with at least 3 Years of Vesting
Service with the Employer may elect, within the time set forth
below, to have the Vested percentage computed under the Plan
without regard to such amendment.
For Participants who do not have at least 1 Hour of Service in
any Plan Year beginning after December 31, 1988, the preceding
sentence shall be applied by substituting "5 Years of Vesting
Service" for "3 Years of Vesting Service" where such language
appears.
The Period during which the election may be made shall commence
with the date the amendment is adopted or deemed to be made and
shall end the later of:
A. 60 days after the amendment is adopted;
B. 60 days after the amendment becomes effective; or
C. 60 days after the Participant is issued written notice of the
amendment by the Employer or Plan Administrator.
9.05 PERMANENCY
The Employer expects to continue this Plan and make the necessary
contributions thereto indefinitely, but such continuance and
payment is not assumed as a contractual obligation. Neither the
Adoption Agreement nor the Plan nor any amendment or modification
thereof nor the making of contributions hereunder shall be
construed as giving any Participant or any person whomsoever any
legal or equitable right against the Employer, the Trustee (or
Custodian, if applicable), the Plan Administrator or the
Prototype Sponsor except as specifically provided herein, or as
provided by law.
9.06 METHOD AND PROCEDURE FOR TERMINATION
The Plan may be terminated by the Employer at any time by
appropriate action of its managing body. Such termination shall
be effective on the date specified by the Employer. The Plan
shall terminate if the Employer shall be dissolved, terminated,
or declared bankrupt. Written notice of the termination and
effective date thereof shall be given to the Trustee (or
Custodian, if applicable), Plan Administrator, Prototype Sponsor,
Participants and Beneficiaries of deceased Participants, and the
required filings (such as the Form 5500 series and others) must
be made with the Internal Revenue Service and any other
regulatory body as required by current laws and regulations.
Until all of the assets have been distributed from the Fund, the
Employer must keep the Plan in compliance with current laws and
regulations by (a) making appropriate amendments to the Plan and
(b) taking such other measures as may be required.
9.07 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER
Notwithstanding the preceding Section 9.06, a successor of the
Employer may continue the Plan and be substituted in the place of
the present Employer. The successor and the present Employer (or,
if deceased, the executor of the estate of a deceased
Self-Employed Individual who was the Employer) must execute a
written instrument authorizing such substitution and the
successor must complete and sign a new Adoption Agreement.
9.08 FAILURE OF PLAN QUALIFICATION
If the Plan fails to attain or retain its qualified status, the
Plan will no longer be considered to be part of a prototype plan,
and such Employer can no longer participate under this prototype.
In such event, the Plan will be considered an individually
designed plan.
SECTION TEN MISCELLANEOUS
10.01 STATE COMMUNITY PROPERTY LAWS
The terms and conditions of this Plan shall be applicable without
regard to the community property laws of any state.
10.02 HEADINGS
The headings of the Plan have been inserted for convenience of
reference only and are to be ignored in any construction of the
provisions hereof.
10.03 GENDER AND NUMBER
Whenever any words are used herein in the masculine gender they
shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and whenever any
words are used herein in the singular form they shall be
construed as though they were also used in the plural form in all
cases where they would so apply.
10.04 PLAN MERGER OR CONSOLIDATION
In the case of any merger or consolidation of the Plan with, or
transfer of assets or liabilities of such Plan to, any other
plan, each Participant shall be entitled to receive benefits
immediately after the merger, consolidation, or transfer (if the
Plan had then terminated) which are equal to or greater than the
benefits he would have been entitled to receive immediately
before the merger, consolidation, or transfer (if the Plan had
then terminated). The Trustee (or Custodian, if applicable) has
the authority to enter into merger agreements or agreements to
directly transfer the assets of this Plan but only if such
agreements are made with trustees or custodians of other
retirement plans described in Section 401(a) of the Code.
10.05 STANDARD OF FIDUCIARY CONDUCT
The Employer, Plan Administrator, Trustee and any other fiduciary
under this Plan shall discharge their duties with respect to this
Plan solely in the interests of Participants and their
Beneficiaries and with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting
in like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims.
No fiduciary shall cause the Plan to engage in any transaction
known as a "prohibited transaction" under ERISA.
10.06 GENERAL UNDERTAKING OF ALL PARTIES
All parties to this Plan and all persons claiming any interest
whatsoever hereunder agree to perform any and all acts and
execute any and all documents and papers which may be necessary
or desirable for the carrying out of this Plan and any of its
provisions.
<PAGE>
10.07 AGREEMENT BINDS HEIRS, ETC.
This Plan shall be binding upon the heirs, executors,
administrators, successors and assigns, as those terms shall
apply to any and all parties hereto, present and future.
10.08 DETERMINATION OF TOP-HEAVY STATUS
A. For any Plan Year beginning after December 3l, 1983, this Plan
is a Top-Heavy Plan if any of the following conditions exist:
1. If the top-heavy ratio for this Plan exceeds 60% and this
Plan is not part of any required aggregation group or
permissive aggregation group of plans;
2. If this Plan is part of a required aggregation group of
plans but not part of a permissive aggregation group and
the top-heavy ratio for the group of plans exceeds 60%;
3. If this Plan is a part of a required aggregation group and
part of a permissive aggregation group of plans and the
top-heavy ratio for the permissive aggregation group
exceeds 60%.
For purposes of this Section 10.08, the following terms shall
have the meanings indicated below:
B. KEY EMPLOYEE - 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% of the dollar
limitation under Section 415(b)(1)(A) of the Code an owner (or
considered an owner under Section 318 of the Code) of one of
the 10 largest interests in the Employer if such individual's
compensation exceeds 100% of the dollar limitation under
Section 415(c)(1)(A) of the Code, a 5% owner of the Employer,
or a 1% owner of the Employer who has an annual compensation
of more than $150,000. Annual compensation means compensation
as defined in 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 Section 125, Section 402(a)(8), Section
402(h) or Section 403(b) of the Code. The determination period
is the Plan Year containing the determination date and the 4
preceding Plan Years.
The determination of who is a Key Employee will be made in
accordance with Section 416(i)(1) of the Code and the
regulations thereunder.
C. TOP-HEAVY RATIO
1. 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 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 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 5-year period ending on the
determination date(s)) both computed in accordance with
Section 416 of the Code and the regulations thereunder.
Both the numerator and the 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
Section 416 of the Code and the regulations thereunder.
2. 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 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 (1)
above, and the present value of accrued benefits under 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 (1)
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 Section 416 of the Code 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 5-year period ending on the
determination date.
3. For purposes of (1) and (2) above, the value of account
balances and the present value of accrued benefits will 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 Section 416 of
the Code 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
Hour of Service with any employer maintaining the plan at
any time during the 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 Section 416 of the
Code 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.
The accrued benefit of a Participant other than a Key
Employee shall be determined under (a) the method, if any,
that uniformly applies for accrual purposes under all
defined benefit plans maintained by the Employer, or (b)
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 Section 411(b)(1)(C) of the Code.
4. Permissive aggregation group: 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 Sections 401(a)(4) and 410 of the Code.
<PAGE>
5. Required aggregation group: (a) Each qualified plan of
the Employer in which at least one Key Employee
participates or participated at any time during the
determination period (regardless of whether the Plan has
terminated) and (b) any other qualified plan of the
Employer which enables a plan described in (a) to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
6. Determination date: For any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan Year.
For the first Plan Year of the Plan, the last day of that
year.
7. Valuation date: For purposes of calculating the top-heavy
ratio, the valuation date shall be the last day of each
Plan Year.
8. Present value: For purposes of establishing the "present
value" of benefits under a defined benefit plan to compute
the top-heavy ratio, any benefit shall be discounted only
for mortality and interest based on the interest rate and
mortality table specified for this purpose in the defined
benefit plan.
10.09 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES
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 trades or businesses, this
Plan and the plan established for other trades or businesses
must, when looked at as a single plan, satisfy Sections 401(a)
and (d) of the Code for the employees of those trades or
businesses.
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 Sections 401(a) and (d) of
the Code and which provides contributions and benefits not less
favorable than provided for Owner-Employees under this Plan.
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
contributions or benefits of the employees under the plan of the
trade or business which is controlled must be as favorable as
those provided for him under the most favorable plan of the trade
or business which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or
two or more Owner-Employees, will be considered to control a
trade or business if the Owner-Employee, or two or more
Owner-Employees, together:
A. own the entire interest in a unincorporated trade or business,
or
B. in the case of a partnership, own more than 50% of either the
capital interest or the profit interest in the 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.
10.10 INALIENABILITY OF BENEFITS
No benefit or interest available hereunder will be subject to
assignment or alienation, either voluntarily or involuntarily.
The preceding sentence shall also apply to the creation,
assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order.
unless such order is determined to be a qualified domestic
relations order, as defined in Section 414(p) of the Code.
Generally, a domestic relations order cannot be a qualified
domestic relations order until January 1, 1985. However, in the
case of a domestic relations order entered before such date, the
Plan Administrator:
(1) shall treat such order as a qualified domestic relations
order if such Plan Administrator is paying benefits pursuant
to such order on such date, and
(2) may treat any other such order entered before such date as a
qualified domestic relations order even if such order does
not meet the requirements of Section 414(p) of the Code.
#709(1/94)J92 (C)1994 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
- --------------------------------------------------------------------------------
POST OFFICE BOX 449, BOSTON, MASSACHUSETTS 02117 800-345-4048
KEOPLAN94
<PAGE>
The CGM Funds
Adoption Agreement
Simplified Standardized
Profit Sharing Plan
<PAGE>
INSTRUCTIONS FOR COMPLETING ADOPTION AGREEMENT
SIMPLIFIED STANDARDIZED PROFIT SHARING PLAN AND TRUST
These instructions are designed to help you, the employer, along
with your attorney and/or tax advisor, complete the Adoption
Agreement for the Qualified Retirement Plan. The instructions are
meant to be used only as a general guide and are not intended as
a substitute for qualified legal and tax advisors.
If you wish to have us, the financial organization sponsoring
this prototype plan, help you fill out the Adoption Agreement, we
will do so. However, we recommend that you obtain the advice of
your legal or tax advisor before you sign the Adoption Agreement.
This Adoption Agreement has been designed for easy completion.
There is one page (an original plus two carbonless copies) which
require your completion. Insert the adoption agreement into a
typewriter and follow the section instructions to complete. When
finished, detach at the top and you will have three copies.
EMPLOYER Fill in the requested information. The "Federal Tax
INFORMATION Identification Number" is the tax identification number assigned
to your business. If your business does not have a Federal Tax
Identification Number, complete and file an Internal Revenue
Service (IRS) Form SS4 to obtain a number. The IRS Form SS4 can
be obtained from an IRS office or from your tax advisor. If you
have already filed a Form SS4, print "Applied for" on the
"Federal Tax Identification Number" line. After you receive a tax
identification number, be sure to let our financial organization
know what that number is. In the space marked "Nature of
Business," accurately describe the type of business, (e.g., radio
and TV repair, agricultural, etc.). The "Plan Sequence Number" is
used for annual reporting to the IRS. The IRS uses this number to
identify your plan. For example, if this is the fourth plan you
have ever opened, the Plan Sequence Number would be 004 and so
on.
EFFECTIVE This profit sharing plan is either a new plan (an initial
DATES adoption) or an amendment and restatement of an existing profit
sharing plan.
If this is a new profit sharing plan, check Option A and fill in
the effective date. The effective date is usually the first day
of the plan year in which this Adoption Agreement is signed. For
example, if an employer maintains a plan on a calendar year basis
and this Adoption Agreement is signed on September 24, 1991, the
effective date would be January 1, 1991.
If the reason you are adopting this plan is to amend and replace
an existing profit sharing plan, check Option B. The existing
profit sharing plan which will be replaced is called a "prior
plan" You will need to know the effective date of the prior
plan. The best way to determine its effective date is to refer to
the prior plan adoption agreement. The effective date of this
amendment and restatement is usually the first day of the plan
year in which the Adoption Agreement is signed. However, if you
are adopting this plan to update a prior plan for changes brought
about by the Tax Reform Act of 1986 (and other recent changes
which apply to qualified plans), the effective date will be the
first day of the plan year which begins in 1989 (January 1,1989
for a calendar year plan).
PLAN NOTE: This section should be completed even if you do not have
PROVISIONS employees.
Within limits, you as the employer can specify the number of
years your employees must work for you and the age they must
attain before they are eligible to participate in this plan. Note
that the eligibility requirements which you set up for the plan
also apply to you.
Suppose, for example, you establish a service requirement of two
years and an age requirement of 21. In that case, only those
employees (including yourself) who have worked for you for two
years and are at least 21 years old are eligible to participate
in this plan.
PART A. YEARS OF ELIGIBILITY SERVICE REQUIREMENT
Fill in the number of years of service (no more than 2).
This number must be either 0,1, or 2.
PART B. AGE REQUIREMENT
Fill in the age an employee must attain (no more than 21)
to be eligible to participate in the plan.
PART F. RETIREMENT EQUITY ACT SAFE HARBOR
As a general rule, the Retirement Equity Act requires
that a distribution from a plan to a participant be made
in the form of a joint and survivor annuity purchased
from an insurance company, unless the participant elects
otherwise and his or her spouse consents. However, the
Retirement Equity Act allows employers who maintain
certain profit sharing plans to elect to have a safe
harbor rule apply. If you check "yes" indicating that the
safe harbor rule applies, then payouts from the plan to
participants and beneficiaries will not be subject to the
annuity requirements.
<PAGE>
EMPLOYER An authorized representative of the employer must sign and date
SIGNATURE the Adoption Agreement.
TRUSTEE OR A trustee or custodian must be named for this plan.
CUSTODIAN
If the financial organization will be acting as trustee or
custodian, the financial organization should fill in its name.
The financial organization should check the box if it will be
acting as trustee with full trust powers.
If an individual (e.g., the employer, partners, or an appointed
individual) will be acting as individual trustee, the
individual's name and signature should be entered.
PROTOTYPE The prototype sponsor must fill in its name, address and
SPONSOR telephone number.
ADDITIONAL This plan is a standardized plan under applicable IRS procedures.
PLANS An employer who adopts a standardized plan generally does not
have to request a ruling from a Key District Office of the IRS
(called a determination letter) that the plan, under facts and
circumstances unique to that particular employer, meets the
requirements for qualification under the tax laws and
regulations.
This section states an exception to the procedures for
standardized plans, namely, if you maintain another plan (other
than a paired standardized money purchase pension plan using the
same Basic Plan Document), you must obtain a determination
letter if you wish to obtain assurance that the plan is
qualified.
LIMITATION ON You must read and complete this section if, in addition to the
ALLOCATIONS - plan:
MORE THAN 1. You ever maintained a defined benefit plan, or
ONE PLAN 2. You currently maintain an individually designed plan.
Individually designed plans are not master or prototype plans,
but rather, plans written for just one particular employer.
<PAGE>
T H E C G M F U N D S
QUALIFIED SIMPLIFIED STANDARDIZED PROFIT SHARING PLAN
- --------------------------------------------------------------------------------
Retirement Plan ADOPTION AGREEMENT
- --------------------------------------------------------------------------------
EMPLOYER Name of Employer Telephone
INFORMATION -------------------------- -------------
Business Address
-------------------------------------------------
City State Zip
------------------------- ---- ----------------------
Federal Tax
Identification Number Income Tax Year End
------------- -----------
(month)(day)
Type of Business (Check only one) [ ] Sole Proprietorship [ ]
Partnership [ ] Corporation [ ] Other (Specify)
-----------------
Plan Sequence No. Enter 001 if this is the first qualified
--------
plan the Employer has ever maintained, enter 002 if it is the
second, etc.
For a Plan which covers only the owner of the business, please
provide the following information about the owner:
Social Security No. Date Business Established
---------- ----------
Date of Birth Marital Status
---------------- ----------------------
Home Address
-----------------------------------------------------
EFFECTIVE Check and complete Option A or B
DATES
OPTION A. [ ] This is the initial adoption of a profit sharing plan by the
Employer. The Effective Date of this Plan is 19 .
NOTE: The effective date is usually the first day of the Plan Year
in which this Adoption Agreement is signed.
OPTION B. [ ] This is an amendment and restatement of an existing profit
sharing plan (a prior plan). NOTE: The effective date is usually
the first day of the Plan Year in which this Adoption Agreement is
signed.
The Prior Plan was initially effective on , 19
---------------- ---
The Effective Date of this amendment and restatement
is , 19
---------------- ---
PLAN
PROVISIONS Complete Parts A through F
PART A. Service Requirement: An Employee will be eligible to become a
Participant in the Plan after completing (enter 0,
1 or 2) Years of Eligibility Service. NOTE: If left blank, the
Years of Eligibility Service required will be deemed to be 0.
PART B. Age Requirement: An Employee will be eligible to become a
Participant in the Plan after attaining age (no more
than 21). NOTE: If left blank, it will be deemed there is no age
requirement for eligibility.
PART C. 100% Vesting: A Participant shall be fully Vested at all times in
his or her Individual Account.
PART D. Normal Retirement Age: The Normal Retirement Age under the Plan
is age 59 1/2.
PART E. Contribution Formula: For each Plan Year the Employer will
contribute an amount to be determined from year to year. Such
contribution shall be allocated to the Individual Accounts of
qualifying Participants in the ratio that each qualifying
Participant's Compensation for the Plan Year bears to the total
Compensation of all qualifying Participants for the Plan Year.
PART F. Retirement Equity Act Safe Harbor: Will the safe harbor provisions
of Section 6.05(F) apply? [ ] Yes [ ]No
NOTE: If left blank, it will be deemed, yes.
EMPLOYER I am an authorized representative of the Employer named above and
SIGNATURE I state the following:
Important:
Please read 1. I acknowledge that I have relied upon my own advisors
before regarding the completion of this Adoption Agreement and the legal
signing and tax implications of adopting this Plan.
2. I understand that my failure to properly complete this
Adoption Agreement may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any
amendments made to the Plan and will notify me should it
discontinue or abandon the Plan.
4. I have received a copy of this Adoption Agreement and the
corresponding Basic Plan Document.
Signature for Employer Date Signed
------------------ ------------
Type Name
-------------------------------
TRUSTEE OR STATE STREET BANK AND TRUST COMPANY,
CUSTODIAN Trustee or Custodian BOSTON, MA
--------------------------------------
Signature [x]Check this box
--------------------------------------- only if a
Type Name financial
-------------------------------------- organization
is named as
Trustee and it
has full trust
powers.
PROTOTYPE Name of Telephone
SPONSOR Prototype Sponsor THE CGM FUNDS Number 800-345-4048
------------------- ----------------
Address P.O. BOX 449, BOSTON, MA 02117
---------------------------------------------------------
ADDITIONAL An Employer who has ever maintained or who later adopts any plan
PLANS (including a welfare benefit fund, as defined in Section 419(e)
of the Code, which provides post-retirement medical benefits
allocated to separate accounts for key employees as defined in
Section 419A(d)(3) of the Code or an individual medical account,
as defined in Section 415(l)(2) of the Code) in addition to this
Plan (other than a paired standardized money purchase pension plan
using Basic Plan Document No. 03) may not rely on the opinion
letter issued by the National Office of the internal Revenue
Service as evidence that this Plan is qualified under Section 401
of the Code. If the Employer who adopts or maintains multiple
plans wishes to obtain reliance that the Employer's plan(s) are
qualified, application for a determination letter should be made
to the appropriate Key District Director of Internal Revenue.
This Adoption Agreement may be used only in conjunction with Basic
Plan Document No. 03.
IMPORTANT: Please save a copy of this agreement with your
permanent records.
#725(12/92)L90 (C)1992 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
SIMPLIFIED STANDARDIZED PROFIT SHARING PLAN
ADOPTION AGREEMENT -----------------------------------
LIMITATION More Than One Plan
ON
ALLOCATIONS If you maintain or ever maintained another qualified plan (other
than a paired standardized money purchase pension plan using Basic
Plan Document No. 03) in which any Participate in this Plan is (or
was) a participant or could become a participant, you must
complete this section. You must also complete this section if you
maintain a welfare benefit fund, as defined in Section 419(e) of
the Code, or an individual medical account, as defined in Section
415(1)(2) of the Code, under which amounts are treated as annual
additions with respect to any Participant in this Plan.
PART A. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master
or prototype plan:
1. [ ] The provisions of Sections 3.05(B)(1) through 3.05(B)(6) of
the Plan will apply as if the other plan were a master or
prototype plan.
2. [ ] Other method. (Provide the method under which the plans
will limit total annual additions to the maximum
permissible amount, and will properly reduce any excess
amounts, in a manner that precludes Employer
discretion.)
---------------------------------------------
---------------------------------------------------------
PART B. If the Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer, the Employer will provide
below the language which will satisfy the 1.0 limitation of
section 415(e) of the Code. Such language must preclude Employer
discretion (Complete)
-------------------------------------------
PART C. The limitation year is the following 12-consecutive month
period:
---------------------
KEOADOPT
PS/SIM
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
Plan Description: Prototype Standardized Profit Sharing Plan
FFN: 50295842702-003 Case: 9201730 EIN: 04-3076053 Washington, DC 20224
BPD: 02 Plan: 003 Letter Serial No: D260703a
Person to Contact: Ms. Arrington
CAPITAL GROWTH MANAGEMENT
Telephone Number (202) 622-8173
P O BOX 449
Refer Reply to E:EP:Q:ICU
BOSTON, MA 02117
Date 11/03/92
</TABLE>
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 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) 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, 1989-1 C.B. 780; 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).
An employer that has adopted a standardized plan may not rely on this opinion
letter with respect to: (1) whether any amendment or series of amendments to the
plan satisfies the nondiscrimination requirements of section 1.401(a)(4)-5(a) of
the regulations, except with respect to plan amendments granting past service
that meet the safe harbor described in section 1.401(a)(4)-5(a)(5) and are not
part of a pattern of amendments that significantly discriminates in favor of
highly compensated employees; or (2) whether the plan satisfies the effective
availability requirement of section 1.401(a)(4)-4(c) of the regulations with
respect to any benefit, right or feature.
An employer that has adopted a standardized plan as an amendment to a plan other
than a standardized plan may not rely on this opinion letter with respect to
whether a benefit, right or other feature that is prospectively eliminated
satisfies the current availability requirements of section 1.401(a)-4 of the
regulations.
SIMDETLTR/PS003
<PAGE>
CAPITAL GROWTH
MANAGEMENT
FFN: 50295842702-003
Page 2
The employer may request a determination (1) 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; (2) regarding the
nondiscriminatory effect of grants of past service, and (3) with respect to
whether a prospectively eliminated benefit, right or feature satisfies the
current availability requirements.
Our opinion does not apply to the form of the plan for purposes of section
401(a) of the Code unless the terms of the plan, as adopted or amended, that
pertain to the requirements of sections 401(a)(4), 401(a)(5), 401(a)(17),
401(l), 410(b) and 414(s) of the Code, as amended by the Tax Reform Act of 1986
or subsequent legislation, (a) are made effective retroactively to the first day
of the first plan year beginning after December 31, 1988 (or such other date on
which these requirements first became effective with respect to this plan), or
(b) are made effective no later than the first day on which the employer is no
longer entitled, under regulations, to rely on a reasonable, good faith
interpretation of these requirements, and the prior provisions of the plan
constitute such an interpretation.
Because you submitted this plan for approval after March 31, 1991, the continued
and interim reliance provisions of section 13 of Rev. Proc. 89-9, 1989-1 C.B.
780, are not applicable. However, solely for purposes of section 17.03 of Rev.
Proc. 89-9, you are deemed to have submitted this plan prior to March 31, 1991,
and therefore the extended reliance provisions of section 17.03 are applicable.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization'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/ Jobn Swieca
---------------------
Chief, Employee Plans Qualifications Branch
<PAGE>
The CGM Funds
ADOPTION AGREEMENT
SIMPLIFIED STANDARDIZED
MONEY PURCHASE PENSION PLAN
<PAGE>
INSTRUCTIONS FOR COMPLETING ADOPTION AGREEMENT
SIMPLIFIED STANDARDIZED MONEY PURCHASE PENSION PLAN AND TRUST
These instructions are designed to help you, the employer, along
with your attorney and/or tax advisor, complete the Adoption
Agreement for the Qualified Retirement Plan. The instructions are
meant to be used only as a general guide ant are not intended as
a substitute for qualified legal and tax advisors.
If you wish to have us, the financial organization sponsoring
this prototype plan, help you fill out the Adoption Agreement, we
will do so. However, we recommend that you obtain the advice of
your legal or tax advisor before you sign the Adoption Agreement.
This Adoption Agreement has been designed for easy completion.
There is one page (an original plus two carbonless copies) which
require your completion. Insert the adoption agreement into a
typewriter and follow the section instructions to complete. When
finished, detach at the top and you will have three copies.
EMPLOYER Fill in the requested information. The "Federal Tax
INFORMATION Identification Number" is the tax identification number assigned
to your business. If your business does not have a Federal Tax
Identification Number, complete and file an Internal Revenue
Service (IRS) Form SS4 to obtain a number. The IRS Form SS4 can
be obtained from an IRS office or from your tax advisor. If you
have already filed a Form SS4, print "Applied for" on the
"Federal Tax Identification Number" line. After you receive a tax
identification number, be sure to let our financial organization
know what that number is. In the space marked "Nature of
Business," accurately describe the type of business, (e.g., radio
and TV repair, agricultural, etc.). The "Plan Sequence Number" is
used for annual reporting to the IRS. The IRS uses this number to
identify your plan. For example, if this is the fourth plan you
have ever opened, the Plan Sequence Number would be 004 and so
on.
EFFECTIVE This money purchase pension plan is either a new plan (an initial
DATES adoption) or an amendment and restatement of an existing money
purchase pension plan.
If this is a new money purchase pension plan, check Option A and
fill in the effective date. The effective date is usually the
first day of the plan year in which this Adoption Agreement is
signed. For example, if an employer maintains a plan on a
calendar year basis and this Adoption Agreement is signed on
September 24, 1991, the effective date would be January 1, 1991.
If the reason you are adopting this plan is to amend and replace
an existing money purchase pension plan, check Option B. The
existing money purchase pension plan which will be replaced is
called a "prior plan." You will need to know the effective date
of the prior plan. The best way to determine its effective date
is to refer to the prior plan adoption agreement. The effective
date of this amendment and restatement is usually the first day
of the plan year in which the Adoption Agreement is signed.
However, if you are adopting this plan to update a prior plan for
changes brought about by the Tax Reform Act of 1986 (and other
recent changes which apply to qualified plans), the effective
date will be the first day of the plan year which begins in 1989
(January 1, 1989 for a calendar year plan).
PLAN NOTE: This section should be completed even if you do not have
PROVISIONS employees.
Within limits, you as the employer can specify the number of
years your employees must work for you and the age they must
attain before they are eligible to participate in this plan. Note
that the eligibility requirements which you set up for the plan
also apply to you.
Suppose, for example, you establish a service requirement of two
years and an age requirement of 21. In that case, only those
employees (including yourself) who have worked for you for two
years and are at least 21 years old are eligible to participate
in this plan.
PART A. YEARS OF ELIGIBILITY SERVICE REQUIREMENT
Fill in the number of years of service (no more than 2).
This number must be either 0, 1, or 2.
PART B. AGE REQUIREMENT
Fill in the age an employee must attain (no more than 21)
to be eligible to participate in the plan.
PART C. CONTRIBUTION FORMULA
Fill in the percentage of each participant's compensation
which you will contribute to the plan each year.
<PAGE>
EMPLOYER An authorized representative of the employer must sign and date
SIGNATURE the Adoption Agreement.
TRUSTEE OR A trustee or custodian must be named for this plan.
CUSTODIAN
If the financial organization will be acting as trustee or
custodian, the financial organization should fill in its name.
The financial organization should check the box if it will be
acting as trustee with full trust powers.
If an individual (e.g., the employer, partners, or an appointed
individual) will be acting as individual trustee, the
individual's name and signature should be entered.
PROTOTYPE The prototype sponsor must fill in its name, address and
SPONSOR telephone number.
ADDITIONAL This plan is a standardized plan under applicable IRS procedures.
PLANS An employer who adopts a standardized plan generally does not
have to request a ruling from a Key District Office of the IRS
(called a determination letter) that the plan, under facts and
circumstances unique to that particular employer, meets the
requirements for qualification under the tax laws and
regulations.
This section states an exception to the procedures for
standardized plans, namely, if you maintain another plan (other
than a paired standardized money purchase pension plan using the
same Basic Plan Document), you must obtain a determination
letter if you wish to obtain assurance that the plan is
qualified.
LIMITATION ON You must read and complete this section if, in addition to the
ALLOCATIONS - plan:
MORE THAN 1. You ever maintained a defined benefit plan, or
ONE PLAN 2. You currently maintain an individually designed plan.
Individually designed plans are not master or prototype plans,
but rather, plans written for just one particular employer.
<PAGE>
T H E C G M F U N D S
QUALIFIED SIMPLIFIED STANDARDIZED MONEY PURCHASE PENSION PLAN
- --------------------------------------------------------------------------------
RETIREMENT PLAN ADOPTION AGREEMENT
- --------------------------------------------------------------------------------
EMPLOYER
INFORMATION
Name of Employer ____________________________________ Telephone ________________
Business Address _______________________________________________________________
City __________________________________________ State _______ Zip ______________
Federal Tax Identification Number______________ Income Tax Year End_____________
(month)(day)
Type of Business (Check only one) [ ] Sole Proprietorship [ ] Partnership [ ]
Corporation [ ] Other (Specify)_____________________________________________
Plan Sequence No._______ Enter 001 if this is the first qualified plan the
Employer has ever maintained, enter 002 if it is the second, etc.
For a Plan which covers only the owner of the business, please provide the
following information about the owner:
Social Security No.__________________ Date Business Established_________________
Date of Birth________________________ Marital Status ___________________________
Home Address ___________________________________________________________________
EFFECTIVE DATES
Check and complete Option A or B
OPTION A.
[ ] This is the initial adoption of a money purchase pension plan by the
Employer.
The Effective Date of this Plan is _____________________ 19_____ .
NOTE: The effective date is usually the first day of the Plan Year in which
this Adoption Agreement is signed.
OPTION B.
[ ] This is an amendment and restatement of an existing money purchase pension
plan (a prior plan). NOTE: The effective date is usually the first day of
the Plan Year in which this Adoption Agreement is signed.
The Prior Plan was initially effective on______________ , 19____
The Effective Date of this amendment and restatement is____________ , 19____
PLAN
PROVISIONS
Complete Parts A through E
PART A.
Service Requirement: An Employee will be eligible to become a Participant in the
Plan after completing__________(enter 0, 1 or 2) Years of Eligibility Service.
NOTE: If left blank, the Years of Eligibility Service required will be deemed to
be 0.
PART B.
Age Requirement: An Employee will be eligible to become a Participant in the
Plan after attaining age________(no more than 21). NOTE: If left blank, it will
be deemed there is no age requirement for eligibility.
PART C.
100% Vesting: A Participant shall be fully Vested at all times in his or her
Individual Account.
PART D.
Normal Retirement Age: The Normal Retirement Age under the Plan is age 59 1/2.
PART E.
Contribution Formula: For each Plan Year the Employer will contribute an amount
equal to ______% (not to exceed 25%) of the qualifying Participant's
Compensation for the Plan Year.
EMPLOYER
SIGNATURE
Important: Please read before signing
I am an authorized representative of the Employer named above and I state the
following:
1. I acknowledge that I have relied upon my own advisors regarding the
completion of this Adoption Agreement and the legal and tax implications of
adopting this Plan.
2. I understand that my failure to properly complete this Adoption Agreement may
result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any amendments made
to the Plan and will notify me should it discontinue or abandon the Plan.
4. I have received a copy of this Adoption Agreement and the corresponding Basic
Plan Document.
Signature for Employer___________________________ Date Signed___________________
Type Name_______________________________________________________________________
TRUSTEE OR
CUSTODIAN
Trustee or Custodian [x] Check this box only
STATE STREET BANK AND TRUST COMPANY, BOSTON, MA if a financial organization
Signature_________________________________ is named as Trustee and it
Type Name ________________________________ has full trust powers.
PROTOTYPE
SPONSOR
Named of Prototype Sponsor THE CGM FUNDS Telephone Number 800-345-4048
Address P.O. BOX 449, BOSTON, MA 02117
ADDITIONAL
PLANS
An Employer who has ever maintained or who later adopts any plan (including a
welfare benefit fund, as defined in Section 419(e) of the Code, which provides
post-retirement medical benefits allocated to separate accounts for key
employees as defined in Section 419A(d)(3) of the Code or an individual medical
account, as defined in Section 415(l)(2) of the Code) in addition to this Plan
(other than a paired standardized money purchase pension plan using Basic Plan
Document No. 03) may not rely on the opinion letter issued by the National
Office of the Internal Revenue Service as evidence that this Plan is qualified
under Section 401 of the Code. If the Employer who adopts or maintains multiple
plans wishes to obtain reliance that the Employer's plan(s) are qualified,
application for a determination letter should be made to the appropriate Key
District Director of Internal Revenue. This Adoption Agreement may be used only
in conjunction with Basic Plan Document No. 03.
IMPORTANT: Please save a copy of this agreement with your permanent records.
#726(12/92)L90 (C)1992 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
SIMPLIFIED STANDARDIZED MONEY PURCHASE PENSION PLAN_____________________________
ADOPTION AGREEMENT
LIMITATION ON
ALLOCATIONS More Than One Plan
If you maintain or ever maintained another qualified plan (other than a paired
standardized money purchase pension plan using Basic Plan Document No. 03) in
which any Participate in this Plan is (or was) a participant or could become a
participant, you must complete this section. You must also complete this section
if you maintain a welfare benefit fund, as defined in Section 419(e) of the
Code, or an individual medical account, as defined in Section 415(l)(2) of the
Code, under which amounts are treated as annual additions with respect to any
Participant in this Plan.
PART A.
If the Participant is covered under another qualified defined contribution plan
maintained by the Employer, other than a master or prototype plan:
1. [ ] The provisions of Sections 3.05(B)(1) through 3.05(B)(6) of the Plan will
apply as if the other plan were a master or prototype plan.
2. [ ] Other method. (Provide the method under which the plans will limit total
annual additions to the maximum permissible amount, and will properly
reduce any excess amounts, in a manner that precludes Employer
discretion.)_____________________________________________________________
_________________________________________________________________________
PART B.
If the Participant is or has ever been a participant in a defined benefit plan
maintained by the Employer, the Employer will provide below the language which
will satisfy the 1.0 limitation of section 415(e) of the Code. Such language
must preclude Employer discretion (Complete)____________________________________
________________________________________________________________________________
PART C.
The limitation year is the following 12-consecutive month period:_______________
KEOADOPT
MP/SIM
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
Plan Description: Prototype Standardized Money Purchase Pension Plan
FFN: 50295842702-004 Case: 9201731 EIN: 04-3076053 Washington, DC 20224
BPD: 02 Plan: 004 Letter Serial No: D260704a
Person to Contact: Ms. Arrington
CAPITAL GROWTH MANAGEMENT
Telephone Number (202) 622-8173
P O BOX 449
Refer Reply to E:EP:Q:ICU
BOSTON, MA 02117
Date 11/03/92
</TABLE>
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 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) 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, 1989-1 C.B. 780; 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).
An employer that has adopted a standardized plan may not rely on this opinion
letter with respect to: (1) whether any amendment or series of amendments to the
plan satisfies the nondiscrimination requirements of section 1.401(a)(4)-5(a) of
the regulations, except with respect to plan amendments granting past service
that meet the safe harbor described in section 1.401(a)(4)-5(a)(5) and are not
part of a pattern of amendments that significantly discriminates in favor of
highly compensated employees; or (2) whether the plan satisfies the effective
availability requirement of section 1.401(a)(4)-4(c) of the regulations with
respect to any benefit, right or feature.
An employer that has adopted a standardized plan as an amendment to a plan other
than a standardized plan may not rely on this opinion letter with respect to
whether a benefit, right or other feature that is prospectively eliminated
satisfies the current availability requirements of section 1.401(a)-4 of the
regulations.
SIMDETLTR/MP004
<PAGE>
CAPITAL GROWTH
MANAGEMENT
FFN: 50295842702-004
Page 2
The employer may request a determination (1) 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; (2) regarding the
nondiscriminatory effect of grants of past service, and (3) with respect to
whether a prospectively eliminated benefit, right or feature satisfies the
current availability requirements.
Our opinion does not apply to the form of the plan for purposes of section
401(a) of the Code unless the terms of the plan, as adopted or amended, that
pertain to the requirements of sections 401(a)(4), 401(a)(5), 401(a)(17),
401(l), 410(b) and 414(s) of the Code, as amended by the Tax Reform Act of 1986
or subsequent legislation, (a) are made effective retroactively to the first day
of the first plan year beginning after December 31, 1988 (or such other date on
which these requirements first became effective with respect to this plan), or
(b) are made effective no later than the first day on which the employer is no
longer entitled, under regulations, to rely on a reasonable, good faith
interpretation of these requirements, and the prior provisions of the plan
constitute such an interpretation.
Because you submitted this plan for approval after March 31, 1991, the continued
and interim reliance provisions of section 13 of Rev. Proc. 89-9, 1989-1 C.B.
780, are not applicable. However, solely for purposes of section 17.03 of Rev.
Proc. 89-9, you are deemed to have submitted this plan prior to March 31, 1991,
and therefore the extended reliance provisions of section 17.03 are applicable.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization'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 Swieca
---------------------
Chief, Employee Plans Qualifications Branch
<PAGE>
----------
QUALIFIED
RETIREMENT
PLAN
----------
---------------------------
ADOPTION AGREEMENT
STANDARDIZED
MONEY PURCHASE PENSION PLAN
---------------------------
<PAGE>
INSTRUCTIONS FOR COMPLETING ADOPTION AGREEMENT
STANDARDIZED MONEY PURCHASE PENSION PLAN AND TRUST
These instructions are designed to help you, the employer, along
with your attorney and/or tax advisor, complete the Adoption
Agreement for the Qualified Retirement Plan. The instructions are
meant to be used only as a general guide and are not intended as a
substitute for qualified legal and tax advisors.
SECTION 1 EMPLOYER INFORMATION
Fill in the requested information. The "Federal Tax Identification
Number" is the tax identification number assigned to your business.
If your business does not have a Federal Tax Identification Number,
complete and file an Internal Revenue Service (IRS) Form SS4 to
obtain a number. The IRS Form SS4 can be obtained from an IRS office
or from your tax advisor. If you have already filed a Form SS4,
print "Applied for" on the "Federal Tax Identification Number" line.
After you receive a tax identification number, be sure to let our
financial organization know what that number is. In the space marked
"Nature of Business," accurately describe the type of business
(e.g., radio and TV repair, agricultural, etc.). The "Plan Sequence
Number" is used for annual reporting to the IRS. The IRS uses this
number to identify your plan. For example, if this is the fourth
plan you have ever opened, the Plan Sequence Number would be 004 and
so on.
SECTION 2 EFFECTIVE DATES
This money purchase pension plan is either a new plan (an initial
adoption) or an amendment and restatement of an existing money
purchase pension plan.
If this is a new money purchase pension plan, check Option A and
fill in the effective date. The effective date is usually the first
day of the plan year in which this Adoption Agreement is signed. For
example, if an employer maintains a plan on a calendar year basis
and this Adoption Agreement is signed on September 24, 1991, the
effective date would be January 1, 1991.
If the reason you are adopting this plan is to amend and replace an
existing money purchase pension plan, check Option B. The existing
money purchase pension plan which will be replaced is called a
"prior plan." You will need to know the effective date of the prior
plan. The best way to determine its effective date is to refer to
the prior plan adoption agreement. The effective date of this
amendment and restatement is usually the first day of the plan year
in which the Adoption Agreement is signed. However, if you are
adopting this plan to update a prior plan for changes brought about
by the Tax Reform Act of 1986 (and other recent changes which apply
to qualified plans), the effective date will be the first day of the
plan year which begins in 1989 (January 1, 1989 for a calendar year
plan).
SECTION 3 ELIGIBILITY REQUIREMENTS
NOTE: Section 3 should be completed even if you do not have
employees.
Within limits, you as the employer can specify the number of years
your employees must work for you and the age they must attain before
they are eligible to participate in this plan. Note that the
eligibility requirements which you set up for the plan also apply to
you.
Suppose, for example, you establish a service requirement of two
years and an age requirement of 21. In that case, only those
employees (including yourself) who have worked for you for two years
and are at least 21 years old are eligible to participate in this
plan.
PART A. YEARS OF ELIGIBILITY SERVICE REQUIREMENT
Fill in the number of years of service (no more than 2). This number
must be either 0,1, or 2.
PART B. AGE REQUIREMENT
Fill in the age an employee must attain (no more than 21) to be
eligible to participate in the plan.
PART C. CLASS OF EMPLOYEES ELIGIBLE TO PARTICIPATE
Generally you are permitted to exclude certain employees covered by
the terms of a collective bargaining agreement (e.g., a union
agreement) where retirement benefits were bargained for and
nonresident aliens who have no U.S. income. If you wish to exclude
those employees, check the box under Section 3, Part C.
SECTION 4 EMPLOYER CONTRIBUTION AND ALLOCATION FORMULA
Because a money purchase pension plan has a fixed contribution, the
percent of the contribution must be completed.
Option A. Check Option A if you wish to have the contribution allocated to all
qualifying participants based on their compensation for the plan
year.
Option B. Check Option B and complete the percentage in Step 1 if the plan is
to be integrated. Generally, integration is a method of giving some
participants in the plan an extra contribution allocation. Because
of the complexity of integration, you should consult your tax
advisor on this issue.
SECTION 5 VESTING
The vesting schedule determines how fast the money in a
participant's plan account becomes nonforfeitable. For example,
suppose you select the vesting schedule of Option B. If a
participant quits work after 4 years of service, the participant
would be entitled to 60% of his or her plan account The remaining
40% would remain in the plan and become a forfeiture.
NOTE: If you choose more than 1 year of service as an eligibility
requirement in Section 3, Part A, you must choose the 100% vesting
schedule in Section 5 (Option C).
SECTION 6 NORMAL RETIREMENT AGE
Fill in the desired normal retirement age. When a participant
attains normal retirement age, he or she can request a distribution
from the plan.
<PAGE>
SECTION 7 HOURS REQUIRED
Part A. In the blank provided, fill in the number of hours of service
which shall be required to constitute a year of service for vesting
and eligibility. This can be no more than 1,000. If you fail to fill
in the blank, the number of hours required will be deemed to be
1,000. Suppose, for example, you fill in 1,000 hours of service.
This means any employee who works at least 1,000 hours during the
appropriate period will be credited with a year of service for the
purposes of vesting, eligibility, etc. On the other hand, if the
employee works less than 1,000 hours, he or she will not be credited
with a year of service for those purposes.
Part B. In the blank provided, fill in the number of hours of service
which must be exceeded to avoid a break in service. This can be no
more than 500. If you fail to fill in the blank, the number of hours
required to avoid a break in service will be deemed to be 500.
SECTION 8 OTHER OPTIONS
PART A. Check whether or not you wish to allow loans to participants. Note
that loans cannot be made to an owner of an unincorporated business
(whether a sole proprietor or a partner) or an owner of a Subchapter
S corporation.
Part B. Check whether or not you wish to allow each participant to direct
the investment of his or her own plan account.
SECTION 9 JOINT AND SURVIVOR ANNUITY
A distribution to a participant must generally be made in the form
of a joint and survivor annuity purchased from an insurance company.
When a participant who is receiving payments under a joint and
survivor annuity dies, the participant's spouse will receive a
survivor annuity. This section determines the percentage of the
survivor annuity. If this is an amendment and restatement of a money
purchase pension plan that was subject to the joint and survivor
annuity rules, this percentage must be at least as great as the
survivor annuity percentage in the prior plan.
SECTION 10 ADDITIONAL PLANS
This plan is a standardized plan under applicable IRS procedures. An
employer who adopts a standardized plan generally does not have to
request a ruling from a Key District Office of the IRS (called a
determination letter) that the plan, under facts and circumstances
unique to that particular employer, meets the requirements for
qualification under the tax laws and regulations.
Section 10 states an exception to the procedures for standardized
plans, namely, if you maintain another plan (other than a paired
standardized profit sharing plan using the same Basic Plan
Document), you must obtain a determination letter if you wish to
obtain assurance that the plan is qualified.
SECTION 11 EMPLOYER SIGNATURE
An authorized representative of the employer must sign and date the
Adoption Agreement.
SECTION 12 TRUSTEE OR CUSTODIAN
A trustee or custodian must be named for this plan.
If the financial organization will be acting as trustee or
custodian, the financial organization should complete Option A.
Section 5.03 of the Basic Plan Document will apply if "Custodian" or
"Trustee without full trust powers" is checked. Section 5.04 of the
Basic Plan Document will apply if "Trustee with full trust powers"
is checked.
If an individual (e.g., the employer, partners, or an appointed
individual) will be acting as individual trustee, complete Option B.
If Option B is completed, Section 5.04 of the Basic Plan Document
will apply.
SECTION 13 PROTOTYPE SPONSOR
The prototype sponsor must fill in its name, address and telephone
number.
SECTION 14 LIMITATION ON ALLOCATIONS - MORE THAN ONE PLAN
You must read and complete this section if, in addition to this
plan:
1) You ever maintained a defined benefit plan, or
2) You currently maintain an individually designed plan.
Individually designed plans are not master or prototype plans,
but rather, plans written for just one particular employer.
In addition, if you want to select a definition of compensation
other than the Internal Revenue Code Section 3401(a) wages (that is,
W-2 wages), you must complete Part C.
<PAGE>
#713(12/90) L90 (c)1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
Qualified Standardized Money Purchase Pension Plan Page 1 of 3
- --------------------------------------------------------------------------------
Retirement Plan ADOPTION AGREEMENT
- --------------------------------------------------------------------------------
SECTION 1. EMPLOYER INFORMATION
Name of Employer ___________________________________________________
Address ____________________________________________________________
City ____________________ State ____________________ Zip ___________
Telephone ____________ Federal Tax Identification Number ___________
Income Tax Year End _______________________________
(month) (day)
Type of Business (Check only one)
[ ] Sole Proprietorship [ ] Partnership [ ] Corporation
[ ] Other (Specify) ________________________________________________
Nature of Business (Describe) ______________________________________
Plan Sequence No. ____________ Enter 001 if this is the first
qualified plan the Employer has ever maintained, enter 002 if it is
the second, etc.
For a plan which covers only the owner of the business, please
provide the following information about the owner,
Social Security No. __________ Date Business Established ___________
Date of Birth __________________ Marital Status ____________________
Home Address _______________________________________________________
SECTION 2. EFFECTIVE DATES Check and complete Option A or B
Option A. [ ] This is the initial adoption of a money purchase pension plan by
the Employer.
The Effective Date of this Plan is _____________________, 19___.
NOTE: The effective date is usually the first day of the Plan
Year in which this Adoption Agreement is signed.
OPTION B: [ ] This is an amendment and restatement of an existing money
purchase pension plan (a Prior Plan).
The Prior Plan was initially effective on _____________, 19____.
The Effective Date of this amendment and restatement is
___________________________, 19____.
NOTE: The effective date is usually the first day of the Plan
Year in which the Adoption Agreement is signed.
SECTION 3. ELIGIBILITY REQUIREMENTS Complete Parts A, B and C
PART A. Years of Eligibility Service Requirement:
An Employee will be eligible to become a Participant in the Plan
after completing ___________ (enter 0, 1 or 2) Years of Eligibility
Service.
Note: If more than 1 year is selected, the immediate 100% vesting
schedule of Section 5, Option C will automatically apply.
If left blank, the Year's of Eligibility Service required will be
deemed to be 0.
PART B. Age Requirement:
An Employee will be eligible to become a Participant in the Plan
after attaining age ______ (no more than 21).
NOTE: If left blank, it will be deemed there is no age requirement
for eligibility.
PART C. Class of Employees Eligible to Participate:
All Employees shall be eligible to become a Participant in the Plan,
except the following (if checked):
[ ] Those Employees included in a unit of Employees covered by the
terms of a collective bargaining agreement between Employee
representatives (the term "Employee representatives" does not
include any organization more than half of whose members are
Employees who are owners, officers or executives of the
Employer) and the Employer under which retirement benefits were
the subject of good faith bargaining unless the agreement
provides that such Employees are to be included in the Plan, and
except those Employees who are non-resident aliens pursuant to
Section 410(b)(3)(C) of the Code and who received no earned
income from the Employer which constitutes income from sources
within the United States.
<PAGE>
Standardized Money Purchase Pension Plan ___________________________ Page 2 of 3
ADOPTION AGREEMENT
SECTION 4. EMPLOYER CONTRIBUTION FORMULA Check and Complete either Option A
or B
OPTION A. [ ] NONINTEGRATED FORMULA:
For each Plan Year the Employer will contribute for each
qualifying Participant an amount equal to ________% (not to
exceed 25%) of the qualifying Participant's Compensation for the
Plan Year.
OPTION B. [ ] INTEGRATED FORMULA:
For each Plan Year, the Employer will contribute for each
qualifying Participant an amount equal to the sum of the amounts
determined in Step 1 and Step 2:
Step 1. An amount equal to _____% (the base contribution
percentage) of the Participant's Compensation for the
Plan Year up to the integration level; plus
Step 2. An amount equal to _____% (not to exceed the base
contribution percentage by more than the lesser of:
(1) the base contribution percentage, or (2) the money
purchase maximum disparity rate as described in Section
3.01(B)(3) of the Plan) of such Participant's
Compensation for the Plan Year in excess of the
integration level.
The integration level shall be (Choose one):
OPTION 1. [ ] The Taxable Wage Base
OPTION 2. [ ] $__________ (a dollar amount less than the Taxable
Wage Base)
OPTION 3. [ ] _______________% of the Taxable Wage Base
NOTE: If no box is checked, the integration level shall be the
Taxable Wage Base.
SECTION 5. VESTING
A Participant shall become Vested in his or her Individual Account
attributable to Employer Contributions and Forfeitures as follows
(Choose one):
<TABLE>
----------------------------------------------------------------------------------------------------------------
YEARS OF VESTED PERCENTAGE
VESTING SERVICE Option A [ ] Option B [ ] Option C [ ] Option D [ ] (Complete if chosen)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 0% 0% 100% ____%
2 0% 20% 100% ____% (not less than 20%)
3 100% 40% 100% ____% (not less than 40%)
4 100% 60% 100% ____% (not less than 60%)
5 100% 80% 100% ____% (not less than 80%)
6 100% 100% 100% ____% (not less than 100%)
----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: If left blank, Option C, 100% vesting, will be deemed to be
selected.
SECTION 6. NORMAL RETIREMENT AGE
The Normal Retirement Age under the Plan is age _____________ (not
to exceed 65).
NOTE: If left blank. the Normal Retirement Age will be deemed to be
age 59 1/2.
SECTION 7. HOURS REQUIRED Complete Parts A and B
PART A. _____ Hours of Service (no more than 1,000) shall be required to
constitute a Year of Vesting Service or a Year of Eligibility
Service.
PART B. _____ Hours of Service (no more than 500) must be exceeded to avoid
a Break in Vesting Service or a Break in Eligibility Service.
NOTE: The number of hours in Part A must be greater than the number
of hours in Part B.
SECTION 8. OTHER OPTIONS
Answer "Yes" or "No" to each of the following questions by checking
the appropriate box.
If a box is not checked for a question, the answer will be deemed to
be "No."
A. Loans: Will loans to Participants pursuant to
Section 6.08 of the Plan be permitted? [ ] Yes [ ] No
B. Participant Direction of Investments: Will
Participants be permitted to direct the investment
of their Individual Accounts pursuant to Section
5.14 of the Plan? [ ] Yes [ ] No
SECTION 9. JOINT AND SURVIVOR ANNUITY
The survivor annuity portion of the Joint and Survivor Annuity shall
be a percentage equal to ____% (at least 50% but no more than 100%)
of the amount paid to the Participant prior to his or her death.
<PAGE>
STANDARDIZED MONEY PURCHASE PENSION PLAN ___________________________ Page 3 of 3
ADOPTION AGREEMENT
SECTION 10. ADDITIONAL PLANS
An Employer who has ever maintained or who later adopts any plan
(including a welfare benefit fund, as defined in Section 419(e) of
the Code, which provides post-retirement medical benefits
allocated to separate accounts for key employees as defined in
Section 419A(d)(3) of the Code or an individual medical account,
as defined in Section 415(1)(2) of the Code) in addition to this
Plan (other than a paired standardized profit sharing plan using
Basic Plan Document No. 03) may not rely on the opinion letter
issued by the National Office of the Internal Revenue Service as
evidence that this Plan is qualified under Section 401 of the
Code. If the Employer who adopts or maintains multiple plans
wishes to obtain reliance that the Employer's plan(s) are
qualified, application for a determination letter should be made
to the appropriate Key District Director of Internal Revenue.
This Adoption Agreement may be used only in conjunction with Basic
Plan Document No. 03.
SECTION 11. EMPLOYER SIGNATURE Important: Please read before signing.
I am an authorized representative of the Employer named above and
I state the following:
1. I acknowledge that I have relied upon my own advisors regarding
the completion of this Adoption Agreement and the legal and tax
implications of adopting this Plan.
2. I understand that my failure to properly complete this Adoption
Agreement may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any
amendments made to the Plan and will notify me should it
discontinue or abandon the Plan.
4. I have received a copy of this Adoption Agreement and the
corresponding Basic Plan Document.
Signature for Employer _________________ Date Signed _____________
(Type Name) ______________________________________________________
SECTION 12. TRUSTEE OR CUSTODIAN Check and complete only one Option
[ ] OPTION A. FINANCIAL ORGANIZATION AS TRUSTEE OR CUSTODIAN
CHECK ONE: [ ] Custodian, [ ] Trustee without full trust powers,
[ ] Trustee with full trust powers
NOTE: Custodian will be deemed selected if no box is checked.
Financial Organization ___________________________________________
Signature ________________________________________________________
(Type Name) ______________________________________________________
[ ] OPTION B. INDIVIDUAL TRUSTEE(S)
Signature ______________________ Signature ______________________
(Type Name) ____________________ (Type Name) ____________________
SECTION 13. PROTOTYPE SPONSOR
Name of Prototype Sponsor ________________________________________
Address __________________________________________________________
Telephone Number _________________________________________________
SECTION 14. LIMITATION ON ALLOCATIONS - MORE THAN ONE PLAN
If you maintain or ever maintained another qualified plan (other
than a paired standardized profit sharing plan using Basic Plan
Document No. 03) in which any Participant in this Plan is (or was)
a Participant or could become a Participant, you must complete
this section. You must also complete this section if you maintain
a welfare benefit fund, as defined in Section 419(e) of the Code,
or an individual medical account, as defined in Section 415(1)(2)
of the Code, under which amounts are treated as annual additions
with respect to any Participant in this Plan.
PART A. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master
or prototype plan:
1. [ ] The provisions of Sections 3.05(B)(1) through 3.05(B)(6) of
the Plan will apply as if the other plan were a master or
prototype plan.
2. [ ] Other method. (Provide the method under which the plans
will limit total annual additions to the maximum permissible
amount, and will properly reduce any excess amounts, in a
manner that precludes Employer discretion.) ___________________
_______________________________________________________________
PART B. If the Participant is or has ever been a participant in a
defined benefit plan maintained by the Employer, the Employer will
provide below the language which will satisfy the 1.0 limitation
of Section 415(e) of the Code. Such language must preclude
Employer discretion. (Complete) __________________________________
PART C. Compensation will mean all of each Participant's (Choose one):
OPTION 1. [ ] Section 3121(a) wages
OPTION 2. [ ] Section 3401(a) wages
Option 3. [ ] 415 safe-harbor compensation
NOTE: If no box is checked, Option 2 will be deemed to be
selected.
PART D. The limitation year is the following 12-consecutive month
period: _____________________________________
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
Plan Description: Prototype Standardized Money Purchase Pension
FFN: 50295842702-002 Case: 9201729 EIN: 04-3076053 Washington, DC 20224
BPD: 02 Plan: 002 Letter Serial No: D260702a
Person to Contact: Ms. Arrington
CAPITAL GROWTH MANAGEMENT
Telephone Number (202) 622-8173
P O BOX 449
Refer Reply to E:EP:Q:ICU
BOSTON, MA 02117
Date 11/03/92
</TABLE>
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 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) 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, 1989-1 C.B. 780; 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).
An employer that has adopted a standardized plan may not rely on this opinion
letter with respect to: (1) whether any amendment or series of amendments to the
plan satisfies the nondiscrimination requirements of section 1.401(a)(4)-5(a) of
the regulations, except with respect to plan amendments granting past service
that meet the safe harbor described in section 1.401(a)(4)-5(a)(5) and are not
part of a pattern of amendments that significantly discriminates in favor of
highly compensated employees; or (2) whether the plan satisfies the effective
availability requirement of section 1.401(a)(4)-4(c) of the regulations with
respect to any benefit, right or feature.
An employer that has adopted a standardized plan as an amendment to a plan other
than a standardized plan may not rely on this opinion letter with respect to
whether a benefit, right or other feature that is prospectively eliminated
satisfies the current availability requirements of section 1.401(a)-4 of the
regulations.
STANDETLTR/MP002
<PAGE>
CAPITAL GROWTH MANAGEMENT
FFN: 50295842702-002
Page 2
The employer may request a determination (1) 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; (2) regarding the
nondiscriminatory effect of grants of past service, and (3) with respect to
whether a prospectively eliminated benefit, right or feature satisfies the
current availability requirements.
Our opinion does not apply to the form of the plan for purposes of section
401(a) of the Code unless the terms of the plan, as adopted or amended, that
pertain to the requirements of sections 401(a)(4), 401(a)(5), 401(a)(17),
401(l), 410(b) and 414(s) of the Code, as amended by the Tax Reform Act of 1986
or subsequent legislation, (a) are made effective retroactively to the first day
of the first plan year beginning after December 31, 1988 (or such other date on
which these requirements first became effective with respect to this plan), or
(b) are made effective no later than the first day on which the employer is no
longer entitled, under regulations, to rely on a reasonable, good faith
interpretation of these requirements, and the prior provisions of the plan
constitute such an interpretation.
Because you submitted this plan for approval after March 31, 1991, the continued
and interim reliance provisions of section 13 of Rev. Proc. 89-9, 1989-1 C.B.
780, are not applicable. However, solely for purposes of section 17.03 of Rev.
Proc. 89-9, you are deemed to have submitted this plan prior to March 31, 1991,
and therefore the extended reliance provisions of section 17.03 are applicable.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization'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 Swieca
---------------------
Chief, Employee Plans Qualifications Branch
<PAGE>
---------------
QUALIFIED
RETIREMENT PLAN
---------------
-------------------
ADOPTION AGREEMENT
STANDARDIZED
PROFIT SHARING PLAN
-------------------
<PAGE>
INSTRUCTIONS FOR COMPLETING ADOPTION AGREEMENT
STANDARDIZED PROFIT SHARING PLAN AND TRUST
These instructions are designed to help you, the employer, along
with your attorney and/or tax advisor, complete the Adoption
Agreement for the Qualified Retirement Plan. The instructions are
meant to be used only as a general guide and are not intended as a
substitute for qualified legal and tax advisors.
SECTION 1 EMPLOYER INFORMATION
Fill in the requested information. The "Federal Tax Identification
Number" is the tax identification number assigned to your business.
If your business does not have a Federal Tax Identification Number,
complete and file an Internal Revenue Service (IRS) Form SS4 to
obtain a number. The IRS Form SS4 can be obtained from an IRS
office or from your tax advisor. If you have already filed a Form
SS4, print "Applied for" on the "Federal Tax Identification Number"
line. After you receive a tax identification number, be sure to let
our financial organization know what that number is. In the space
marked "Nature of Business," accurately describe the type of
business (e.g., radio and TV repair, agricultural, etc.). The "Plan
Sequence Number" is used for annual reporting to the IRS. The IRS
uses this number to identify your plan. For example, if this is the
fourth plan you have ever opened, the Plan Sequence Number would be
004 and so on.
SECTION 2 EFFECTIVE DATES
This profit sharing plan is either a new plan (an initial adoption)
or an amendment and restatement of an existing profit sharing plan
If this is a new profit sharing plan, check Option A and fill in
the effective date. The effective date is usually the first day of
the plan year in which this Adoption Agreement is signed. For
example, if an employer maintains a plan on a calendar year basis
and this Adoption Agreement is signed on September 24, 1991, the
effective date would be January 1, 1991.
If the reason you are adopting this plan is to amend and replace an
existing profit sharing plan, check Option B. The existing profit
sharing plan which will be replaced is called a "prior plan." You
will need to know the effective date of the prior plan. The best
way to determine its effective date is to refer to the prior plan
adoption agreement. The effective date of this amendment and
restatement is usually the first day of the plan year in which the
Adoption Agreement is signed. However, if you are adopting this
plan to update a prior plan for changes brought about by the Tax
Reform Act of 1986 (and other recent changes which apply to
qualified plans), the effective date will be the first day of the
plan year which begins in 1989 (January 1, 1989 for a calendar year
plan).
SECTION 3 ELIGIBILITY REQUIREMENTS
NOTE: Section 3 should be completed even if you do not have
employees.
Within limits, you as the employer can specify the number of years
your employees must work for you and the age they must attain
before they are eligible to participate in this plan. Note that the
eligibility requirements which you set up for the plan also apply
to you.
Suppose, for example, you establish a service requirement of two
years and an age requirement of 21. In that case, only those
employees (including yourself) who have worked for you for two
years and are at least 21 years old are eligible to participate in
this plan.
PART A. YEARS OF ELIGIBILITY SERVICE REQUIREMENT
Fill in the number of years of service (no more than 2). This
number must be either 0, 1, or 2.
Part B. AGE REQUIREMENT
Fill in the age an employee must attain (no more than 21) to be
eligible to participate in the plan.
PART C. CLASS OF EMPLOYEES ELIGIBLE TO PARTICIPATE
Generally you are permitted to exclude certain employees covered by
the terms of a collective bargaining agreement (e.g., a union
agreement) where retirement benefits were bargained for and
nonresident aliens who have no U.S. income. If you wish to exclude
those employees, check the box under Section 3, Part C.
SECTION 4 EMPLOYER CONTRIBUTION AND ALLOCATION FORMULA
PART A. CONTRIBUTION FORMULA
Because a profit sharing plan allows for flexible contributions,
the amount of the contribution will be determined from year to
year. There are no blanks to be completed in Part A.
Part B. ALLOCATION FORMULA
Once the contribution amount has been decided for a plan year, it
must be allocated among the participants in the plan. The
contribution can be allocated using either a pro rata formula or an
integrated formula. Check either Option 1 or 2.
OPTION 1. Pro Rata Formula
Check this option if you wish to have the contribution allocated to
all qualifying participants based on their compensation for the
plan year.
Option 2. Integrated Formula
Check this option if the plan is to be integrated. Generally,
integration is a method of giving some participants in the plan an
extra contribution allocation. Because of the complexity of
integration, you should consult your tax advisor on this issue.
SECTION 5 VESTING
The vesting schedule determines how fast the money in a
participant's plan account becomes nonforfeitable. For example,
suppose you select the vesting schedule of Option B. If a
participant quits work after 4 years of service, the participant
would be entitled to 60% of his or her plan account. The remaining
40% would remain in the plan and become a forfeiture.
<PAGE>
NOTE: If you choose more than 1 year of service as an eligibility
requirement in Section 3, Part A, you must choose the 100% vesting
schedule in Section 5 (Option C).
SECTION 6 NORMAL RETIREMENT AGE
Fill in the desired normal retirement age. When a participant
attains normal retirement age, he or she can request a distribution
from the plan.
SECTION 7 HOURS REQUIRED
PART A. In the blank provided, fill in the number of hours of service which
shall be required to constitute a year of service for vesting and
eligibility. This can be no more than 1,000. If you fail to fill in
the blank, the number of hours required will be deemed to be 1,000.
Suppose, for example, you fill in 1,000 hours of service. This
means any employee who works at least 1,000 hours during the
appropriate period will be credited with a year of service for the
purposes of vesting, eligibility, etc. On the other hand, if the
employee works less than 1,000 hours, he or she will not be
credited with a year of service for those purposes.
PART B. In the blank provided, fill in the number of hours of service which
must be exceeded to avoid a break in service. This can be no more
than 500. If you fail to fill in the blank, the number of hours
required to avoid a break in service will be deemed to be 500.
SECTION 8 OTHER OPTIONS
PART A. Check whether or not you wish to allow loans to participants. Note
that loans cannot be made to an owner of an unincorporated business
(whether a sole proprietor or a partner) or an owner of a
Subchapter S corporation.
PART B. Check whether or not you wish to allow each participant to direct
the investment of his or her own plan account.
PART C. Check whether or not you wish to allow in-service withdrawals.
Generally, an in-service withdrawal is a distribution to a
participant who is still working for your company. If this is an
amendment and restatement of a prior plan that allowed in-service
withdrawals, this plan must also allow in-service withdrawals.
SECTION 9 JOINT AND SURVIVOR ANNUITY
PART A. As a general rule, the Retirement Equity Act requires that a
distribution from a plan to a participant be made in the form of a
joint and survivor annuity purchased from an insurance company,
unless the participant elects otherwise and his or her spouse
consents. However, the Retirement Equity Act allows employers who
maintain certain profit sharing plans to elect to have a safe
harbor rule apply. If you check "yes" indicating that the safe
harbor rule applies, then payouts from the plan to participants and
beneficiaries will not be subject to the annuity requirements.
PART B. If the safe harbor rules do not apply, you must complete Part B.
When a participant who is receiving payments under a joint and
survivor annuity dies, the participant's spouse will receive a
survivor annuity. This section determines the percentage of the
survivor annuity. If this is an amendment and restatement of a
profit sharing plan that was subject to the joint and survivor
annuity rules, this percentage must be at least as great as the
survivor annuity percentage in the prior plan.
SECTION 10 ADDITIONAL PLANS
This plan is a standardized plan under applicable IRS procedures.
An employer who adopts a standardized plan generally does not have
to request a ruling from a Key District Office of the IRS (called a
determination letter) that the plan, under facts and circumstances
unique to that particular employer, meets the requirements for
qualification under the tax laws and regulations.
Section 10 states an exception to the procedures for standardized
plans, namely, if you maintain another plan (other than a paired
standardized money purchase pension plan using the same Basic Plan
Document), you must obtain a determination letter if you wish to
obtain assurance that the plan is qualified.
SECTION 11 EMPLOYER SIGNATURE
An authorized representative of the employer must sign and date the
Adoption Agreement.
SECTION 12 TRUSTEE OR CUSTODIAN
A trustee or custodian must be named for this plan.
If the financial organization will be acting as trustee or
custodian, the financial organization should complete Option A.
Section 5.03 of the Basic Plan Document will apply if "Custodian"
or "Trustee without full trust powers" is checked. Section 5.04 of
the Basic Plan Document will apply if "Trustee with full trust
powers" is checked.
If an individual (e.g., the employer, partners, or an appointed
individual) will be acting as individual trustee, complete Option
B. If Option B is completed, Section 5.04 of the Basic Plan
Document will apply.
SECTION 13 PROTOTYPE SPONSOR
The prototype sponsor must fill in its name, address and telephone
number.
SECTION 14 LIMITATION ON ALLOCATIONS - MORE THAN ONE PLAN
You must read and complete this section if, in addition to this
plan:
1) You ever maintained a defined benefit plan, or
2) You currently maintain an individually designed plan.
Individually designed plans are not master or prototype plans, but
rather, plans written for just one particular employer.
In addition, if you want to select a definition of compensation
other than the Internal Revenue Code Section 3401(a) wages (that
is, W-2 wages), you must complete Part C.
<PAGE>
#705(12/90) L90 (c)1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
Qualified Standardized Profit Sharing Plan Page 1 of 4
- -------------------------------------------------------------------------------
Retirement Plan ADOPTION AGREEMENT
- -------------------------------------------------------------------------------
SECTION 1. EMPLOYER INFORMATION
Name of Employer__________________________________________________
Address __________________________________________________________
City __________________State___________________ Zip_______________
Telephone_____________ Federal Tax Identification Number__________
Income Tax Year End____________________________
(month) (day)
Type of Business (Check only one)
[ ] Sole Proprietorship [ ] Partnership [ ] Corporation
[ ] Other (Specify)______________________________________________
Nature of Business (Describe)____________________________________
Plan Sequence No._____ Enter 001 if this is the first qualified
plan the Employer has ever maintained, enter 002 if it is the
second, etc.
For a plan which covers only the owner of the business, please
provide the following information about the owner:
Social Security No.___________ Date Business Established_________
Date of Birth_________________ Marital Status____________________
Home Address_____________________________________________________
SECTION 2. EFFECTIVE DATES Check and complete Option A or B
Option A. [ ] This is the initial adoption of a profit sharing plan by the
Employer. The Effective Date of this Plan is _________, 19__.
NOTE: The effective date is usually the first day of the
Plan Year in which this Adoption Agreement is signed.
Option B. [ ] This is an amendment and restatement of an existing profit
sharing plan (a Prior Plan). The Prior Plan was initially
effective on __________, 19__. Effective Date of this amendment
and restatement is ___________, 19__.
NOTE: The effective date is usually the first day of the Plan
Year in which the Adoption Agreement is signed.
SECTION 3. ELIGIBILITY REQUIREMENTS Complete Parts A, B and C
Part A. Years of Eligibility Service Requirement:
An Employee will be eligible to become a Participant in the Plan
after completing ___________ (enter 0, 1 or 2) Years of Eligibility
Service.
NOTE: If more than 1 year is selected, the immediate 100% vesting
schedule of Section 5, Option C will automatically apply. If left
blank, the Years of Eligibility Service required will be deemed to
be 0.
PART B. Age Requirement:
An Employee will be eligible to become a Participant in the Plan
after attaining age ____ (no more than 21).
NOTE: If left blank, it will be deemed there is no age requirement
for eligibility.
PART C. Class of Employees Eligible to Participate:
All Employees shall be eligible to become a Participant in the
Plan, except the following (if checked):
[ ] Those Employees included in a unit of Employees covered by
the terms of a collective bargaining agreement between Employee
representatives (the term "Employee representatives" does not
include any organization more than half of whose members are
Employees who are owners, officers or executives of the
Employer) and the Employer under which retirement benefits were
the subject of good faith bargaining unless the agreement
provides that such Employees are to be included in the Plan,
and except those Employees who are non-resident aliens pursuant
to Section 410(b)(3)(C) of the Code and who received no earned
income from the Employer which constitutes income from sources
within the United States.
<PAGE>
STANDARDIZED PROFIT SHARING PLAN __________________________________ Page 2 of 4
ADOPTION AGREEMENT
SECTION 4. EMPLOYER CONTRIBUTION AND ALLOCATION FORMULA
PART A. CONTRIBUTION FORMULA:
For each Plan Year the Employer will contribute an amount to be
determined from year to year.
PART B. Allocation Formula: (Check Option 1 or 2)
Option 1. [ ] Pro Rata Formula. Employer Contributions and Forfeitures shall
be allocated to the Individual Accounts of qualifying
Participants in the ratio that each qualifying Participant's
Compensation for the Plan Year bears to the total Compensation
of all qualifying Participants for the Plan Year.
Option 2. [ ] Integrated Formula. Employer Contributions and Forfeitures
shall be allocated as follows (Start with Step 3 if this Plan
is not a Top-Heavy Plan):
Step 1. Employer Contributions and Forfeitures shall first be
allocated pro rata to qualifying Participants in the
manner described in Section 4, Part B, Option 1. The
percent so allocated shall not exceed 3% of each
qualifying Participant's Compensation.
Step 2. Any Employer Contributions and Forfeitures remaining
after the allocation in Step 1 shall be allocated to
each qualifying Participant's Individual Account in
the ratio that each qualifying Participant's
Compensation for the Plan Year in excess of the
integration level bears to all qualifying Participants'
Compensation in excess of the integration level, but
not in excess of 3%.
Step 3. Any Employer Contributions and Forfeitures remaining
after the allocation in Step 2 shall be allocated to
each qualifying Participant's Individual Account in the
ratio that the sum of each qualifying Participant's
total Compensation and Compensation in excess of the
integration level bears to the sum of all qualifying
Participants' total Compensation and Compensation in
excess of the integration level, but not in excess of
the profit sharing maximum disparity rate as described
in Section 3.01(B)(3) of the Plan.
Step 4. Any Employer Contributions and Forfeitures remaining
after the allocation in Step 3 shall be allocated pro
rata to qualifying Participants in the manner described
in Section 4, Part B, Option 1.
The integration level shall be (Choose one):
OPTION 1. [ ] The Taxable Wage Base
OPTION 2. [ ] $_______________ (a dollar amount less than
the Taxable Wage Base)
OPTION 3. [ ] ________________ % of the Taxable Wage Base
NOTE: If no box is checked, the integration level shall be the
Taxable Wage Base.
SECTION 5. VESTING
A Participant shall become Vested in his or her Individual Account
attributable to Employer Contributions and Forfeitures as follows
(Choose one):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
VESTED PERCENTAGE
YEARS OF -------------------------------------------------------------------------------
VESTING SERVICE Option A [] Option B [] Option C [] Option D [] (Complete if chosen)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 0% 0% 100% ___%
2 0% 20% 100% ___% (not less than 20%)
3 100% 40% 100% ___% (not less than 40%)
4 100% 60% 100% ___% (not less than 60%)
5 100% 80% 100% ___% (not less than 80%)
6 100% 100% 100% ___% (not less than 100%)
- --------------------------------------------------------------------------------------------------------
NOTE: If left blank, Option C, 100% vesting, will be deemed to be selected.
</TABLE>
SECTION 6. NORMAL RETIREMENT AGE
The Normal Retirement Age under the Plan is age __ (not to exceed
65).
NOTE: If left blank, the Normal Retirement Age will be deemed to be
age 59 1/2.
SECTION 7. HOURS REQUIRED Complete Parts A and B
Part A. ____ Hours of Service (no more than 1,000) shall be required to
constitute a Year of Vesting Service or a Year of Eligibility
Service.
Part B. ____ Hours of Service (no more than 500) must be exceeded to avoid
a Break in Vesting Service or a Break in Eligibility Service.
NOTE: The number of hours in Part A must be greater than the number
of hours in Part B.
<PAGE>
STANDARDIZED PROFIT SHARING PLAN __________________________________ Page 3 of 4
ADOPTION AGREEMENT
SECTION 8. OTHER OPTIONS
Answer "Yes" or "No" to each of the following
questions by checking the appropriate box. If a
box is not checked for a question, the answer will
be deemed to be "No."
A. Loans: Will loans to Participants pursuant to
Section 6.08 of the Plan be permitted? [ ] Yes [ ] No
B. Participant Direction of Investments: Will
Participants be permitted to direct the
investment of their Individual Accounts
pursuant to Section 5.14 of the Plan? [ ] Yes [ ] No
C. In-Service Withdrawals: Will Participants be
permitted to make withdrawals during service
pursuant to Section 6.01(A)(3) of the Plan?
NOTE: If the Plan is being adopted to amend
and replace a Prior Plan which permitted
in-service withdrawals you must answer "Yes."
Check here if such withdrawals will be
permitted only on account of hardship [ ]. [ ] Yes [ ] No
SECTION 9. JOINT AND SURVIVOR ANNUITY
PART A. Retirement Equity Act Safe Harbor:
Will the safe harbor provisions of Section 6.05(F) of the Plan
apply (Choose only one Option)?
OPTION 1. [ ] Yes
OPTION 2. [ ] No
NOTE You must select "No" if you are adopting this Plan as an
amendment and restatement of a Prior Plan that was subject to the
joint and survivor annuity requirements.
PART B. Survivor Annuity Percentage: (Complete only if your answer in
Section 9, Part A is "No.")
The survivor annuity portion of the Joint and Survivor Annuity
shall be a percentage equal to ___% (at least 50% but no more than
100%) of the amount paid to the Participant prior to his or her
death.
SECTION 10. ADDITIONAL PLANS
An Employer who has ever maintained or who later adopts any plan
(including a welfare benefit fund, as defined in Section 419(e) of
the Code, which provides post-retirement medical benefits allocated
to separate accounts for key employees as defined in Section
419A(d)(3) of the Code or an individual medical account, as defined
in Section 415(1)(2) of the Code) in addition to this Plan (other
than a paired standardized money purchase pension plan using Basic
Plan Document No. 03) may not rely on the opinion letter issued by
the National Office of the Internal Revenue Service as evidence
that this Plan is qualified under Section 401 of the Code. If the
Employer who adopts or maintains multiple plans wishes to obtain
reliance that the Employer's plan(s) are qualified, application for
a determination letter should be made to the appropriate Key
District Director of Internal Revenue.
This Adoption Agreement may be used only in conjunction with Basic
Plan Document No. 03.
SECTION 11. EMPLOYER SIGNATURE Important: Please read before signing.
I am an authorized representative of the Employer named above and I
state the following:
1. I acknowledge that I have relied upon my own advisors regarding
the completion of this Adoption Agreement and the legal and tax
implications of adopting this Plan.
2. I understand that my failure to properly complete this Adoption
Agreement may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any
amendments made to the Plan and will notify me should it
discontinue or abandon the Plan.
4. I have received a copy of this Adoption Agreement and the
corresponding Basic Plan Document.
Signature for Employer___________________ Date Signed____________
(Type Name)______________________________________________________
SECTION 12. TRUSTEE OR CUSTODIAN Check and complete only one Option
[ ]OPTION A. FINANCIAL ORGANIZATION AS TRUSTEE OR CUSTODIAN
CHECK ONE: [] Custodian, [] Trustee without full trust powers,
or [] Trustee with full trust powers
NOTE: Custodian will be deemed selected if no box is checked.
Financial Organization___________________________________________
Signature _______________________________________________________
(Type Name) _____________________________________________________
[ ]OPTION B. INDIVIDUAL TRUSTEE(S)
Signature___________________Signature____________________________
(Type Name)_________________(Type Name)__________________________
<PAGE>
STANDARDIZED PROFIT SHARING PLAN __________________________________ Page 4 of 4
ADOPTION AGREEMENT
SECTION 13. PROTOTYPE SPONSOR
Name of Prototype Sponsor_______________________________________
Address_________________________________________________________
Telephone Number________________________________________________
SECTION 14. LIMITATION ON ALLOCATIONS - MORE THAN ONE PLAN
If you maintain or ever maintained another qualified plan (other
than a paired standardized money purchase pension plan using Basic
Plan Document No. 03) in which any Participant in this Plan is (or
was) a Participant or could become a participant, you must complete
this section. You must also complete this section if you maintain a
welfare benefit fund, as defined in Section 419(e) of the Code, or
an individual medical account, as defined in Section 415(1)(2) of
the Code, under which amounts are treated as annual additions with
respect to any Participant in this Plan.
PART A. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master
or prototype plan:
1. [ ] The provisions of Sections 3.05(B)(1) through 3.05(B)(6) of
the Plan will apply as if the other plan were a master or
prototype plan.
2. [ ] Other method. (Provide the method under which the plans will
limit total annual additions to the maximum permissible
amount, and will properly reduce any excess amounts, in a
manner that precludes Employer discretion.) ________________
____________________________________________________________
PART B. If the Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer, the Employer will provide
below the language which will satisfy the 1.0 limitation of Section
415(e) of the Code. Such language must preclude Employer
discretion. (Complete)___________________________________________
PART C. Compensation will mean all of each Participant's (Choose one):
OPTION 1. [] Section 3121(a) wages
OPTION 2. [] Section 3401(a) wages
OPTION 3. [] 415 safe-harbor compensation
NOTE: If no box is checked, Option 2 will be deemed to be selected.
PART D. The limitation year is the following 12-consecutive month
period: ________________________________________________________
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
Plan Description: Prototype Standardized Profit Sharing Plan
FFN: 50295842702-001 Case: 9201728 EIN: 04-3076053 Washington, DC 20224
BPD: 02 Plan: 001 Letter Serial No: D260701a
Person to Contact: Ms. Arrington
CAPITAL GROWTH MANAGEMENT
Telephone Number (202) 622-8173
P O BOX 449
Refer Reply to E:EP:Q:ICU
BOSTON, MA 02117
Date 11/03/92
</TABLE>
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 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) 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, 1989-1 C.B. 780; 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).
An employer that has adopted a standardized plan may not rely on this opinion
letter with respect to: (1) whether any amendment or series of amendments to the
plan satisfies the nondiscrimination requirements of section 1.401(a)(4)-5(a) of
the regulations, except with respect to plan amendments granting past service
that meet the safe harbor described in section 1.401(a)(4)-5(a)(5) and are not
part of a pattern of amendments that significantly discriminates in favor of
highly compensated employees; or (2) whether the plan satisfies the effective
availability requirement of section 1.401(a)(4)-4(c) of the regulations with
respect to any benefit, right or feature.
An employer that has adopted a standardized plan as an amendment to a plan other
than a standardized plan may not rely on this opinion letter with respect to
whether a benefit, right or other feature that is prospectively eliminated
satisfies the current availability requirements of section 1.401(a)-4 of the
regulations.
SIMDETLTR/PS001
<PAGE>
CAPITAL GROWTH MANAGEMENT
FFN: 50295842702-001
Page 2
The employer may request a determination (1) 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; (2) regarding the
nondiscriminatory effect of grants of past service, and (3) with respect to
whether a prospectively eliminated benefit, right or feature satisfies the
current availability requirements.
Our opinion does not apply to the form of the plan for purposes of section
401(a) of the Code unless the terms of the plan, as adopted or amended, that
pertain to the requirements of sections 401(a)(4), 401(a)(5), 401(a)(17),
401(l), 410(b) and 414(s) of the Code, as amended by the Tax Reform Act of 1986
or subsequent legislation, (a) are made effective retroactively to the first day
of the first plan year beginning after December 31, 1988 (or such other date on
which these requirements first became effective with respect to this plan), or
(b) are made effective no later than the first day on which the employer is no
longer entitled, under regulations, to rely on a reasonable, good faith
interpretation of these requirements, and the prior provisions of the plan
constitute such an interpretation.
Because you submitted this plan for approval after March 31, 1991, the continued
and interim reliance provisions of section 13 of Rev. Proc. 89-9, 1989-1 C.B.
780, are not applicable. However, solely for purposes of section 17.03 of Rev.
Proc. 89-9, you are deemed to have submitted this plan prior to March 31, 1991,
and therefore the extended reliance provisions of section 17.03 are applicable.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization'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 Swieca
---------------------
Chief, Employee Plans Qualifications Branch
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