<PAGE>
As filed with the Securities and Exchange Commission on April 21, 1995.
1933 Act File No. 33-2847
1940 Act File No. 811-4625
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 15
----
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 15
----
BULL & BEAR SPECIAL EQUITIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
11 Hanover Square
New York, New York 10005
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 1-212-785-0900
Copies to:
WILLIAM J. MAYNARD R. DARRELL MOUNTS, ESQ.
Bull & Bear Advisers, Inc. Kirkpatrick & Lockhart
11 Hanover Square 1800 M Street, N.W.
New York, New York 10005 South Lobby - Ninth Floor
(Name and Address of Washington, D.C. 20036-5891
Agent for Service)
It is proposed that this filing will become effective immediately upon filing
pursuant to Rule 485(b).
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Notice required by Rule 24f-2 for the fiscal year ended December
31, 1994 was filed on February 27, 1995.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Securities Being Amount of Shares Being Offering Price Per Aggregate
Offering Amount of Registration
Registered Registered Unit/(1)/ Price/(2)/ Fee/(2)/
<S> <C> <C> <C> <C>
Shares of Common Stock of 846,130 $20.69 $290,000
$100.00
Bull & Bear Special
Equities Fund, Inc., Par
Value $0.01.
=====================================================================
===============================================================
</TABLE>
(1) The fee for the above shares to be registered by this filing has been
computed on the basis of the price in effect on April 17, 1995 pursuant to Rule
457(d) under the Securities Act of 1933.
(2) Calculation of the proposed maximum aggregate offering price has been made
pursuant to Rule 24e-2 under the Investment Company Act of 1940. During its
fiscal year ended December 31, 1994, Registrant redeemed or repurchased
6,208,346 shares. Registrant used 5,376,232 of the shares it redeemed or
repurchased during its fiscal year ended December 31, 1994, for a reduction
pursuant to paragraph (c) of Rule 24f-2 under the Investment Company Act of 1940
(shares sold; excluding shares issued in reinvestment of dividends). Registrant
is using this post-effective amendment to register the remaining 832,114 shares
redeemed or repurchased during its fiscal year ended December 31, 1994 plus
14,016 shares ($290,000/$20.69). During the current fiscal year, the Registrant
has filed no other post-effective amendments for the purpose of the reduction
pursuant to paragraph (a) of Rule 24e-2.
<PAGE>
BULL & BEAR SPECIAL EQUITIES FUND, INC.
Contents of Registration Statement
----------------------------------
This registration statement consists of the following papers and documents.
Cover Sheet
Table of Contents
Cross Reference Sheets
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
BULL & BEAR SPECIAL EQUITIES FUND, INC.
Cross Reference Sheet
---------------------
Part A. Item No. Prospectus Caption
- ---------------- ------------------
1 Cover Page
2 Expense Table
3 Financial Highlights;
Performance Information
4 General
Risk Factors
Back Cover Page
5 The Investment Manager
Custodian and Transfer Agent
6 Cover Page
General
The Investment Manager
Distributions and Taxes
Determination of Net Asset Value
Shareholder Services
Capital Stock
Back Cover Page
7 How to Purchase Shares
Shareholder Services
Determination of Net Asset Value
Distribution of Shares
Back Cover Page
8 How to Redeem Shares
Determination of Net Asset Value
9 Not Applicable
<PAGE>
BULL & BEAR SPECIAL EQUITIES FUND, INC.
Cross Reference Sheet
---------------------
Statement of Additional
Part B. Item No. Information Caption
- ---------------- -------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 The Fund's Investment Program
Investment Restrictions
Options, Futures And Forward Currency Contract
Strategies
Allocation of Brokerage
Appendix
14 Officers and Directors
15 Officers and Directors
The Investment Manager
16 Officers and Directors
The Investment Manager
Investment Management Agreement
Distribution of Shares
Custodian and Transfer Agent
Auditors
17 Allocation of Brokerage
18 Not Applicable
19 Determination of Net Asset Value
Purchase of Shares
20 Distributions and Taxes
21 Distribution of Shares
22 Performance Information
23 Financial Statements
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
The sole investment objective of Bull & Bear Special Equities Fund is capital
appreciation. The Fund invests primarily in equity securities, often involving
special situations and emerging growth companies. To increase the potential
opportunities for achieving its objective, the Fund may borrow money from banks
from time to time to purchase or carry securities. The activities of the Fund, a
non-diversified management investment company, entail investment risks
significantly greater than the usual practices of most mutual funds and may
result in higher portfolio turnover, increased expenses and a greater amount of
short term capital gains and losses. There is no assurance that the Fund will
achieve its objective.
NEWSPAPER LISTING. Shares of the Fund are sold at the net asset
value per share which is shown daily in the mutual fund section of
newspapers under the "Bull & Bear Group" heading.
This prospectus contains information you should know about the Fund before you
invest. Please keep it for future reference. The Fund's Statement of Additional
Information, dated May l, 1995, has been filed with the Securities and Exchange
Commission and is incorporated by reference in this prospectus. It is available
at no charge by calling 1-800-847-4200. Shares of the Fund are not bank deposits
or obligations of, or guaranteed or endorsed by any bank or any affiliate of any
bank, and are not Federally insured by, obligations of or otherwise supported by
the U.S. Government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency.
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.
1
<PAGE>
EXPENSE TABLE. The tables and example below are designed to help you understand
the various costs and expenses that you will bear directly or indirectly as an
investor in the Fund. A $5 monthly account fee is charged if your average
monthly balance is less than $500, unless you are in the Bull & Bear Automatic
Investment Program (see "How to Purchase Shares").
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases....................... NONE
Sales Load Imposed on Reinvested Dividends............ NONE
Deferred Sales Load................................... NONE
Redemption Fees....................................... NONE
Transfer Fees ........................................ NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees...................................... 0.85%
12b-1 Distribution Fees.............................. 1.00%
Other Expenses....................................... 1.07%
Total Fund Operating Expenses........................ 2.92%
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on $30 $90 $154 $324
a $1,000 investment, assuming a 5%
annual return and a redemption at the
end of each time period................
</TABLE>
The example set forth above assumes reinvestment of all dividends and other
distributions and uses an assumed 5% annual rate of return as required by the
Securities and Exchange Commission ("SEC"). The example is an illustration only
and should not be considered an indication of past or future returns and
expenses. Actual returns and expenses may be greater or less than those shown.
The percentages given for annual Fund expenses are based on the Fund's operating
expenses and average daily net assets during its fiscal year ended December 31,
1994. Long term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc.'s ("NASD") rules regarding investment companies. "Other
Expenses" includes amounts paid to the Fund's Custodian (net of brokerage
commission credits pursuant to an arrangement not anticipated to increase
materially brokerage commissions paid by the Fund -- see "The Investment
Manager") and Transfer Agent and reimbursable to the Investment Manager and the
Distributor for certain administrative and shareholder services, and does not
include interest expense from the Fund's bank borrowing.
FINANCIAL HIGHLIGHTS are presented below for a share of capital stock
outstanding throughout each period since the Fund's inception. The following
information is supplemental to the Fund's financial statements and report
thereon of Tait, Weller & Baker, independent accountants, appearing in the
December 31, 1994 Annual Report to Shareholders and incorporated by reference in
the Statement of Additional Information.
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992 1991 1990 1989 1988 1987
1986/1/
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
PER SHARE DATA*
Net asset value at beginning of period.. $ 23.13 $ 24.88 $ 19.38 $ 13.79 $ 21.68 $18.17
$15.75 $16.83 $ 15.00
Income from investment operations:
----------------------------------
Net investment loss.................. (.55) (.76) (.58) (.36) (.68) (1.14) (.86) (.15)
(.13)
Net realized and unrealized gain (3.28) 4.65 6.08 5.95 (7.21) 8.70 4.43
(.93) 1.96
(loss) on investments...............
Total from investment operations.... (3.83) 3.89 5.50 5.59 (7.89) 7.56 3.57
(1.08) 1.83
Less distributions:
-------------------
Distributions from net realized (.19) (5.64) ------ ------ ------ (4.05) (1.15) -----
-------
gains on investments................
Net increase (decrease) in net (4.02) (1.75) 5.50 5.59 (7.89) 3.51 2.42
(1.08) 1.83
asset value........................
Net asset value at end of period........ $ 19.11 $ 23.13 $ 24.88 $ 19.38 $ 13.79 $21.68
$18.17 $15.75 $ 16.83
TOTAL RETURN............................ (16.5)% 16.4% 28.4% 40.5% (36.4)% 42.3%
22.7% (6.4)% 12.2%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's $45,614 $73,957 $68,314 $16,738 $ 8,475 $6,317
$2,982 $2,337 $ 2,277
omitted)...............................
Ratio of expenses to average net 2.92% 2.74% 3.07% 2.83% 3.10% 3.50%
2.94% 3.01% 2.97%
assets(a)..............................
Ratio of net investment loss to average 2.43% 2.73% 2.78% 2.11% 3.19% 3.23%
1.49% .82% 1.23%
net assets(b)..........................
Portfolio turnover rate................. 309% 256% 261% 384% 475% 433%
514% 751% 558%
- ----------------------------------------------------------------------------------------------------------------------
- ----------
</TABLE>
/1 /From commencement of operations, March 20, 1986. *Per share net investment
loss and net realized and unrealized gain (loss) on investments have been
computed using the average number of shares outstanding. (a) Ratio prior to
reimbursement by the Investment Manager was 5.56% for 1989. (b) Ratio prior to
reimbursement by the Investment Manager was 5.29% for 1989.
Information Relating to Outstanding Debt During the Fiscal Periods Shown Below:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount of Debt Average Amount of
Outstanding at Debt Outstanding Average Number of Shares Outstanding Average
Amount of Debt Per Share
Years Ended End of Period During the Period /1/ During the Period /1 / During
the Period
----------- -------------- --------------------- ------------------------------------
- --------------------------------
<S> <C> <C> <C> <C>
1994 $6,820,000 $2,566,493 2,669,001 $0.96
1993 2,469,000 4,230,400 2,680,212 1.58
1992 8,007,000 2,889,822 1,786,311 1.62
1991 168,000 715,875 997,025 0.72
1990 0 1,307,671 649,739 2.01
1989 1,600,000 733,150 193,256 3.79
1988 0 423,497 146,469 2.89
</TABLE>
__________________
/1/ Based on monthly averages.
2
<PAGE>
TABLE OF CONTENTS
Transaction and Operating Expenses....... 2
Financial Highlights..................... 2
General.................................. 3
Risk Factors............................. 3
How to Purchase Shares................... 7
Shareholder Services..................... 9
How to Redeem Shares..................... 12
Distributions and Taxes.................. 13
Determination of Net Asset Value......... 14
The Investment Manager................... 14
Distribution of Shares................... 15
Performance Information.................. 15
Capital Stock............................ 16
Custodian and Transfer Agent............. 16
GENERAL
PURPOSE OF THE FUND. The Fund is designed for investors seeking solely capital
appreciation. The Fund is not intended for investors whose objective is income
or conservation of capital, and you should not consider a purchase of Fund
shares to be a complete investment program.
INVESTMENT TECHNIQUES. The Fund seeks capital appreciation by investing
aggressively, depending on the Investment Manager's assessment of economic and
market factors, in equity securities, warrants, convertible securities and debt
instruments. The Fund may invest in the securities of a particular company that,
in the opinion of the Investment Manager, will appreciate within a reasonable
period of time, typically because of a development solely applicable to that
company, and regardless of general business conditions or movements of the
market as a whole ("special situations"). The Investment Manager may also use
strategies involving short sales, options, futures, forward currency contracts
and borrowings for investment purposes ("leverage"). Generally, the Investment
Manager seeks to invest in the special situations and emerging growth companies
offering the greatest potential capital appreciation, although there is no
assurance that the Fund will achieve its objective.
PORTFOLIO MANAGEMENT. Brett B. Sneed has been the Fund's Portfolio Manager for
the past six years. Mr. Sneed is Senior Vice President and a member of the
Investment Policy Committee of Bull & Bear Advisers, Inc. (the "Investment
Manager"). He was formerly Vice President of Morgan Stanley Asset Management,
Inc., and prior thereto a portfolio manager and member of the finance and
investment committees of American International Group, Inc., a major insurance
company. A graduate of Columbia College, Mr. Sneed is a Chartered Financial
Analyst and a member of the New York Society of Security Analysts.
THE FUND'S INVESTMENT PROGRAM. Under normal conditions, at least 65% of the
Fund's total assets will be invested in equity securities of U.S. and foreign
issuers and up to 35% may be invested for capital appreciation in corporate
bonds, debentures or preferred stocks (both convertible and non-convertible) of
U.S. and foreign issuers, securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Securities"),
and municipal securities. These are fundamental policies that may not be changed
without shareholder approval. When the Investment Manager deems it advisable,
the Fund may, for temporary defensive purposes or in anticipation of more
favorable opportunities for the purchase of equity securities, hold cash or
invest all or a portion of its assets in short term fixed income securities or
repurchase agreements.
RISK FACTORS
Because of the following considerations, the Fund's investment program
should be considered speculative and involving substantial risk and should not
be considered a complete investment program. The investment program of the Fund
is designed for investors seeking capital appreciation, rather than current
income, and who are willing to assume the risks inherent in the Fund's
investment policies and practices. The activities in which the Fund engages
entail investment risks significantly greater than are inherent in the
usual
3
<PAGE>
practices of most mutual funds and may result in higher portfolio turnover,
increased expenses, and a greater amount of short term capital gains and losses.
SPECIAL SITUATIONS. The Fund may invest without limit in special situations.
Developments creating special situations might include, among others:
liquidations, reorganizations, recapitalizations, mergers, material litigation,
technological breakthroughs, and new management or management policies. Although
large, well-known companies may be involved, special situations more often
involve comparatively small or unseasoned companies. Special situations often
involve much greater risk than is inherent in ordinary investments due to, among
other things, a lack of or presumed inapplicability of the company's operating
history, a limited market in the company's securities, and the unreliable nature
of the company's anticipated earnings growth. Companies in actual or anticipated
reorganizations or restructurings often provide limited financial information
and markets for their securities may be erratic and volatile. The Fund will not,
however, purchase securities of any company with a record of less than three
years' continuous operation (including that of predecessors) if such purchase
would cause the Fund's investments in all such companies, taken at cost, to
exceed 5% of the value of the Fund's total assets.
SHORT TERM INVESTING. The Fund may seek capital appreciation by investing for
the short term on the basis of both technical and fundamental considerations as
evaluated by the Investment Manager. Long term investments, by contrast, are
usually based upon fundamental evaluations. Short term investing may result in
the Fund's portfolio turnover rate being substantially greater than that of
similar investment companies. In 1993 the Fund's portfolio turnover rate was
256% and in 1994 it was 309%. Higher turnover may increase Fund brokerage costs
and taxes payable by shareholders.
BORROWING. The Fund may borrow money from banks (including its custodian bank)
to purchase and carry securities and will pay interest thereon. If the
investment income on securities purchased with borrowed money exceeds the
interest paid on the borrowing, the Fund's income will be correspondingly
higher. If the investment income fails to cover the Fund's costs, including
interest on borrowings, or if there are losses, the net asset value of the
Fund's shares will decrease faster than would otherwise be the case. Such
borrowing is referred to as leverage, is speculative, and increases both
investment opportunity and investment risk. The Investment Company Act of 1940
(the "1940 Act") requires the Fund to maintain asset coverage of at least 300%
for all such borrowings, and should such asset coverage at any time fall below
300%, the Fund will be required to reduce its borrowing within three days to the
extent necessary to meet the requirements of the 1940 Act. To reduce its
borrowing the Fund might be required to sell securities at a disadvantageous
time. Interest on money borrowed is an expense the Fund would not otherwise
incur, and it may therefore have little or no investment income during periods
of substantial borrowings.
SHORT SALES. The Fund may from time to time use short sales, which means that
the Fund may sell a security that it does not own in the hope of replacing it by
a later purchase at a lower price. In order to make delivery to the buyer, the
Fund must borrow the security. When it does, the Fund incurs an obligation to
replace that security, whatever its price may be, at the time the Fund purchases
it for delivery to the lender. The Fund must also pay to the lender of the
security the dividends or interest payable during such period and may have to
pay a premium to borrow the security. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet the margin requirements,
until the short position is closed out. The obligation to restore the borrowed
security will at all times also be secured by collateral consisting of cash,
commercial paper or U.S. Government securities. In addition to the amount
required to be maintained by the broker, a similarly collateralized deposit will
be made to a segregated account at the Fund's custodian bank in an amount such
that the value of these two deposits will, at all times, be at least equal to
the greater of the market value of the securities sold short at the time of such
sale or their current market value. Ordinarily, no interest will be received by
the Fund on the proceeds of the short sale held by the broker, although interest
on the collateral securities will belong to the Fund. The Fund will incur a
loss, which could be substantial, if the price of the security increases between
the date of the short sale and the date on which it purchases securities to
replace those borrowed. The Fund will realize a gain if the security declines in
price between those dates. Any such gain will be a short term gain.
The frequency of short sales by the Fund may vary substantially, and
no specified portion of the Fund's assets will be invested in short sales.
However, not more than 25% of the value of the Fund's net assets will be
4
<PAGE>
used to collateralize short sales. To adhere to the 25% limitation, the Fund may
be required to cover short sales at a disadvantageous time. As a matter of non-
fundamental policy, (1) not more than 2% of the value of the Fund's net assets
will be used to collateralize short sales of securities of any one issuer, and
the Fund will not have in effect, at any one time, short sales covering more
than 2% of the outstanding securities of any class of any issuer, (2) the Fund
will not at the same time purchase and sell short the same security, and (3)
short sales will be made only on securities fully listed on a national
securities exchange.
The Fund may also make short sales "against the box." A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain without additional cost securities identical to those sold
short. Such sales will not be subject to the limitations referred to above, and
may be used by the Fund to defer the realization of gain or loss for Federal
income tax purposes on securities then owned by the Fund.
WARRANTS. Warrants give their holder the right to purchase a given number of
shares of a particular company at specified prices within certain periods of
time. The purchaser of a warrant expects that the market price of the security
to which the warrant pertains will exceed the exercise price before the
warrant's expiration date. The purchaser risks losing the entire purchase price
of the warrant if the market price does not rise. Warrants are usually tradable
in the open market without actual exercise. Warrants are sometimes sold in unit
form with other securities of an issuer, and are frequently employed in
financing young, unseasoned companies. A warrant's purchase price varies with
its exercise price, current market value of the underlying security, life of the
warrant and various other investment factors.
The purchase price of warrants and premiums on put and call options
written by others, combinations thereof, or similar options will be limited to
no more than 20% of the value of the Fund's net assets. The Fund also will limit
its investment in warrants, valued at the lower of cost or market, to not more
than 5% of the value of the Fund's net assets, including (but not more than 2%
of the value of the Fund's net assets) warrants which are not listed on the New
York or American Stock Exchange. These non-fundamental limitations may cause the
Fund to dispose of warrants or put or call options at disadvantageous
times.
OPTIONS, FUTURES CONTRACTS, AND FORWARD CURRENCY CONTRACTS. The
Fund may
purchase call options on securities that the Investment Manager intends to
include in the Fund's portfolio in order to fix the cost of a future purchase or
to attempt to enhance return by, for example, participating in an anticipated
price increase of a security. The Fund may purchase put options to hedge against
a decline in the market value of securities held in the Fund's portfolio or to
attempt to enhance return. The Fund may write (sell) covered put and call
options on securities in which it is authorized to invest. The Fund may purchase
and write covered straddles, purchase and write put and call options on stock
and bond indexes, and take positions in options on foreign currencies to hedge
against the risk of foreign exchange rate fluctuations on foreign securities the
Fund holds in its portfolio or that it intends to purchase. The Fund may
purchase and sell interest rate futures contracts, stock and bond index futures
contracts and foreign currency futures contracts, and may purchase put and call
options and write covered put and call options on such futures contracts.
The Fund may enter into forward currency contracts to set the rate at
which currency exchanges will be made for contemplated or completed
transactions. The Fund might also enter into forward currency contracts in
amounts approximating the value of one or more portfolio positions to fix the
U.S. dollar value of those positions. For example, when the Investment Manager
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar, the Fund may enter into a forward
contract to sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. The Fund has no specific limitation on the
percentage of assets it may commit to foreign currency exchange contracts,
except that it will not enter into a forward contract if the amount of assets
set aside to cover the contract would impede portfolio management or the Fund's
ability to meet redemption requests.
Strategies with options, financial futures, and forward currency
contracts may be limited by market conditions, regulatory limits and tax
considerations, and the Fund might not employ any of the strategies described
above. There can be no assurance that any strategy used will be successful. The
loss from investing in futures transactions is potentially unlimited. Options
and futures may fail as hedging techniques in cases where price movements of the
securities underlying the options and futures do not follow the price movements
of the portfolio securities subject to the hedge. Gains and losses on
investments in options and futures depend on the Investment Manager's ability to
predict correctly the direction of stock prices, interest rates, and other
economic factors. In addition, the Fund will likely be unable to control
5
<PAGE>
losses by closing its position where a liquid secondary market does not exist
and there is no assurance that a liquid secondary market for hedging instruments
will always exist. It also may be necessary to defer closing out hedged
positions to avoid adverse tax consequences. The percentage of the Fund's assets
segregated to cover its obligations under options, futures, or forward currency
contracts could impede effective portfolio management or the ability to meet
redemption or other current obligations.
ILLIQUID AND RESTRICTED SECURITIES. The Fund may invest in securities that are
not widely traded, and the Fund's position in such securities may be substantial
in relation to their market. In some cases it may be difficult for the Fund to
dispose of such securities at prevailing market prices in order to meet
redemptions. As non-fundamental investment restrictions, the Fund may invest (i)
up to 15% of its net assets in illiquid securities, including repurchase
agreements with a maturity of more than seven days and (ii) up to 10% of its
total assets in restricted securities.
FOREIGN SECURITIES, MARKETS AND CURRENCIES. You should understand and
consider
carefully the substantial risks involved in foreign investing. Investing in
foreign securities, which are generally denominated in foreign currencies, and
utilization of forward contracts on foreign currencies involve certain
considerations comprising both risk and opportunity not typically associated
with investing in U.S. securities. These considerations include: fluctuations in
currency exchange rates; restrictions on foreign investment and repatriation of
capital; costs of converting foreign currency into U.S. dollars; greater price
volatility and trading illiquidity; less public information on issuers of
securities; difficulty in enforcing legal rights outside of the United States;
lack of uniform accounting, auditing and financial reporting standards; the
possible imposition of foreign taxes and exchange controls and currency
restrictions; and the possible greater political, economic and social
instability of developing as well as developed countries including without
limitation nationalization, expropriation of assets, and war. These risks are
often heightened for investments in developing countries and emerging markets or
when the Fund's investments are concentrated in a small number of countries. In
addition, because transactional and custodial expenses for foreign securities
are generally higher than for domestic securities, the Fund's expense ratio can
be expected to be higher than that of investment companies investing exclusively
in domestic securities.
The Fund may purchase securities on U.S. and foreign stock exchanges
or in the over-the-counter market. Foreign stock markets are generally not as
developed or efficient as those in the United States. In most foreign markets
volume and liquidity are less than in the United States and, at times,
volatility of price can be greater than in the United States. Fixed commissions
on some foreign stock exchanges are higher than the negotiated commissions on
U.S. exchanges. There is generally less government supervision and regulation of
foreign stock exchanges, brokers and companies than in the United States. If the
Fund invests in countries in which settlement of transactions is subject to
delay, its ability to purchase and sell portfolio securities at the time it
desires may be hampered. Delays in settlement practices in foreign countries may
also affect the Fund's liquidity, making it more difficult to meet redemption
requests, or require the Fund to maintain a greater portion of its assets in
money market instruments in order to meet such requests. Some of the securities
in which the Fund invests may not be widely traded, and the Fund's position in
such securities may be substantial in relation to the market for such
securities. Accordingly, it may be difficult for the Fund to dispose of such
securities at prevailing market prices in order to meet redemption requests.
Because foreign securities are generally denominated in foreign
currencies, the value of the assets of the Fund as measured in U.S. dollars may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations. For example, if the value of the U.S.
dollar decreases relative to a foreign currency which a Fund investment is
denominated in or which is temporarily held by the Fund to facilitate portfolio
transactions, the value of such Fund assets (and thus the Fund's net asset value
per share) will increase (all else being equal). Conversely, an increase in the
value of the U.S. dollar relative to such a foreign currency will result in a
decline in the value of such Fund assets (and its net asset value per share).
The Fund may incur additional costs in connection with conversions of currencies
and securities into U.S. dollars. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis, or through entering
into forward contracts. The Fund generally will not enter into a forward
contract with a term of greater than one year.
OTHER INVESTMENTS. The Fund may also invest in repurchase agreements, U.S.
Government securities and those of its agencies and instrumentalities, municipal
securities, preferred securities, and debt securities (including lower rated
debt securities). In the last year however, the Fund did not invest more than 5%
of its net assets in such securities and does not currently intend to do so.
6
<PAGE>
OTHER INFORMATION. The Fund is "non-diversified" as defined in the 1940 Act, but
intends to continue to qualify as a regulated investment company for Federal
income tax purposes. This means, in general, that more than 5% of the Fund's
total assets may be invested in the securities of one issuer (including a
foreign government), but only if at the close of each quarter of the Fund's
taxable year, the aggregate amount of such holdings does not exceed 50% of the
value of its total assets and no more than 25% of the value of its total assets
is invested in the securities of a single issuer. To the extent that the Fund's
portfolio at times may include the securities of a smaller number of issuers
than if it were diversified (as defined in the 1940 Act), the Fund will at such
times be subject to greater risk with respect to its portfolio securities than
an investment company that invests in a broader range of securities in that
changes in the financial condition or market assessment of a single issuer may
cause greater fluctuation in the Fund's total return. In addition to the Fund's
fundamental investment objective and the fundamental policies stated above, the
Fund has adopted certain fundamental investment restrictions which may not be
changed without shareholder approval. These fundamental restrictions are set
forth in the Statement of Additional Information. All other investment policies
described herein, unless otherwise stated, are not fundamental and may be
changed by the Fund's Board of Directors without shareholder action.
HOW TO PURCHASE SHARES
The Fund's shares are sold on a continuing basis at the net asset
value per share next determined after receipt and acceptance of the order by
Bull & Bear Service Center (see "Determination of Net Asset Value"). The minimum
initial investment is $1,000 for regular and gifts/transfers to minors custody
accounts, and $500 for Bull & Bear retirement plans, which include Individual
Retirement Accounts ("IRAs"), SEP-IRAs, rollover IRAs, profit sharing and money
purchase plans, and 403(b) plan accounts. The minimum subsequent investment is
$100. The initial investment minimums are waived if you elect to invest $100 or
more each month in the Fund through the Bull & Bear Automatic Investment Program
(see "Additional Investments" below).
INITIAL INVESTMENT. The Account Application that accompanies this prospectus
should be completed, signed and, with a check or other negotiable bank draft
payable to Special Equities Fund, mailed to Bull & Bear Service Center, P.O. Box
419789, Kansas City, MO 64141-6789. Initial investments also may be made by
having your bank wire money, as set forth below, in order to avoid mail delays.
ADDITIONAL INVESTMENTS. Additional investments may be made conveniently at any
time by any one or more of the following methods:
BULL & BEAR AUTOMATIC INVESTMENT PROGRAM. With the Bull & Bear
Automatic
Investment Program, you can establish a convenient and affordable long term
investment program through one or more of the Plans explained below. Each
Plan is designed to facilitate an automatic monthly investment of $100 or
more into your Fund account.
The BULL & BEAR BANK TRANSFER PLAN lets you purchase Fund shares on a
certain day each month by transferring electronically a specified dollar amount
from your regular checking account, NOW account, or bank money market deposit
account.
Through the BULL & BEAR SALARY INVESTING PLAN, part or all of your
salary may be invested electronically in shares of the Fund on each pay date,
depending upon your employer's direct deposit program.
The BULL & BEAR GOVERNMENT DIRECT DEPOSIT PLAN allows you to deposit
automatically part or all of certain U.S. Government payments into your Fund
account. Eligible U.S. Government payments include Social Security, pension
benefits, military or retirement benefits, salary, veteran's benefits and most
other recurring payments.
For more information concerning this Program, or to request the
necessary authorization form(s), please call Bull & Bear Service Center, 1-800-
847-4200. You may modify or terminate the Bank Transfer Plan at
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any time by written notice received at least 10 days prior to the scheduled
investment date. To modify or terminate the Salary Investing Plan or Government
Direct Deposit Plan, you should contact, respectively, your employer or the
appropriate U.S. government agency. The Fund reserves the right to redeem any
account if participation in the Program is terminated and the account's value is
less than $500. The Program does not assure a profit or protect against loss in
a declining market, and you should consider your ability to make purchases when
prices are low.
CHECK. Mail a check or other negotiable bank draft ($100 minimum), made
payable to Special Equities Fund, together with a Bull & Bear FastDeposit
-----------
form to Bull & Bear Service Center, P.O. Box 419789, Kansas City, MO 64141-
6789. If you do not use that form, please send a letter indicating the Fund
and account number to which the subsequent investment is to be credited,
and name(s) of the registered owner(s).
ELECTRONIC FUNDS TRANSFER (EFT). With EFT, you may purchase additional
shares of the Fund quickly and simply, just by calling Bull & Bear Service
Center, 1-800-847-4200. We will contact the bank you designate on your
Account Application or Authorization Form to arrange for the EFT, which is
done through the Automated Clearing House system, to your Fund account. For
requests received by 4 p.m., eastern time, the investment will be credited
to your Fund account ordinarily within two business days. There is a $100
minimum for each EFT investment. Your designated bank must be an Automated
Clearing House member and any subsequent changes in bank account
information must be submitted in writing with a voided check or deposit
slip.
FEDERAL FUNDS WIRE. You may wire money, by following the procedures set
forth below, to receive that day's net asset value per share.
INVESTING BY WIRE. For an initial investment by wire, you must first telephone
Bull & Bear Service Center, 1-800-847-4200, to give the name(s) under which the
account is to be registered, tax identification number, the name of the bank
sending the wire, and to be assigned a Bull & Bear Special Equities Fund account
number. You may then purchase shares by requesting your bank to transmit
immediately available funds ("Federal funds") by wire to the Transfer Agent at:
United Missouri Bank NA, ABA #10-10-00695; for Account 98-7052-724-3; Special
Equities Fund. Your account number and name(s) must be specified in the wire as
they are to appear on the account registration. You should then enter your
account number on your completed Account Application and promptly forward it to
Bull & Bear Service Center, P.O. Box 419789, Kansas City, MO 64141-6789. This
service is not available on days when the Federal Reserve wire system is closed.
Subsequent investments by wire may be made at any time without having to call
Bull & Bear Service Center by simply following the same wiring procedures.
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SHAREHOLDER ACCOUNTS. When you invest in the Fund, your account will be credited
with all full and fractional shares (to three decimal places), together with any
dividends that are paid in additional shares (see "Distributions and Taxes").
Stock certificates will be issued only for full shares when requested in
writing. In order to facilitate redemptions and exchanges and provide
safekeeping, we recommend that you do not request certificates. You will receive
transaction confirmations upon purchasing or selling shares, and quarterly
statements.
WHEN ORDERS ARE EFFECTIVE. The purchase price for Fund shares is the net asset
value of such shares next determined after receipt and acceptance by Bull & Bear
Service Center of a purchase order in proper form. All purchases are accepted
subject to collection at full face value in Federal funds. Checks must be drawn
in U.S. dollars on a U.S. bank. The Fund reserves the right to reject any order.
Accounts are charged $30 by the Transfer Agent for submitting checks for
investment which are not honored by the investor's bank. The Fund may in its
discretion waive or lower the investment minimums.
SHAREHOLDER SERVICES
You may modify or terminate your participation in any of the Fund's
special plans or services at any time. Shares or cash should not be withdrawn
from any tax-advantaged retirement plan described below, however, without
consulting a tax adviser concerning possible adverse tax consequences.
Additional information regarding any of the following services is available from
the Fund's Distributor, Bull & Bear Service Center, 1-800-847-4200.
ELECTRONIC FUNDS TRANSFER (EFT). You automatically have the privilege of linking
the bank designated on your Account Application or Authorization Form and your
Fund account through Bull & Bear's EFT service. With EFT, you use the Automated
Clearing House system to electronically transfer money quickly and safely
between your bank and Fund accounts. EFT may be used for purchasing and
redeeming Fund shares, direct deposit of dividends into your bank account, the
Automatic Investment Program, the Systematic Withdrawal Plan, and systematic IRA
distributions. You may decline this privilege by checking the indicated box on
the Account Application. Any subsequent changes in bank account information must
be submitted in writing (and the Fund may require the signature to be
guaranteed), with a voided check or deposit slip.
DIVIDEND SWEEP PRIVILEGE. You may elect to have automatically invested either
all dividends or all dividends and capital gain distributions paid by the Fund
in any other Bull & Bear Fund. Shares of the other Bull & Bear Fund will be
purchased at the current net asset value calculated on the payment date. For
more information concerning this privilege and the other Bull & Bear Funds, or
to request a Dividend Sweep Authorization Form, please call Bull & Bear Service
Center, 1-800-847-4200. You may cancel this privilege by mailing written
notification to Bull & Bear Service Center, P.O. Box 419789, Kansas City, MO
64141-6789. To select a new Fund after cancellation, you must submit a new
Authorization Form. Enrollment in or cancellation of this privilege is generally
effective three business days following receipt. This privilege is available
only for existing accounts and may not be used to open new accounts.
SYSTEMATIC WITHDRAWAL PLAN. If you own Fund shares with a value of at least
$20,000 you may elect an automatic monthly or quarterly withdrawal of cash from
your Fund account in fixed or variable amounts, subject to a minimum amount of
$100. Under the Systematic Withdrawal Plan, all dividends and other
distributions, if any, are reinvested in the Fund.
ASSIGNMENT. Fund shares may be transferred to another owner. Instructions are
available from Bull & Bear Service Center, 1-800-847-4200.
EXCHANGE PRIVILEGE. You may exchange at least $500 worth of shares of the Fund
for shares of any other Bull & Bear Fund (provided the registration is exactly
the same, the shares may be sold in your state of residence, and the exchange
may otherwise legally be made).
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To exchange shares, please call Bull & Bear Service Center toll-free
at 1-800-847-4200 between 9 a.m. and 5 p.m. eastern time on any business day of
the Fund and provide the following information: account registration including
address and number; taxpayer identification number; percentage, number, or
dollar value of shares to be redeemed; name and, if different, the account
number of the Bull & Bear Fund to be purchased; and your identity and telephone
number. The other Bull & Bear Funds are:
. BULL & BEAR DOLLAR RESERVES is a high quality money market fund investing
in U.S. Government securities. Income is generally free from most state and
local income taxes. Free unlimited check writing ($250 minimum per check).
Pays monthly dividends.
. BULL & BEAR U.S. GOVERNMENT SECURITIES FUND invests for a high level of
current income, liquidity, and safety of principal. Free unlimited check
writing ($250 minimum per check). Pays monthly dividends.
. BULL & BEAR MUNICIPAL INCOME FUND invests for the highest possible income
exempt from Federal income tax consistent with preservation of principal.
Free unlimited check writing ($250 minimum per check). Pays monthly
dividends.
. BULL & BEAR GLOBAL INCOME FUND seeks a high level of income from a global
portfolio of primarily investment grade fixed income securities. Free
unlimited check writing ($250 minimum per check). Pays monthly dividends.
. BULL & BEAR QUALITY GROWTH FUND seeks growth of capital and income from a
portfolio of common stocks of large, quality companies with potential for
significant growth of earnings and dividends.
. BULL & BEAR U.S. AND OVERSEAS FUND invests worldwide for the highest
possible total return.
. BULL & BEAR GOLD INVESTORS seeks long term capital appreciation in
investments with the potential to provide a hedge against inflation and
preserve the purchasing power of the dollar.
Exchange requests received between 9 a.m. and 4 p.m. eastern time on
any business day of the Fund will be effected at the net asset values of the
Fund and the other Bull & Bear Fund as determined at the close of that business
day. Exchange requests received between 4 p.m. and 5 p.m. eastern time on any
business day of the Fund will be effected at the close of the next business day
of the Fund. If you are unable to reach Bull & Bear Service Center at the above
telephone number you may, in emergencies, call 1-212-363-1100 or communicate by
fax to 1-212-363-1103 or cable to the address BULLNBEAR NEWYORK. Exchanges may
be difficult or impossible to implement during periods of rapid changes in
economic or market conditions. Exchange privileges may be terminated or modified
by the Fund without notice. For tax purposes, exchanges are treated as a
redemption and purchase of shares. A free prospectus containing more complete
information including charges, expenses and performance, on any of the Funds
listed above is available from Bull & Bear Service Center, 1-800-847-4200. The
other Fund's prospectus should be read carefully before exchanging. You may give
exchange instructions to Bull & Bear Service Center by telephone without further
documentation. If you have requested share certificates, this procedure may be
utilized only if, prior to giving telephone instructions, you deliver the
certificates to the Transfer Agent for deposit into your account.
. BULL & BEAR SECURITIES (DISCOUNT BROKERAGE ACCOUNT) TRANSFERS. If
you have
an account at Bull & Bear Securities, Inc., an affiliate of the Investment
Manager and a wholly-owned subsidiary of Bull & Bear Group, Inc. offering
discount brokerage services, you may access your investment in any Bull &
Bear Fund to pay for securities purchased in your brokerage account and
have proceeds of securities sold in your brokerage account used to purchase
shares of any Bull & Bear Fund. You may request a Discount Brokerage
Account Application from Bull & Bear Securities, Inc., 1-800-262-5800.
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TAX-ADVANTAGED RETIREMENT PLANS. These plans provide an opportunity to set aside
money for retirement in a tax-advantaged account in which earnings can be
compounded without incurring a tax liability until the money and earnings are
withdrawn. Contributions may be fully or partially deductible for Federal income
tax purposes as noted below. Information on any of the plans described below is
available from Bull & Bear Service Center, 1-800-847-4200.
The minimum investment to establish a Bull & Bear IRA or other
retirement plan is $500. Minimum subsequent investments are $100. The initial
investment minimums are waived if you elect to invest $100 or more each month in
the Fund through the Bull & Bear Automatic Investment Program. There are no set-
up fees for any Bull & Bear Retirement Plans. Subject to change on 30 days'
notice, the plan custodian charges Bull & Bear IRAs a $10 annual fiduciary fee,
$10 for each distribution prior to age 59 1/2, and a $20 plan termination fee;
however, the annual fiduciary fee is waived if your IRA has assets of $10,000 or
more or if you invest regularly through the Bull & Bear Automatic Investment
Program.
. INDIVIDUAL RETIREMENT ACCOUNTS. Anyone with earned income who is less than
age 70 1/2 at the end of the tax year, even if also participating in
another type of retirement plan, may establish an IRA and contribute each
year up to $2,000 or 100% of earned income, whichever is less, and an
aggregate of up to $2,250 when a non-working spouse is also covered in a
separate spousal account. If each spouse has at least $2,000 of earned
income each year, they may contribute up to $4,000 annually. Employers may
also make contributions to an IRA on behalf of an individual under a
Simplified Employee Pension Plan ("SEP") in any amount up to 15% of up to
$150,000 of compensation. Generally, taxpayers may contribute to an IRA
during the tax year and through the next year until the income tax return
for that year is due, without regard to extensions. For example, most
individuals may contribute for the 1995 tax year from January 1, 1995
through April 15, 1996.
. DEDUCTIBILITY. IRA contributions are fully deductible for most taxpayers.
For a taxpayer who is an active participant in an employer-maintained
retirement plan (or whose spouse is), a portion of IRA contributions is
deductible if adjusted gross income (before the IRA deductions) is $40,000-
$50,000 (if married) and $25,000-$35,000 (if single). Only IRA
contributions by a taxpayer who is an active participant in an employer-
maintained retirement plan (or whose spouse is) and has adjusted gross
---
income of more than $50,000 (if married) and $35,000 (if single) will not
be deductible at all. An eligible individual may establish a Bull & Bear
IRA under the prototype plan available through the Fund, even though such
individual or spouse actively participates in an employer-maintained
retirement plan.
. IRA TRANSFER AND ROLLOVER ACCOUNTS. Special forms are available from Bull
& Bear Service Center, 1-800-847-4200, which make it easy to transfer or
roll over IRA assets to a Bull & Bear IRA. An IRA may be transferred from
one financial institution to another without adverse tax consequences.
Similarly, no taxes need be paid on a lump-sum distribution which you may
receive as a payment from a qualified pension or profit sharing plan due to
retirement, job termination or termination of the plan, so long as the
assets are put into an IRA Rollover account within 60 days of the receipt
of the payment. Withholding for Federal income tax purposes is required at
the rate of 20% for "eligible rollover distributions" made from any
retirement plan (other than an IRA) that are not directly transferred to an
"eligible retirement plan", such as a Bull & Bear Rollover Account.
. PROFIT SHARING AND MONEY PURCHASE PLANS. These Plans provide an
opportunity to accumulate earnings on a tax-deferred basis by permitting
corporations, self-employed individuals (including partners) and their
employees generally to contribute (and deduct) up to $30,000 annually or,
if less, 25% (15% for profit sharing plans) of compensation or self-
employment earnings up to a maximum of $150,000. Corporations and
partnerships, as well as all self-employed persons, are eligible to
establish these Plans. In addition, a person who is both salaried and self-
employed, such as a college professor who serves as a consultant, may adopt
these retirement plans based on self-employment earnings.
. SECTION 403(B)(7) ACCOUNTS. Section 403(b)(7) of the Internal Revenue Code
of 1986, as amended ("Code"), permits the establishment of custodial
accounts on behalf of employees of public school systems and certain tax-
exempt organizations. A participant in such a plan does not pay taxes on
any contributions made by the participant's employer to the participant's
account pursuant to a salary reduction agreement, up to a maximum amount,
or "exclusion allowance". The exclusion allowance is generally computed by
first multiplying the participant's years of service times 20% of the
participant's compensation included in gross
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income received from the employer (reduced by any amount previously
contributed by the employer to any 403(b)(7) account for the benefit of the
participant and excluded from the participant's gross income). However, the
exclusion allowance may not exceed the lesser of 25% of the participant's
compensation (limited as above) or $30,000. Contributions and subsequent
earnings thereon are not taxable until withdrawn, when they are received as
ordinary income.
HOW TO REDEEM SHARES
Generally, you may redeem by any of the methods explained below.
Requests for redemption should include the following information: your account
registration information including address, account number and taxpayer
identification number; dollar value, number or percentage of shares to be
redeemed; how and to where the proceeds are to be sent; if applicable, the
bank's name, address, ABA routing number, bank account registration and account
number, and a contact person's name and telephone number; and your daytime
telephone number.
BY MAIL. You may request that the Fund redeem any amount of shares by submitting
a written request to Bull & Bear Service Center, P.O. Box 419789, Kansas City,
MO 64141-6789, signed by the record owner(s). If a written redemption request is
sent to the Fund, it will be forwarded to the above address. If stock
certificates have been issued for shares being redeemed, they must accompany the
written request.
BY TELEPHONE. You may telephone Bull & Bear Service Center, 1-800-847-4200 to
expedite redemption of Fund shares if share certificates have not been issued.
You may redeem as little as $250 worth of shares by requesting Bull &
Bear's Electronic Funds Transfer (EFT) service. With EFT, you can redeem Fund
shares quickly and conveniently because Bull & Bear Service Center will contact
the bank designated on your Account Application or Authorization Form to arrange
for the electronic transfer of your redemption proceeds (through the Automated
Clearing House system) to your bank account. EFT proceeds are ordinarily
available in your bank account within two business days.
If you are redeeming $1,000 or more worth of shares, you may request
that the proceeds be mailed to your address of record or mailed or wired to your
authorized bank.
Telephone requests received on Fund business days by 4 p.m. eastern time will be
redeemed from your account that day, and if after, on the next Fund business
day. Any subsequent changes in bank account information must be submitted in
writing, signature guaranteed, with a voided check or deposit slip. If you are
unable to reach Bull & Bear Service Center at the above telephone number you
may, in emergencies, call 1-212-363-1100 or communicate by fax to 1-212-363-1103
or cable to the address BULLNBEAR NEWYORK. Redemptions by telephone may be
difficult or impossible to implement during periods of rapid changes in economic
or market conditions.
CHECK WRITING ACCESS. You may exchange a minimum of $500 at any time by toll-
free telephone call into Bull & Bear Dollar Reserves, Bull & Bear's money market
fund, offering free personalized checks, a $250 check writing minimum ($100
minimum for Bull & Bear Securities Performance Plus/SM/ discount brokerage
accounts), and no limit on the number of checks that may be written. A signature
card, which should be submitted for the check writing privilege, and a free Bull
& Bear Dollar Reserves prospectus containing more complete information including
yield, charges and expenses is available from Bull & Bear Service Center, 1-800-
847-4200. Please read the prospectus carefully before exchanging.
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REDEMPTION PRICE. The redemption price is the net asset value per share next
determined after receipt of the redemption request in proper form. Registered
broker/dealers, investment advisers, banks, and insurance companies may open
accounts and redeem shares by telephone or wire and may impose a charge for
handling purchases and redemptions when acting on behalf of others.
REDEMPTION PAYMENT. Payment for shares redeemed will be made as soon as
possible, ordinarily within seven days after receipt of the redemption request
in proper form. The right of redemption may not be suspended, or date of payment
delayed more than seven days, except for any period (i) when the New York Stock
Exchange is closed or trading thereon is restricted as determined by the SEC;
(ii) under emergency circumstances as determined by the SEC that make it not
reasonably practicable for the Fund to dispose of securities owned by it or
fairly to determine the value of its assets; or (iii) as the SEC may otherwise
permit. The mailing of proceeds on redemption requests involving any shares
purchased by personal, corporate, or government check or EFT transfer is
generally subject to a ten day delay to allow the check or transfer to clear.
The ten day clearing period does not affect the trade date on which a purchase
or redemption order is priced, or any dividends and capital gain distributions
to which you may be entitled through the date of redemption. The clearing period
does not apply to purchases made by wire. Due to the relatively higher cost of
maintaining small accounts, the Fund reserves the right, upon 45 days' notice,
to redeem any account, other than IRA and other Bull & Bear prototype retirement
plan accounts, worth less than $500 except if solely from market action, unless
an investment is made to restore the minimum value.
TELEPHONE PRIVILEGES. You automatically have all telephone privileges to, among
other things, authorize purchases, redemptions and exchanges, with EFT or by
other means, unless declined on the Account Application or otherwise in writing.
Neither the Fund nor Bull & Bear Service Center shall be liable for any loss or
damage for acting in good faith upon instructions received by telephone and
believed to be genuine. The Fund employs reasonable procedures to confirm that
instructions communicated by telephone are genuine and if it does not, it may be
liable for losses due to unauthorized or fraudulent transactions. These
procedures include requiring personal identification prior to acting upon
telephone instructions, providing written confirmation of such transactions, and
tape recording telephone conversations. The Fund may modify or terminate any
telephone privileges or shareholder services (except as noted) at any time
without notice.
SIGNATURE GUARANTEES. No signature guarantees are required when payment is to be
made to you at your address of record. If the redemption proceeds are to be paid
to a non-shareholder of record, or to an address other than your address of
record, or the shares are to be assigned, the Transfer Agent may require that
your signature be guaranteed by an entity acceptable to the Transfer Agent, such
as a commercial bank or trust company or member firm of a national securities
exchange or of the NASD. A notary public may not guarantee signatures. The
Transfer Agent may require further documentation, and may restrict the mailing
of redemption proceeds to your address of record within 30 days of such address
being changed unless you provide a signature guarantee as described above.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. The Fund pays dividends annually to its shareholders from its net
investment income, if any. The Fund also makes an annual distribution to its
shareholders out of any net realized capital gains, after offsetting any capital
loss carryover, and any net realized gains from foreign currency transactions.
Dividends and other distributions, if any, are declared, and payable to
shareholders of record on a date in December of each year. Such distributions
may be paid in January of the following year, in which event they will be deemed
received by the shareholders on the preceding December 31 for tax purposes. The
Fund may also make an additional distribution following the end of its fiscal
year out of any undistributed income and capital gains. Dividends and other
distributions are made in additional Fund shares, unless you elect to receive
cash on the Account Application or so elect subsequently by calling Bull & Bear
Service Center, 1-800-847-4200. For Federal income tax
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purposes, dividends and other distributions are treated in the same manner
whether received in additional Fund shares or in cash. Any election will remain
in effect until you notify Bull & Bear Service Center to the contrary.
TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of Federal income
tax on that part of its investment company taxable income (generally consisting
of net investment income, net short term capital gains, and net gains from
certain foreign currency transactions) and net capital gain (the excess of net
long term capital gain over net short term capital loss) that is distributed to
its shareholders. Dividends paid by the Fund from its investment company taxable
income (whether paid in cash or in additional Fund shares) generally are taxable
to shareholders, other than shareholders that are not subject to tax on their
income, as ordinary income to the extent of the Fund's earnings and profits; a
portion of those dividends may be eligible for the corporate dividends-received
deduction. Distributions by the Fund of its net capital gain (whether paid in
cash or in additional Fund shares) when designated as such by the Fund, are
taxable to the shareholders as long term capital gains, regardless of how long
they have held their Fund shares. The Fund notifies its shareholders following
the end of each calendar year of the amounts of dividends and capital gain
distributions paid (or deemed paid) that year and of any portion of those
dividends that qualifies for the corporate dividends-received deduction. Any
dividend or other distribution paid by the Fund will reduce the net asset value
of Fund shares by the amount of the distribution. Furthermore, such
distribution, although similar in effect to a return of capital, will be subject
to taxes.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. Withholding at that rate from dividends and
capital gain distributions also is required for such shareholders who are
otherwise subject to backup withholding.
The foregoing is only a summary of some of the important Federal
income tax considerations generally affecting the Fund and its shareholders; see
the Statement of Additional Information for a further discussion. Because other
Federal, state and local tax considerations may apply, you should consult your
tax adviser.
DETERMINATION OF NET ASSET VALUE
The value of a share of the Fund is based on the value of its net
assets. The Fund's net assets are the total of the Fund's investments and all
other assets minus any liabilities. The value of one share is determined by
dividing the net assets by the total number of shares outstanding. This is
referred to as "net asset value per share", and is determined as of the close of
regular trading on the New York Stock Exchange (currently, 4 p.m. eastern time,
unless weather, equipment failure or other factors contribute to an earlier
closing) each business day of the Fund. A business day of the Fund is any day on
which the New York Stock Exchange is open for trading. The following are not
business days of the Fund: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities and other assets of the Fund are valued primarily
on the basis of market quotations, if readily available. Foreign securities, if
any, are valued on the basis of quotations from a primary market in which they
are traded and are translated from the local currency into U.S. dollars using
current exchange rates. Securities and other assets for which quotations are not
readily available will be valued at fair value as determined in good faith by or
under the direction of the Board of Directors.
THE INVESTMENT MANAGER
Bull & Bear Advisers, Inc. (the "Investment Manager") acts as general
manager of the Fund, being responsible for the various functions assumed by it,
including regularly furnishing advice with respect to portfolio transactions.
The Investment Manager manages the investment and reinvestment of the Fund's
assets, subject to the control and final direction of the
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Board of Directors. The Investment Manager is authorized to place portfolio
transactions with Bull & Bear Securities, Inc., an affiliate of the Investment
Manager, and may allocate brokerage transactions by taking into account the
sales of shares of the Fund and the other Bull & Bear Funds. The Investment
Manager may also allocate portfolio transactions to broker/dealers that remit a
portion of their commissions as a credit against the Fund's expenses.
For its services, the Investment Manager receives a fee, payable
monthly, based on the average daily net assets of the Fund, at the annual rate
of 1% on the first $10 million, 7/8 of 1% over $10 million up to $30 million,
3/4 of 1% over $30 million up to $150 million, 5/8 of 1% over $150 million up to
$500 million, and 1/2 of 1% over $500 million. This fee is higher than that paid
by most investment companies. From time to time, the Investment Manager may
waive all or part of this fee or reimburse the Fund monthly to improve the
Fund's total return. The Investment Manager provides certain administrative
services to the Fund at cost. During the fiscal year ended December 31, 1994,
investment management fees paid by the Fund represented approximately 0.85% of
average daily net assets. The Investment Manager is a wholly owned subsidiary of
Bull & Bear Group, Inc. ("Group"). Group, a publicly owned company whose
securities are listed on Nasdaq and traded in the over-the-counter market, is a
New York based manager of mutual funds and discount brokerage services. Bassett
S. Winmill may be deemed a controlling person of Group and, therefore, may be
deemed a controlling person of the Investment Manager.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement between the Fund and Bull & Bear
Service Center, Inc. (the "Distributor"), the Distributor acts as the Fund's
principal agent for the sale of Fund shares. The Fund has also adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Pursuant to
the Plan, the Fund pays the Distributor monthly a distribution fee in an amount
of three-quarters of one percent per annum of the Fund's average daily net
assets and a service fee in an amount of one-quarter of one percent per annum of
the Fund's average daily net assets. The service fee portion is intended to
cover personal services provided to Fund shareholders and maintenance of
shareholder accounts. The distribution fee portion is intended to cover all
other activities and expenses primarily intended to result in the sale of the
Fund's shares. These fees may be retained by the Distributor or passed through
to brokers, banks and others who provide services to their customers who are
Fund shareholders at the rate of thirty-five basis points on such customer
balances. The Fund will pay the fees to the Distributor until either the Plan is
terminated or not renewed. In that event, the Distributor's expenses in excess
of fees received or accrued through the termination day will be the
Distributor's sole responsibility and not obligations of the Fund. During the
period they are in effect, the Distribution Agreement and Plan obligate the Fund
to pay fees to the Distributor as compensation for its service and distribution
activities. If the Distributor's expenses exceed the fees, the Fund will not be
obligated to pay any additional amount to the Distributor. If the Distributor's
expenses are less than such fees, it may realize a profit. Certain other
advertising and sales materials may be prepared to promote the sale of Fund
shares and shares of one or more other Bull & Bear Funds. In such cases, the
expenses will be allocated among the Funds involved based on the inquiries
resulting from the materials or other factors deemed appropriate by the Board of
Directors. The costs of personnel and facilities of the Distributor to respond
to inquiries by shareholders and prospective shareholders will also be allocated
based on such relative inquiries or other factors. There is no certainty that
the allocation of any of the foregoing expenses will precisely allocate to the
Fund costs commensurate with the benefits it receives, and it may be that the
other Funds and Bull & Bear Securities, Inc. will benefit therefrom.
PERFORMANCE INFORMATION
15
<PAGE>
From time to time the Fund may advertise its "average annual total
return" or "total return" (which may be referred to as cumulative total return
or cumulative growth) over specified periods. Average annual total return is
calculated pursuant to a standardized formula which assumes a hypothetical
$10,000 investment in the Fund was redeemed at the end of a stated period of
time, after giving effect to the reinvestment of dividends and distributions
during the period. The return is expressed as a percentage rate which, if
applied on a compounded annual basis, would result in the redeemable value of
the investment at the end of the period. The accompanying total return
performance graph compares results of a $10,000 investment in the Fund and in
the Standard & Poor's 500 Stock Index ("S&P 500"). The S&P 500 is unmanaged and
fully invested in common stocks. The Fund invests in common stocks and may also
own fixed income securities, options and use leverage. The Fund's inception was
March 20, 1986. The performance graphs begin March 1, 1986 and results in each
case reflect reinvestment of dividends and distributions.
[GRAPHICS: PERFORMANCE OF THE FUND AND THE STANDARD &
POOR'S 500 SHOWN AS THE VALUE OF A $10,000 INVESTMENT
SINCE 4/1/86. THE FUND'S INCEPTION WAS ON 3/20/86.
DATE S&P FUND
4/30/86 9,890 11,130
5/31/86 10,416 11,977
6/30/86 10,592 12,200
7/31/86 9,999 11,492
8/31/86 10,741 11,530
9/30/86 9,849 10,504
10/31/86 10,418 10,855
11/30/86 10,671 11,307
12/31/86 10,393 10,731
1/31/87 11,797 12,426
2/28/87 12,263 13,121
3/31/87 12,617 13,190
4/30/87 12,505 12,504
5/31/87 12,613 12,517
6/30/87 13,250 12,925
7/31/87 13,922 12,938
8/31/87 14,442 13,193
9/30/87 14,124 13,364
10/31/87 11,017 10,291
11/30/87 10,113 9,817
12/31/87 10,883 9,975
1/31/88 11,341 10,399
2/28/88 11,869 11,564
3/31/88 11,502 11,462
4/30/88 11,629 11,836
5/31/88 11,730 11,279
6/30/88 12,269 11,900
7/31/88 12,222 11,906
8/31/88 11,807 11,963
9/30/88 12,310 12,457
10/31/88 12,652 12,369
11/30/88 12,475 11,676
12/31/88 12,693 12,246
1/31/89 13,622 13,000
2/28/89 13,282 12,597
3/31/89 13,591 13,561
4/30/89 14,296 14,766
5/31/89 14,875 15,589
6/30/89 14,791 15,199
7/31/89 16,126 16,357
8/31/89 16,442 16,902
9/30/89 16,375 16,699
10/31/89 15,998 15,029
11/30/89 16,325 17,118
12/31/89 16,716 17,443
1/31/90 15,596 15,176
2/28/90 15,798 16,097
3/31/90 16,216 17,964
4/30/90 15,811 18,518
DATE S&P FUND
5/31/90 17,352 21,573
6/30/90 17,234 21,989
7/31/90 17,179 19,790
8/31/90 15,633 15,239
9/30/90 14,867 12,343
10/31/90 14,803 11,134
11/30/90 15,759 11,141
12/31/90 16,199 11,019
1/31/91 16,905 11,825
2/28/91 18,114 12,696
3/31/91 18,552 13,063
4/30/91 18,597 12,566
5/31/91 19,400 13,509
6/30/91 18,508 12,388
7/31/91 19,370 13,886
8/31/91 19,830 14,949
9/30/91 19,492 14,784
10/31/91 19,754 15,071
11/30/91 18,963 14,046
12/31/91 21,125 15,479
1/31/92 20,724 17,631
2/28/92 20,993 18,357
3/31/92 20,573 17,035
4/30/92 21,178 16,678
5/31/92 21,282 17,038
6/30/92 20,963 15,607
7/31/92 21,820 16,022
8/31/92 21,362 14,852
9/30/92 21,614 15,730
10/31/92 21,688 17,223
11/30/92 22,425 18,900
12/31/92 22,701 19,866
1/31/93 22,891 20,090
2/28/93 23,203 19,869
3/31/93 23,692 19,925
4/30/93 23,124 20,092
5/31/93 23,741 21,609
6/30/93 23,810 22,256
7/31/93 23,715 22,049
8/31/93 24,614 24,037
9/30/93 24,424 24,268
10/31/93 24,930 24,540
11/30/93 24,693 22,577
12/31/93 24,992 23,110
1/31/94 25,841 23,130
2/28/94 25,144 22,436
3/31/94 24,037 20,238
4/30/94 24,345 19,367
5/31/94 24,742 19,247
6/30/94 24,148 17,900
7/31/94 24,940 18,460
8/31/94 25,960 19,001
9/30/94 25,337 19,448
10/31/94 25,905 19,337
DATE S&P FUND
11/30/94 24,972 18,795
12/31/94 25,342 19,310
AVERAGE ANNUAL TOTAL RETURN FOR
PERIODS ENDED DECEMBER 31, 1994
One Year: -16.54%
Five Years: 2.19%
Life (from 3/20/86): 8.48%
Total return is computed on a per share basis, assumes the
reinvestment of dividends and distributions, and is calculated by combining the
income and principal changes for a specified period and dividing by the net
asset value per share at the beginning of the period. Advertisements may show
total return as a percentage rate or as the value of a hypothetical investment
at the end of the period. The Fund's performance may be compared to the
performance of broad groups of comparable mutual funds, or the performance of
unmanaged indexes of comparable securities. The Fund's total return is based
upon historical performance information and not intended to indicate future
performance.
1994 was a year of turmoil for the stock market. Although broad stock
market averages moved towards record highs as the year began, rising interest
rates caused the stock and bond markets, as well as foreign securities markets,
to decline sharply. The broad stock market averages recovered somewhat by the
end of the year, but the bond market recorded its worst performance since 1927.
The Fund experienced several earnings disappointments in its portfolio holdings
and the equivalent of a bear market in secondary over-the-counter issues, but
maintained its strategy of investing primarily in emerging growth companies.
CAPITAL STOCK
The Fund is a non-diversified open-end management investment company
organized as a Maryland corporation in 1986. The Fund is authorized to issue up
to 500,000,000 shares ($.01 par value). The Fund's stock is freely assignable by
way of pledge (as, for example, for collateral purposes), gift, settlement of an
estate and also by an investor to another investor. Each share has equal
dividend, voting, liquidation and redemption rights with every other share. The
shares have no preemptive, conversion or cumulative voting rights and they are
not subject to further call or assessment. The Board of Directors of the Fund
may establish additional series or classes of shares, although it has no current
intention of doing so.
16
<PAGE>
The Fund's By-Laws provide that there will be no annual meeting of
shareholders in any year except as required by law. In practical effect, this
means that the Fund will not hold an annual meeting of shareholders in years in
which the only matters which would be submitted to shareholders for their
approval are the election of Directors and ratification of the Directors'
selection of accountants, although holders of 10% of the Fund's shares may call
a meeting at any time. There will normally be no meetings of shareholders for
the purpose of electing Directors unless fewer than a majority of the Directors
holding office have been elected by shareholders. Shareholder meetings will be
held in years in which shareholder approval of the Fund's investment management
agreement, plan of distribution, or changes in its fundamental investment
objective, policies or restrictions is required by the 1940 Act.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company, 89 South Street, Boston, MA 02109,
acts as custodian of the Fund's assets and may appoint one or more subcustodians
provided such subcustodianship is in compliance with the rules and regulations
promulgated under the 1940 Act. The Fund may maintain a portion of its assets in
foreign countries pursuant to such subcustodianships and related foreign
depositories. Utilization of such arrangements will increase the Fund's
expenses, see also the special considerations involving foreign securities
discussed above. The custodian also performs certain accounting services for the
Fund.
The Fund's transfer and dividend disbursing agent is DST Systems,
Inc., P.O. Box 419789, Kansas City, MO 64141-6789. The Distributor provides
certain shareholder services to the Fund and is reimbursed its cost by the Fund.
Such services include receiving and responding to shareholder inquiries
concerning their accounts and processing shareholder telephone requests for
transfers, purchases, redemptions, changes of address and similar matters. The
costs of facilities, personnel and other related expenses are allocated among
the Bull & Bear Funds based on the relative number of inquiries and other
factors deemed appropriate.
17
<PAGE>
[Left Side of Back Cover Page]
SPECIAL
EQUITIES
FUND
==============================
11 HANOVER SQUARE
NEW YORK, NY 10005
1-800-847-4200 1-212-363-1100
- ------------------------------
CALL TOLL-FREE FOR FUND PERFORMANCE INFORMATION, EXCHANGES AMONG
THE BULL & BEAR
FUNDS AND TO OBTAIN INFORMATION CONCERNING YOUR ACCOUNT.
1-800-847-4200 1-212-363-1100
[Right Side of Back Cover Page]
SPECIAL
EQUITIES
FUND
===============================
INVESTING AGGRESSIVELY
FOR MAXIMUM CAPITAL
APPRECIATION
NO EXCHANGE CHARGES OR LIMITS
- -------------------------------
MINIMUM INITIAL INVESTMENT:
REGULAR ACCOUNTS, $1,000;
IRAS, $500; AUTOMATIC
INVESTMENT PROGRAMS, $100
MINIMUM SUBSEQUENT INVESTMENTS: $100
- ------------------------------
PROSPECTUS
MAY 1, 1995
BULL
&BEAR
PERFORMANCE DRIVEN(R)
<PAGE>
Statement of Additional Information May 1, 1995
BULL & BEAR SPECIAL EQUITIES FUND
11 Hanover Square
New York, NY 10005
1-800-847-4200
1-212-363-1100
The following Statement of Additional Information regarding Bull & Bear
Special Equities Fund, Inc. (the "Fund") is not a prospectus and should be read
in conjunction with the Fund's latest prospectus. The Fund's latest prospectus,
dated May 1, 1995, is available to prospective investors without charge upon
request to Bull & Bear Service Center, 11 Hanover Square, New York, NY 10005,
telephone 1-800-847-4200.
TABLE OF CONTENTS
THE FUND'S INVESTMENT PROGRAM ..................................... 2
INVESTMENT RESTRICTIONS ........................................... 4
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES ......... 5
THE BULL & BEAR FUNDS ............................................. 13
OFFICERS AND DIRECTORS ............................................ 13
THE INVESTMENT MANAGER ............................................ 14
INVESTMENT MANAGEMENT AGREEMENT ................................... 14
PERFORMANCE INFORMATION ........................................... 15
DISTRIBUTION OF SHARES ............................................ 18
DETERMINATION OF NET ASSET VALUE .................................. 20
PURCHASE OF SHARES ................................................ 20
ALLOCATION OF BROKERAGE ........................................... 21
DISTRIBUTIONS AND TAXES ........................................... 22
REPORTS TO SHAREHOLDERS ........................................... 23
CUSTODIAN AND TRANSFER AGENT ...................................... 23
AUDITORS .......................................................... 24
FINANCIAL STATEMENTS .............................................. 24
APPENDIX -- DESCRIPTIONS OF BOND RATINGS .......................... 25
1
<PAGE>
THE FUND'S INVESTMENT PROGRAM
The following information supplements the information concerning the
investment objective, policies and limitations of the Fund found in the
Prospectus.
FOREIGN SECURITIES. Because the Fund may invest in foreign securities,
investment in the Fund involves investment risks of adverse political and
economic developments that are different from an investment in a fund which
invests only in the securities of U.S. issuers. Such risks may include adverse
movements in the market value of foreign securities during days on which the
Fund's net asset value per share is not determined (see "Determination of Net
Asset Value"), the possible imposition of withholding taxes by foreign
governments on dividend or interest income payable on the securities held in the
portfolio, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of dividends
or principal and interest on securities in the portfolio.
ILLIQUID ASSETS. The Fund may not purchase or otherwise acquire any security
or invest in a repurchase agreement if, as a result, (a) more than 15% of the
Fund's net assets (taken at current value) would be invested in illiquid assets,
including repurchase agreements not entitling the holder to payment of principal
within seven days, or (b) more than 10% of the Fund's total assets would be
invested in securities that are illiquid by virtue of restrictions on the sale
of such securities to the public without registration under the Securities Act
of 1933 ("1933 Act"). The term "illiquid assets" for this purpose includes
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities.
Illiquid restricted securities may be sold by the Fund only in privately
negotiated transactions or in a public offering with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Where registration is required, the Fund may be obligated to pay all
or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Securities that are
freely marketable in the country where they are principally traded, but would
not be freely marketable in the U.S., are not included within the meaning of the
term "illiquid assets."
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. These instruments are often
restricted securities because the securities are either themselves exempt from
registration or sold in transactions not requiring registration. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend either on an efficient institutional
market in which such unregistered securities can be readily resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional restricted securities markets may
provide both readily ascertainable values for restricted securities and the
ability to liquidate an investment in order to satisfy share redemption orders
on a timely basis. Such markets might include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified buyers interested
in purchasing certain restricted securities held by the Fund, however, could
affect adversely
2
<PAGE>
the marketability of such portfolio securities, and the Fund might be unable to
dispose of such securities promptly or at favorable prices.
The Board of Directors of the Fund has delegated the function of making day-
to-day determinations of liquidity to Bull & Bear Advisers, Inc. (the
"Investment Manager") pursuant to guidelines approved by the Board. The
Investment Manager takes into account a number of factors in reaching liquidity
decisions, including (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, and (3) dealer undertakings to make a
market in the security, and 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 Investment Manager
monitors the liquidity of restricted securities in the Fund's portfolio and
reports periodically on liquidity decisions to the Board of Directors.
LOWER RATED DEBT SECURITIES. The Fund may invest in investment grade and
non-investment grade debt securities. Ratings of "investment grade" or better
include the four highest ratings of Standard & Poor's Ratings Group ("S&P")
(AAA, AA, A, or BBB) and Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa,
A, or Baa). There is no minimum quality rating for the debt securities in which
the Fund may invest and the Fund may invest up to 35% of its assets in unrated
debt securities or debt securities rated below investment grade, although it has
no current intention of investing more than 5% of its total assets in such
securities during the coming year. Moody's considers securities rated Baa to
have speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity for such securities
to make principal and interest payments than is the case for higher grade debt
securities. Debt securities rated below investment grade are deemed by these
agencies to be predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal and may involve major risk exposure to
adverse conditions. Debt securities rated lower than B may include securities
that are in default or face the risk of default with respect to principal or
interest.
Ratings of debt securities represent the rating agencies' opinions regarding
their quality, are not a guarantee of quality and may be reduced after the Fund
has acquired the security. The Investment Manger will consider such an event in
determining whether the Fund should continue to hold the security but is not
required to dispose of it. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not evaluate the risk of fluctuations in
market value. Also, rating agencies may fail to make timely changes in credit
ratings in response to subsequent events, so that an issuer's current financial
condition may be better or worse than the rating indicates. See the Appendix to
this Statement of Additional Information for a further description of S&P's and
Moody's ratings.
Lower rated debt securities generally offer a higher current yield than that
available for higher grade issues. However, lower rated securities involve
greater risks, in that they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
adverse changes in the financial condition of the issuers and to price
fluctuations in response to changes in interest rates. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
payments of interest and principal and increase the possibility of default. In
addition, the market for lower rated debt securities has expanded rapidly in
recent years, and its growth paralleled a long economic expansion. In the past,
the prices of many lower rated debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower rated debt securities
rose dramatically, but such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. There can be no
assurance that such decline in price will not recur. The market for lower rated
debt issues may be thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at fair
value in response to changes in the economy or financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis,
3
<PAGE>
may also decrease the price and liquidity of lower rated securities, especially
in a thinly traded market.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
U.S. banks or dealers involving securities in which the Fund is authorized to
invest. A repurchase agreement is an instrument under which the Fund purchases
securities from a bank or dealer and simultaneously commits to resell the
securities to the bank or dealer at an agreed upon date and price reflecting a
market rate of interest. The Fund's custodian maintains custody of the
underlying securities until their repurchase; thus the obligation of the bank or
dealer to pay the repurchase price is, in effect, secured by such securities.
The Fund's risk is limited to the ability of the seller to pay the agreed upon
amount on the repurchase date; if the seller defaults, the securities constitute
collateral for the seller's obligation to pay. If, however, the seller defaults
and the value of the collateral declines, the Fund may incur loss and expenses
in selling the collateral. To attempt to limit the risk in engaging in
repurchase agreements, the Fund enters into repurchase agreements only with
banks and dealers believed by the Investment Manager to present minimum credit
risks in accordance with guidelines established by the Board of Directors. The
Fund will not enter into a repurchase agreement with a maturity of more than
seven days if, as a result, more than 15% of its net assets would then be
invested in such agreements and other illiquid assets.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which the Fund
may invest include direct obligations of the U.S. Government (such as Treasury
bills, notes and bonds) and obligations issued by U.S. government agencies and
instrumentalities backed by the full faith and credit of the U.S. government,
such as those issued by the Government National Mortgage Association. In
addition, the U.S. government securities in which the Fund may invest include
securities supported primarily or solely by the creditworthiness of the issuer,
such as securities issued by the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation and the Tennessee Valley Authority. In
the case of obligations not backed by the full faith and credit of the U.S.
government, the Fund must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the U.S. government itself in the event the
agency or instrumentality does not meet its commitments. Accordingly, these
securities may involve more risk than securities backed by the U.S. government's
full faith and credit.
MUNICIPAL SECURITIES. Under certain circumstances municipal securities may
offer the potential for capital appreciation relative to other fixed income
alternatives even without taking into consideration the tax-advantaged nature of
interest earned on municipal bond investments. At such times, the Fund may
invest in municipal securities of varying maturities. The municipal securities
in which the Fund may invest include general obligation securities and revenue
or special obligation securities. General obligation securities are secured by
an issuer's pledge of its full faith, credit and unlimited taxing power for the
payment of principal and interest. Revenue or special obligation securities are
payable only from the revenues derived from a particular facility or class of
facility or project or, in a few cases, from the proceeds of a special excise or
other tax. Municipal securities also include "private activity bonds", the
interest income from which generally is subject to the alternative minimum tax.
Even though the interest from municipal securities may be exempt from Federal
income tax, dividends of the Fund attributable to that interest will be fully
taxable to Fund shareholders.
PREFERRED SECURITIES. The Fund may invest in preferred stocks of U.S. and
foreign issuers that, in the Investment Manager's judgment, offer potential for
capital appreciation. Such equity securities involve greater risk of loss of
income than debt securities because issuers are not obligated to pay dividends.
In addition, equity securities are subordinate to debt securities, and are more
subject to changes in economic and industry conditions and in the financial
conditions of the issuers of such securities.
LENDING OF PORTFOLIO SECURITIES. The Fund is authorized to engage in
securities or other lending transactions in an amount up to one-third of the
Fund's total assets, although it has no current intention of entering into such
transactions in excess of 5% of its net assets during the coming year. If the
Fund engages in lending transactions, it
4
<PAGE>
will enter into lending agreements that require that the loans be continuously
secured by cash, securities issued or guaranteed by the U.S. Government or its
agencies, or any combination of cash and such securities, as collateral equal at
all times to at least the market value of the assets lent. The Fund will
typically receive the dividends and interest paid by the assets lent, if any,
while simultaneously earning interest on the loan or a flat fee from the
borrower. The Fund will normally pay reasonable administrative and custodial
fees in connection with a loan and may pay a negotiated portion of the interest
on cash or securities held as collateral to the borrower or placing broker.
There are risks of delay to the Fund in receiving additional collateral and
risks of delay in recovery of, and failure to recover, the assets lent should
the borrower fail financially or otherwise violate the terms of the lending
agreement. Loans will be made only to borrowers deemed by the Investment Manager
to be of good standing and when, in the judgment of the Investment Manager, the
consideration which can be earned currently from such lending transactions
justifies the attendant risk. Any loan made by the Fund will provide that it may
be terminated by either party upon reasonable notice to the other party.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions that
may not be changed without the approval of the lesser of (a) 67% or more of the
voting securities of the Fund present at a meeting if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy or (b) more than 50% of the outstanding voting securities of the Fund.
Any investment restriction which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowing by, the Fund. The Fund may not:
(1) Issue senior securities as defined in the Investment Company Act of 1940
("1940 Act"). The following will not be deemed to be senior securities for
this purpose: (a) evidences of indebtedness that the Fund is permitted to
incur, (b) the issuance of additional series or classes of securities that
the Board of Directors may establish, (c) the Fund's futures, options, and
forward currency transactions, and (d) to the extent consistent with the
1940 Act and applicable rules and policies adopted by the Securities and
Exchange Commission, (i) the establishment or use of a margin account with
a broker for the purpose of effecting securities transactions on margin and
(ii) short sales;
(2) Lend its assets, provided however, that the following are not prohibited:
(a) the making of time or demand deposits with banks, (b) the purchase of
debt securities such as bonds, debentures, commercial paper, repurchase
agreements and short term obligations in accordance with the Fund's
investment objective and policies and (c) engaging in securities and other
asset loan transactions limited to one-third of the Fund's total assets;
(3) Underwrite the securities of other issuers, except to the extent that the
Fund may be deemed to be an underwriter under the Federal securities laws
in connection with the disposition of the Fund's authorized investments;
(4) Borrow money, except to the extent permitted by the 1940 Act;
(5) Purchase or sell commodities or commodity futures contracts, although it
may enter into (i) financial and foreign currency futures contracts and
options thereon, (ii) options on foreign currencies, and (iii) forward
contracts on foreign currencies; or
(6) Purchase or sell real estate, provided that the Fund may invest in
securities (excluding limited partnership interests) secured by real estate
or interests therein or issued by companies which invest in real estate or
interests therein.
The Fund's Board of Directors has established the following non-fundamental
investment limitations that may be changed by the Board without shareholder
approval:
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(i) The Fund may not invest in interests in oil, gas or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs or such
leases;
(ii) The Fund may not invest more than 5% of its assets in securities of
companies having a record of less than three years continuous operations
(including operations of predecessors);
(iii) The Fund may not purchase or otherwise acquire any security or invest in
a repurchase agreement if, as a result, (a) more than 15% of the Fund's net
assets (taken at current value) would be invested in illiquid assets,
including repurchase agreements not entitling the holder to payment of
principal within seven days, or (b) more than 10% of the Fund's total assets
would be invested in securities that are illiquid by virtue of restrictions on
the sale of such securities to the public without registration under the 1933
Act;
(iv) The Fund may not purchase or retain securities of any issuer if to
knowledge of the Fund, those officers or directors of the Fund or its
investment manager who each own beneficially more than 1/2 of 1% of the
securities of an issuer, own beneficially together more than 5% of the
securities of that issuer;
(v) The Fund may not purchase the securities of any investment company except
(a) by purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase, provided that immediately
after such purchase no more than: 10% of the Fund's total assets are
invested in securities issued by investment companies, 5% of the Fund's
total assets are invested in securities issued by any one investment
company, or 3% of the voting securities of any one such investment company
are owned by the Fund, and (b) when such purchase is part of a plan of
merger, consolidation, reorganization or acquisition of assets;
(vi) With respect to options transactions, (a) the Fund will write only covered
options and each such option will remain covered so long as the Fund is
obligated under the option; (b) the Fund will not write call or put options
having aggregate exercise prices greater than 25% of its net assets; and
(c) the Fund may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the
premiums on all other options held by the Fund, does not exceed 5% of the
Fund's total assets;
(vii) With respect to financial and foreign currency futures and related
options (including options traded on a commodities exchange), (a) the Fund
will not purchase or sell futures contracts or related options other than for
bona fide hedging purposes if, immediately thereafter, the sum of the amount
of initial margin deposits on the Fund's existing futures positions and
related options and premiums paid for related options would exceed 5% of the
Fund's total assets; and (b) futures contracts and related options will not be
purchased if immediately thereafter more than 30% of the Fund's total assets
would be so invested; or
(viii) The Fund may not purchase securities on margin, except that the Fund may
obtain such short term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits made in
connection with transactions in options, futures contracts, forward currency
contracts and other derivative instruments shall not be deemed to constitute
purchasing securities on margin.
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES
REGULATION OF THE USE OF OPTIONS, FUTURES AND FORWARD CURRENCY
CONTRACT
STRATEGIES. As discussed in the Prospectus, the Investment Manager may engage in
certain options strategies to attempt to enhance return or for hedging purposes.
The Investment Manager also may use securities index futures contracts, interest
rate futures contracts, foreign currency futures contracts (collectively,
"futures contracts" or "futures"), options on futures contracts and forward
currency contracts for hedging purposes or in other circum-
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stances permitted by the CFTC. Certain special characteristics of and risks
associated with using these instruments are discussed below. In addition to the
non-fundamental investment restrictions described above in sections (vi) and
(vii), use of options, forward currency contracts and futures by the Fund is
subject to the applicable regulations of the SEC, the several options and
futures exchanges upon which such instruments may be traded, the CFTC and the
various state regulatory authorities.
In addition to the products, strategies and risks described below and in the
Prospectus, the Investment Manager expects to discover additional opportunities
in connection with options, futures and forward currency contracts. These new
opportunities may become available as the Investment Manager develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures and forward currency contracts are
developed. The Investment Manager may utilize these opportunities to the extent
they are consistent with the Fund's investment objective, permitted by the
Fund's investment limitations and permitted by the applicable regulatory
authorities. The Fund's registration statement will be supplemented to the
extent that new products and strategies involve materially different risks than
those described below and in the Prospectus.
COVER FOR OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT
STRATEGIES. The
Fund will not use leverage in its options, futures and forward currency contract
strategies. Accordingly, the Fund will comply with guidelines established by the
SEC with respect to coverage of these strategies by either (1) setting aside
cash, U.S. Government or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount, or (2) holding
securities, currencies or other options or futures contracts whose values are
expected to offset ("cover") its obligations thereunder. Securities, currencies
or other options or futures contracts used for cover and securities held in a
segregated account cannot be sold or closed out while the strategy is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that the use of cover or segregation involving a large percentage
of the Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
OPTION INCOME AND HEDGING STRATEGIES. The Fund may purchase and write (sell)
both exchange-traded options and options traded on the over-the-counter ("OTC")
market. Currently, options on debt securities are primarily traded on the OTC
market. Although many options on currencies are exchange-traded, the majority of
such options currently are traded on the OTC market. Exchange-traded options in
the U.S. are issued by a clearing organization affiliated with the exchange on
which the option is listed, which, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between the Fund and its contra-party with no clearing organization guarantee.
Thus, when the Fund purchases an OTC option, it relies on the dealer from which
it has purchased the OTC option to make or take delivery of the securities
underlying the option. Failure by the dealer to do so would result in the loss
of any premium paid by the Fund as well as the loss of the expected benefit of
the transaction.
The Fund may purchase call options on securities (both equity and debt) that
the Investment Manager intends to include in the Fund's portfolio in order to
fix the cost of a future purchase. Call options also may be used as a means of
enhancing returns by, for example, participating in an anticipated price
increase of a security. In the event of a decline in the price of the underlying
security, use of this strategy would serve to limit the potential loss to the
Fund to the option premium paid; conversely, if the market price of the
underlying security increases above the exercise price and the Fund either sells
or exercises the option, any profit eventually realized would be reduced by the
premium paid.
The Fund may purchase put options on securities in order to hedge against a
decline in the market value of securities held in its portfolio or to attempt to
enhance return. The put option enables the Fund to sell the underlying security
at the predetermined exercise price; thus, the potential for loss to the Fund
below the exercise price is limited to the option premium paid. If the market
price of the underlying security is higher than the exercise price of the put
option, any profit the Fund realizes on the sale
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<PAGE>
of the security would be reduced by the premium paid for the put option less any
amount for which the put option may be sold.
The Fund may on certain occasions wish to hedge against a decline in the
market value of securities held in its portfolio at a time when put options on
those particular securities are not available for purchase. The Fund may
therefore purchase a put option on other carefully selected securities, the
values of which historically have a high degree of positive correlation to the
value of such portfolio securities. If the Investment Manager's judgment is
correct, changes in the value of the put options should generally offset changes
in the value of the portfolio securities being hedged. However, the correlation
between the two values may not be as close in these transactions as in
transactions in which the Fund purchases a put option on a security held in its
portfolio. If the Investment Manager's judgment is not correct, the value of the
securities underlying the put option may decrease less than the value of the
Fund's portfolio securities and therefore the put option may not provide
complete protection against a decline in the value of the Fund's portfolio
securities below the level sought to be protected by the put option.
The Fund may write covered call options on securities in which it is
authorized to invest for hedging or to increase return in the form of premiums
received from the purchasers of the options. A call option gives the purchaser
of the option the right to buy, and the writer (seller) the obligation to sell,
the underlying security at the exercise price during the option period. The
strategy may be used to provide limited protection against a decrease in the
market price of the security, in an amount equal to the premium received for
writing the call option less any transaction costs. Thus, if the market price of
the underlying security held by the Fund declines, the amount of such decline
will be offset wholly or in part by the amount of the premium received by the
Fund. If, however, there is an increase in the market price of the underlying
security and the option is exercised, the Fund would be obligated to sell the
security at less than its market value. The Fund would give up the ability sell
any portfolio securities used to cover the call option while the call option was
outstanding. In addition, the Fund could lose the ability to participate in an
increase in the value of such securities above the exercise price of the call
option because such an increase would likely be offset by an increase in the
cost of closing out the call option (or could be negated if the buyer chose to
exercise the call option at an exercise price below the current market value).
Portfolio securities used to cover OTC options written also may be considered
illiquid, and therefore subject to the Fund's limitation on investing no more
than 15% of its net asset in illiquid securities, unless the OTC options are
sold to qualified dealers who agree that the Fund may repurchase any OTC options
it writes for a maximum price to be calculated by a formula set forth in the
option agreement. The cover for an OTC option written subject to this procedure
would be considered illiquid only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
The Fund also may write covered put options on securities in which it is
authorized to invest. A put option gives the purchaser of the option the right
to sell, and the writer (seller) the obligation to buy, the underlying security
at the exercise price during the option period. So long as the obligation of the
writer continues, the writer may be assigned an exercise notice by the
broker/dealer through whom such option was sold, requiring it to make payment of
the exercise price against delivery of the underlying security. The operation of
put options in other respects, including their related risks and rewards, is
substantially identical to that of call options. If the put option is not
exercised, the Fund will realize income in the amount of the premium received.
This technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security would decline below the exercise price less the premiums
received, in which case the Fund would expect to suffer a loss.
The Fund may purchase put and call options and write covered put and call
options on securities indexes in much the same manner as the more traditional
securities options discussed above, except that index options may serve as a
hedge against overall fluctuations in the securities markets (or a market
sector) rather than anticipated increases or decreases in the value of a
particular security. A securities index assigns values to the
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<PAGE>
securities included in the index and fluctuates with changes in such values.
Settlements of securities index options are effected with cash payments and do
not involve delivery of securities. Thus, upon settlement of a securities index
option, the purchaser will realize, and the writer will pay, an amount based on
the difference between the exercise price and the closing price of the index.
The effectiveness of hedging techniques using securities index options will
depend on the extent to which price movements in the securities index selected
correlate with price movements of the securities in which the Fund invests.
The Fund may purchase and write covered straddles on securities indexes. A
long straddle is a combination of a call and a put purchased on the same
security where the exercise price of the put is less than or equal to the
exercise price on the call. The Fund would enter into a long straddle when the
Investment Manager believes that it is likely that securities prices will be
more volatile during the term of the options than is implied by the option
pricing. A short straddle is a combination of a call and a put written on the
same security where the exercise price on the put is less than or equal to the
exercise price of the call where the same issue of the security is considered
"cover" for both the put and the call. The Fund would enter into a short
straddle when the Investment Manager believes that it is unlikely that
securities prices will be as volatile during the term of the options as is
implied by the option pricing. In such case, the Fund will set aside cash and/or
liquid, high-grade debt securities in a segregated account with its custodian
equivalent in value to the amount, if any, by which the put is "in-the-money,"
that is, that amount by which the exercise price of the put exceeds the current
market value of the underlying security.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. The Fund may take positions in
options on foreign currencies to hedge against the risk of foreign exchange rate
fluctuations on foreign securities that the Fund holds in its portfolio or that
it intends to purchase. For example, if the Fund enters into a contract to
purchase securities denominated in a foreign currency, it could effectively fix
the maximum U.S. dollar cost of the securities by purchasing call options on
that foreign currency. Similarly, if the Fund held securities denominated in a
foreign currency and anticipated a decline in the value of that currency against
the U.S. dollar, the Fund could hedge against such a decline by purchasing a put
option on the currency involved. The Fund's ability to establish and close out
positions in such options is subject to the maintenance of a liquid secondary
market. Although many options on foreign currencies are exchange-traded, the
majority are traded on the OTC market. The Fund will not purchase or write such
options unless, in the Investment Manager's opinion, the market for them is
sufficiently liquid to ensure that the risks in connection with such options are
not greater than the risks in connection with the underlying currency. In
addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers and other market resources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (that is, less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock market.
To the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets
until they reopen.
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SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to purchase
or sell securities or currencies under a put or a call option it has written,
the Fund may purchase a put or a call option of the same series (that is, an
option identical in its terms to the option previously written); this is known
as a closing purchase transaction. Conversely, in order to terminate its right
to purchase or sell specified securities or currencies under a call or put
option it has purchased, the Fund may sell an option of the same series as the
option held; this is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option.
In considering the use of options to enhance returns or to hedge the Fund's
portfolio, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things, the
current market price of the underlying security, securities index or currency,
the time remaining until expiration, the relationship of the exercise price to
the market price, the historical price volatility of the underlying security,
securities index or currency and general market conditions. For this reason, the
successful use of options depends upon the Investment Manager's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets or, in the case of securities index options, fluctuations in
the market sector represented by the selected index.
(2) Options normally have expiration dates of up to three years. The
exercise price of the options may be below, equal to or above the current market
value of the underlying security, securities index or currency. Purchased
options that expire unexercised have no value. Unless an option purchased by the
Fund is exercised or unless a closing transaction is effected with respect to
that position, the Fund will realize a loss in the amount of the premium paid
and any transaction costs.
(3) A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Most exchange-
listed options relate to stocks. Although the Fund intends to purchase or write
only those exchange-traded options for which there appears to be a liquid
secondary market, there is no assurance that a liquid secondary market will
exist for any particular option at any particular time. Closing transactions may
be effected with respect to options traded in the OTC markets (currently the
primary markets for options on debt securities and a significant market for
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
Although the Fund will enter into OTC options with dealers that agree to enter
into, and that are expected to be capable of entering into, closing transactions
with the Fund, there can be no assurance that the Fund would be able to
liquidate an OTC option at a favorable price at any time prior to expiration. In
the event of insolvency of the contra-party, the Fund may be unable to liquidate
an OTC option. Accordingly, it may not be possible to effect closing
transactions with respect to certain options, which would result in the Fund
having to exercise those options that it has purchased in order to realize any
profit. With respect to options written by the Fund, the inability to enter into
a closing transaction may result in material losses to the Fund. For example,
because the Fund must maintain a covered position with respect to any call
option it writes on a security, currency or securities index, the Fund may not
sell the underlying securities or currency (or invest any cash securities used
to cover the option) during the period it is obligated under such option. This
requirement may impair the Fund's ability to sell a portfolio security or make
an investment at a time when such a sale or investment might be advantageous.
(4) Securities index options are settled exclusively in cash. If the Fund
writes a call option on an index, the Fund will not know in advance the
difference, if any, between the closing value of the index on the exercise date
and the exercise price of the call option itself and thus will not know the
amount of cash payable upon settlement. In addition, a holder of a securities
index option who exercises it before the closing index value for that day is
available, runs the risk that the level of the underlying index may subsequently
change.
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(5) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs and taxes; however, the
Fund also may save on commissions by using options as a hedge rather than buying
or selling individual securities in anticipation or as a result of market
movements.
FUTURES AND RELATED OPTIONS STRATEGIES. The Fund may engage in futures
strategies for hedging purposes to attempt to reduce the overall investment risk
that would normally be expected to be associated with ownership of the
securities in which it invests. This may involve, among other things, using
futures strategies to manage the effective duration of the Fund. If the
Investment Manager wishes to shorten the effective duration of the Fund, the
Fund may sell a futures contract or a call option thereon, or purchase a put
option on that futures contract. If the Investment Manager wishes to lengthen
the effective duration of the Fund, the Fund may buy a futures contract or a
call option thereon, or sell a put option.
The Fund may use interest rate futures contracts and options thereon to
hedge its portfolio against changes in the general level of interest rates and
in other circumstances permitted by the CFTC. The Fund may purchase an interest
rate futures contract when it intends to purchase debt securities but has not
yet done so. This strategy may minimize the effect of all or part of an increase
in the market price of the debt security that the Fund intends to purchase in
the future. A rise in the price of the debt security prior to its purchase may
either be offset by an increase in the value of the futures contract purchased
by the Fund or avoided by taking delivery of the debt securities under the
futures contract. Conversely, a fall in the market price of the underlying debt
security may result in a corresponding decrease in the value of the futures
position. The Fund may sell an interest rate futures contract in order to
continue to receive the income from a debt security, while endeavoring to avoid
part or all of the decline in market value of that security that would accompany
an increase in interest rates.
The Fund may purchase a call option on an interest rate futures contract to
hedge against a market advance in debt securities that the Fund plans to acquire
at a future date. The purchase of a call option on an interest rate futures
contract is analogous to the purchase of a call option on an individual debt
security, which can be used as a temporary substitute for a position in the
security itself. The Fund also may write covered put options on interest rate
futures contracts as a partial anticipatory hedge and may write covered call
options on interest rate futures contracts as a partial hedge against a decline
in the price of debt securities held in the Fund's portfolio. The Fund may also
purchase put options on interest rate futures contracts in order to hedge
against a decline in the value of debt securities held in the Fund's portfolio.
The Fund may sell securities index futures contracts in anticipation of a
general market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a portion of the Fund's
portfolio correlates with a given index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus provide
an alternative to the liquidation of securities positions. For example, if the
Fund correctly anticipates a general market decline and sells securities index
futures to hedge against this risk, the gain in the futures position should
offset some or all of the decline in the value of the portfolio. The Fund may
purchase securities index futures contracts if a market or market sector advance
is anticipated. Such a purchase of a futures contract would serve as a temporary
substitute for the purchase of individual securities, which securities may then
be purchased in an orderly fashion. This strategy may minimize the effect of all
or part of an increase in the market price of securities that the Fund intends
to purchase. A rise in the price of the securities should be in part or wholly
offset by gains in the futures position.
As in the case of a purchase of a securities index futures contract, the
Fund may purchase a call option on a securities index futures contract to hedge
against a market advance in securities that the Fund plans to acquire at a
future date. The Fund may write covered put options on securities index futures
as a partial anticipatory hedge and may write covered call options on securities
index futures as a partial hedge against a decline in the price of securities
held in the Fund's portfolio. This is analogous to writing covered call options
on securities. The Fund also may purchase put options on securities
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<PAGE>
index futures contracts. The purchase of put options on securities index futures
contracts is analogous to the purchase of protective put options on individual
securities where a level of protection is sought below which no additional
economic loss would be incurred by the Fund.
The Fund may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of foreign currency in relation to the
U.S. dollar. In addition, the Fund may sell foreign currency futures contracts
when the Investment Manager anticipates a general weakening of the foreign
currency exchange rate that could adversely affect the market value of the
Fund's foreign securities holdings or interest payments to be received in that
foreign currency. In this case, the sale of futures contracts on the underlying
currency may reduce the risk to the Fund of a reduction in market value caused
by foreign currency exchange rate variations and, by so doing, provide an
alternative to the liquidation of securities positions and resulting transaction
costs. When the Investment Manager anticipates a significant foreign exchange
rate increase while intending to invest in a security denominated in that
currency, the Fund may purchase a foreign currency futures contract to hedge
against the increased rates pending completion of the anticipated transaction.
Such a purchase would serve as a temporary measure to protect the Fund against
any rise in the foreign currency exchange rate that may add additional costs to
acquiring the foreign security position. The Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign currency
exchange rate at limited risk. The Fund may purchase a call option on a foreign
currency futures contract to hedge against a rise in the foreign currency
exchange rate while intending to invest in a security denominated in that
currency. The Fund may purchase put options on foreign currency futures
contracts as a hedge against a decline in the foreign currency exchange rates or
the value of its foreign portfolio securities. The Fund may write a covered put
option on a foreign currency futures contract as a partial anticipatory hedge
and may write a covered call option on a foreign currency futures contract as a
partial hedge against the effects of declining foreign currency exchange rates
on the value of foreign securities.
The Fund may also write put options on interest rate, securities index or
foreign currency futures contracts while, at the same time, purchasing call
options on the same interest rate, securities index or foreign currency futures
contract in order to synthetically create an interest rate, securities index or
foreign currency futures contract. The options will have the same strike prices
and expiration dates. The Fund will only engage in this strategy when it is more
advantageous to the Fund to do so as compared to purchasing the futures
contract.
The Fund may also purchase and write covered straddles on interest rate or
securities index futures contracts. A long straddle is a combination of a call
and a put purchased on the same security at the same exercise price. The Fund
would enter into a long straddle when it believes that it is likely that
securities prices will be more volatile during the term of the options than is
implied by the option pricing. A short straddle is a combination of a call and
put written on the same futures contract at the same exercise price where the
same security or futures contract is considered "cover" for both the put and the
call. The Fund would enter into a short straddle when it believes that it is
unlikely that securities prices will be as volatile during the term of the
options as is implied by the option pricing. In such case, the Fund will set
aside cash and/or liquid, high grade debt securities in a segregated account
with its custodian equal in value to the amount, if any, by which the put is
"in-the-money," that is the amount by which the exercise price of the put
exceeds the current market value of the underlying security.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS
TRADING. No
price is paid upon entering into a futures contract. Instead, upon entering into
a futures contract, the Fund is required to deposit with its custodian in a
segregated account in the name of the futures broker through whom the
transaction is effected an amount of cash, U.S. Government securities or other
liquid, high-grade debt instruments generally equal to 10% or less of the
contract value. This amount is known as "initial margin." When writing a call or
a put option on a futures contract, margin also must be deposited in accordance
with applicable exchange rules. Unlike margin in securities transactions,
initial margin on futures contracts does not involve borrowing to finance the
futures
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transactions. Rather, initial margin on futures contracts is in the
nature of a performance bond or good-faith deposit on the contract that is
returned to the Fund upon termination of the transaction, assuming all
obligations have been satisfied. Under certain circumstances, such as periods of
high volatility, the Fund may be required by an exchange to increase the level
of its initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. Subsequent payments,
called "variation margin," to and from the broker, are made on a daily basis as
the value of the futures or options position varies, a process known as "marking
to the market." For example, when the Fund purchases a contract and the value of
the contract rises, the Fund receives from the broker a variation margin payment
equal to that increase in value. Conversely, if the value of the futures
position declines, the Fund is required to make a variation margin payment to
the broker equal to the decline in value. Variation margin does not involve
borrowing to finance the futures transaction but rather represents a daily
settlement of the Fund's obligations to or from a clearing organization.
Buyers and sellers of futures positions and options thereon can enter into
offsetting closing transactions, similar to closing transactions on options on
securities, by selling or purchasing an offsetting contract or option. Futures
contracts or options thereon may be closed only on an exchange or board of trade
providing a secondary market for such futures contracts or options.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses, because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for the Fund to close a
position and, in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin (except in the case of purchased
options). However, if futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the contracts can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, there is no guarantee that the price of the securities will, in fact,
correlate with the price movements in the contracts and thus provide an offset
to losses on the contracts.
In considering the Fund's use of futures contracts and related options,
particular note should be taken of the following:
(1) Successful use by the Fund of futures contracts and related options will
depend upon the Investment Manager's ability to predict movements in the
direction of the overall securities, currencies and interest rate markets, which
requires different skills and techniques than predicting changes in the prices
of individual securities. Moreover, futures contracts relate not only to the
current price level of the underlying instrument or currency but also to the
anticipated price levels at some point in the future. There is, in addition, the
risk that the movements in the price of the futures contract will not correlate
with the movements in the prices of the securities or currencies being hedged.
For example, if the price of the securities index futures contract moves less
than the price of the securities that are the subject of the hedge, the hedge
will not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, the advantage may be partially offset by losses
in the futures position. In addition, if the Fund has insufficient cash, it may
have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect a rising market. Consequently, the Fund may need to sell assets at a
time when such sales are disadvantageous to the Fund. If the price of the
futures contract moves more than the price of the underlying securities, the
Fund will experience either a loss or a gain on the futures contract that may or
may not be completely offset by movements in the price of the securities that
are the subject of the hedge.
13
<PAGE>
(2) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures
position and the securities or currencies being hedged, movements in the prices
of futures contracts may not correlate perfectly with movements in the prices of
the hedged securities or currencies due to price distortions in the futures
market. There may be several reasons unrelated to the value of the underlying
securities or currencies that cause this situation to occur. First, as noted
above, all participants in the futures market are subject to initial and
variation margin requirements. If, to avoid meeting additional margin deposit
requirements or for other reasons, investors choose to close a significant
number of futures contracts through offsetting transactions, distortions in the
normal price relationship between the securities or currencies and the futures
markets may occur. Second, because the margin deposit requirements in the
futures market are less onerous than margin requirements in the securities
market, there may be increased participation by speculators in the futures
market; such speculative activity in the futures market also may cause temporary
price distortions. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures contracts over the
short term. In addition, activities of large traders in both the futures and
securities markets involving arbitrage and other investment strategies may
result in temporary price distortions.
(3) Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts.
Although the Fund intends to purchase and sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract at any particular time. In such event, it
may not be possible to close a futures positions, and in the event of adverse
price movements, the Fund would continue to be required to make variation margin
payments.
(4) Like options on securities and currencies, options on futures contracts
have limited life. The ability to establish and close out options on futures
will be subject to the development and maintenance of liquid secondary markets
on the relevant exchanges or boards of trade. There can be no certainty that
such markets for all options on futures contracts will develop.
(5) Purchasers of options on futures contracts pay a premium at the time of
purchase. This amount and the transaction costs are all that is at risk. Sellers
of options on futures contracts, however, must post initial margin and are
subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
the Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the level of the
underlying securities index value or the securities or currencies being hedged.
(6) As is the case with options, the Fund's activities in the futures
markets may result in a higher portfolio turnover rate and additional
transaction costs in the form of added brokerage commissions and taxes; however,
the Fund also may save on commissions by using futures contracts or options
thereon as a hedge rather than buying or selling individual securities or
currencies in anticipation or as a result of market movements.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED
OPTIONS. Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on foreign currencies
described above.
Options on foreign currency futures contracts may involve certain additional
risks. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. Compared to the
purchase or sale of foreign currency futures contracts, the purchase of call or
put options thereon involves less potential risk to the Fund because the maximum
amount at risk is the premium paid for the option (plus transaction costs).
However, there may be circumstances when the purchase of
14
<PAGE>
a call or put option on a foreign currency futures contract would result in a
loss, such as when there is no movement in the price of the underlying currency
or futures contract, when the purchase of the underlying futures contract would
not result in such a loss.
FORWARD CURRENCY CONTRACTS. The Fund may use forward currency contracts to
protect against uncertainty in the level of future foreign currency exchange
rates.
The Fund may enter into forward currency contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or the Fund anticipates
the receipt in a foreign currency of dividend or interest payments on a security
that it holds or anticipates purchasing the Fund may desire to "lock in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such payment,
as the case may be, by entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars or foreign currency, of the amount of
foreign currency involved in the underlying transaction. The Fund will thereby
be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the period
between the date on which the security is purchased or sold, or on which the
payment is declared, and the date on which such payments are made or received.
The Fund also may hedge by using forward currency contracts in connection
with portfolio positions to lock in the U.S. dollar value of those positions, to
increase the Fund's exposure to foreign currencies that the Investment Manager
believes may rise in value relative to the U.S. dollar or to shift the Fund's
exposure to foreign currency fluctuations from one country to another. For
example, when the Investment Manager believes that the currency of a particular
foreign country may suffer a substantial decline relative to the U.S. dollar or
another currency, it may enter into a forward contract to sell the amount of the
former foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. This investment
practice generally is referred to as "cross-hedging" when another foreign
currency is used. Certain of these strategies may result in income subject to
the "short-short limitation". See "Distributions and Taxes".
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (that is, cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
the market value of the security exceeds the amount of foreign currency the Fund
is obligated to deliver. The projection of short term currency market movements
is extremely difficult and the successful execution of a short term hedging
strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transaction costs. Under normal
circumstances, consideration of the prospects for currency parities will be
incorporated into the longer term decisions made with regard to overall
investment strategies. However, the Investment Manager believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Fund will be served.
At or before the maturity date of a forward contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same
15
<PAGE>
amount of the same currency on the maturity date of the first contract. The Fund
would realize a gain or loss as a result of entering into such an offsetting
forward currency contract under either circumstance to the extent the exchange
rate or rates between the currencies involved moved between the execution dates
of the first contract and the offsetting contract.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
The use of forward currency contracts does not eliminate fluctuations in the
prices of the underlying securities the Fund owns or intends to acquire, but it
does fix a rate of exchange in advance. In addition, although forward currency
contracts limit the risk of loss due to a decline in the value of the hedged
currencies, at the same time they limit any potential gain that might result
should the value of the currencies increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
THE BULL & BEAR FUNDS
The Bull & Bear Funds are:
Bull & Bear Dollar Reserves
Bull & Bear U.S. Government Securities Fund
Bull & Bear Municipal Income Fund
Bull & Bear Global Income Fund
Bull & Bear Quality Growth Fund
Bull & Bear U.S. and Overseas Fund
Bull & Bear Special Equities Fund
Bull & Bear Gold Investors
OFFICERS AND DIRECTORS
The officers and Directors of the Fund, their respective offices and principal
occupations during the last five years are set forth below. Unless otherwise
noted, the address of each is 11 Hanover Square, New York, NY 10005.
BASSETT S. WINMILL/*/ -- Chairman of the Board. He is Chairman of the Board of
the other four investment companies in the Bull & Bear Funds Complex (the "Bull
& Bear Funds Complex") and of the parent of the Investment Manager, Bull & Bear
Group, Inc. ("Group"). He was born February 10, 1930. He is a member of the New
York Society of Security Analysts, the Association for Investment Management and
Research and the International Society of Financial Analysts. He is the father
of Mark C. Winmill and Thomas B. Winmill.
ROBERT D. ANDERSON/*/ -- Vice Chairman and Director. He is Vice Chairman and a
Director of the Bull & Bear Funds Complex and of the Investment Manager and its
affiliates. He was born December 7, 1929. He is a member of the Board of
Governors of the Mutual Fund Education Alliance, and of its predecessor, the No-
Load Mutual Fund Association. He has also been a member of the District #12,
District Business Conduct and Investment Companies Committees of the NASD.
BRUCE B. HUBER, CLU -- Director. 298 Broad Street, Red Bank, NJ 07701. He is
President of Huber-Hogan Consulting, Inc. financial consultants and insurance
planners. He was born February 7, 1930. From 1988 to 1990, he was Chairman of
Bruce Huber Associates. From 1987 to 1988, he was Chairman of Economic Benefits
Corporation, and prior thereto President of Bruce Huber Associates, Inc., a
financial and insurance consulting firm specializing
16
<PAGE>
in estate, corporate, and executive benefit planning. He is also a Director of
the Bull & Bear Funds Complex.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Kenny, Kindler, Hunt & Howe, Inc., executive recruiting
consultants. He was born December 14, 1930. From 1976 until 1983 he was Vice
President of Russell Reynolds Associates, Inc., also executive recruiting
consultants. He is also a Director of the Bull & Bear Funds Complex.
FREDERICK A. PARKER, JR. -- Director. 219 East 69th Street, New York, NY 10021.
He is President and Chief Executive Officer of American Pure Water Corporation,
a manufacturer of water purifying equipment. He was born November 14, 1926. He
is also a Director of the Bull & Bear Funds Complex.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
He was Executive Vice President and a Director of Dan River, Inc., a diversified
textile company, from 1969 until he retired in 1981. He was born February 9,
1923. He is a Director of Wheelock, Inc., a manufacturer of signal products, and
a consultant for the National Executive Service Corps in the health care
industry. He is also a Director of the Bull & Bear Funds Complex.
MARK C. WINMILL -- Co-President, Co-Chief Executive Officer, and Chief Financial
Officer. He is Co-President, Co-Chief Executive Officer, and Chief Financial
Officer of the Bull & Bear Funds Complex and of Group and certain of its
affiliates, Chairman of the Investment Manager and Bull & Bear Service Center,
Inc. (the "Distributor"), and President of Bull & Bear Securities, Inc.
("BBSI"). He was born November 26, 1957. He received his M.B.A. from the Fuqua
School of Business at Duke University in 1987. From 1983 to 1985 he was
Assistant Vice President and Director of Marketing of E.P. Wilbur & Co., Inc., a
real estate development and syndication firm and Vice President of E.P.W.
Securities, its broker/dealer subsidiary. He is a son of Bassett S. Winmill and
brother of Thomas B. Winmill. He is also a Director of two of the other
investment companies in the Bull & Bear Funds Complex.
THOMAS B. WINMILL -- Co-President, Co-Chief Executive Officer, and General
Counsel. He is Co-President, Co-Chief Executive Officer, and General Counsel of
the Bull & Bear Funds Complex and of Group and certain of its affiliates,
President of the Investment Manager and the Distributor, and Chairman of BBSI.
He was born June 25, 1959. He was associated with the law firm of Harris,
Mericle & Orr from 1984 to 1987. He is a member of the New York State Bar. He is
a son of Bassett S. Winmill and brother of Mark C. Winmill. He is also a
Director of certain of the other Bull & Bear Funds.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Bull & Bear Funds Complex, the Investment Manager and certain of its affiliates.
He was born March 1, 1955. From 1993 to 1995, he was Associate Director --
Proprietary Trading at Barclays De Zoete Wedd Securities Inc., from 1992 to 1993
he was Director, Bond Arbitrage at WG Trading Company, and from 1989 to 1992 he
was Vice President of Wilkinson Boyd Capital Markets.
BRETT B. SNEED, CFA -- Senior Vice President. He is Senior Vice President of the
Bull & Bear Funds Complex, the Investment Manager and certain of its affiliates.
He was born June 11, 1941. He is a Chartered Financial Analyst, a member of the
Association for Investment Management and Research, and a member of the New York
Society of Security Analysts. From 1986 to 1988, he managed private accounts,
from 1981 to 1986, he was Vice President of Morgan Stanley Asset Management,
Inc. and prior thereto was a portfolio manager and member of the Finance and
Investment Committees of American International Group, Inc., an insurance
holding company.
17
<PAGE>
WILLIAM K. DEAN, CPA -- Treasurer and Chief Accounting Officer. He is Treasurer
and Chief Accounting Officer of the Bull & Bear Funds Complex, the Investment
Manager and its affiliates. He was born September 5, 1955. From 1984 to 1995 he
held various positions with The Dreyfus Corporation, a mutual fund company. He
is a member of the American Institute of Certified Public Accountants and the
New York State Society of Certified Public Accountants.
WILLIAM J. MAYNARD -- Vice President and Secretary. He is Vice President and
Secretary of the Bull & Bear Funds Complex, the Investment Manager and its
affiliates. He was born September 13, 1964. From 1991 to 1994 he was associated
with the law firm of Skadden, Arps, Slate, Meagher & Flom. He is a member of the
New York State Bar.
/*/ Bassett S. Winmill and Robert D. Anderson are "interested persons" of the
Fund as defined by the 1940 Act, because of their positions with the Investment
Manager.
18
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
NAME OF PERSON, POSITION AGGREGATE PENSION OR ESTIMATED TOTAL
COMPENSA- RETIREMENT ANNUAL COMPENSATION FROM
TION FROM BENEFITS BENEFITS REGISTRANT
REGISTRANT ACCRUED AS UPON AND FUND COMPLEX
PART OF RETIREMENT PAID TO DIRECTORS
FUND
EXPENSES
<S> <C> <C> <C> <C>
Bassett S. Winmill None None None None
Chairman
Robert D. Anderson None None None None
Vice Chairman
Bruce B. Huber $500 None None $10,000
Director from 5 Funds
James E. Hunt $500 None None $10,000
Director from 5 Funds
Frederick A. Parker $500 None None $11,000
Director from 6 Funds
John B. $500 None None $10,000
Russell from 5 Funds
Director
Mark C. None None None None
Winmill
Co-President
Thomas B. Winmill None None None None
Co-President
Steven A. None None None None
Landis
Senior Vice President
Brett B. Sneed None None None None
Senior Vice President
=====================================================================
===========
</TABLE>
Information in the above table is based on fees paid during the year ended
December 31, 1994. Directors who are not "interested persons" of the Corporation
may elect to defer
19
<PAGE>
receipt of fees for serving as a Director of the Corporation. During the year
ended December 31, 1994, Messrs. Huber and Hunt deferred such fees pursuant to
this arrangement.
No officer, Director or employee of the Fund's Investment Manager receives
any compensation from the Fund for acting as an officer, Director or employee of
the Fund. As of March 31, 1995, officers and Directors of the Fund owned less
than 1% of the outstanding shares of the Fund.
THE INVESTMENT MANAGER
The Fund's Investment Manager is Bull & Bear Advisers, Inc., 11 Hanover
Square, New York, NY 10005. The Investment Manager, a registered investment
adviser, is a wholly-owned subsidiary of Group. The other principal subsidiaries
of Group include Bull & Bear Service Center, Inc., the Fund's Distributor and a
registered broker-dealer, and Bull & Bear Securities, Inc., a registered
broker/dealer providing discount brokerage services.
Group is a publicly-owned company whose securities are listed on the Nasdaq
and traded in the over-the-counter market. Bassett S. Winmill may be deemed a
controlling person of Group on the basis of his ownership of 100% of Group's
voting stock and, therefore, of the Investment Manager. The Bull & Bear Funds,
each of which is managed by the Investment Manager, had net assets of
approximately $234,000,000 as of April 17, 1995.
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, the Fund assumes and pays all
expenses required for the conduct of its business including, but not limited to,
custodian and transfer agency fees, accounting and legal fees, investment
management fees, fees of disinterested Directors, association fees, printing,
salaries of certain administrative and clerical personnel, necessary office
space, all expenses relating to the registration or qualification of the shares
of the Fund under Blue Sky laws and reasonable fees and expenses of counsel in
connection with such registration and qualification, miscellaneous expenses and
such non-recurring expenses as may arise, including actions, suits or
proceedings affecting the Fund and the legal obligation which the Fund may have
to indemnify its officers and Directors with respect thereto.
The Investment Manager has agreed in the Investment Management Agreement
that it will waive all or part of its fee or reimburse the Fund monthly if, and
to the extent that, the Fund's aggregate operating expenses exceed the most
restrictive limit imposed by any state in which shares of the Fund are qualified
for sale. Currently, the most restrictive such limit applicable to the Fund is
2.5% of the first $30 million of the Fund's average daily net assets, 2.0% of
the next $70 million of its average daily net assets and 1.5% of its average
daily net assets in excess of $100 million. Certain expenses, such as brokerage
commissions, taxes, interest, distribution fees, certain expenses attributable
to investing outside the United States and extraordinary items, are excluded
from this limitation. For the fiscal years ended December 31, 1992, 1993 and
1994, the Fund paid to the Investment Manager aggregate investment management
fees of $321,506, $583,663 and $442,387, respectively. No reimbursement was made
to the Fund by the Investment Manager for the fiscal years ended December 31,
1992, 1993 and 1994, pursuant to the expense guaranty described above.
If requested by the Fund's Board of Directors, the Investment Manager may
provide other services to the Fund such as, without limitation, the functions of
billing, accounting, certain shareholder communications and services,
administering state and Federal registrations, filings and controls and other
administrative services. Any services so requested and performed will be for the
account of the Fund and the costs of the
20
<PAGE>
Investment Manager in rendering such services shall be reimbursed by the Fund,
subject to examination by those Directors of the Fund who are not interested
persons of the Investment Manager or any affiliate thereof. The cost of such
services billed to the Fund by the Investment Manager for the fiscal years ended
December 31, 1992, 1993 and 1994 was $8,309, $25,193 and $18,345, respectively.
The Investment Management Agreement provides that the Investment Manager
will not be liable to the Fund or any shareholder of the Fund for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the agreement relates. Nothing contained in the
Investment Management Agreement, however, shall be construed to protect the
Investment Manager against any liability to the Fund by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
by reason of its reckless disregard of obligations and duties under the
Investment Management Agreement.
The Investment Management Agreement will continue automatically for
successive periods of twelve months, provided such continuance is specifically
approved at least annually by (a) the Board of Directors of the Fund or by the
holders of a majority of the outstanding voting securities of the Fund as
defined in the 1940 Act and (b) a vote of a majority of the Directors of the
Fund who are not parties to the Investment Management Agreement, or interested
persons of any such party. The Investment Management Agreement may be terminated
without penalty at any time either by a vote of the Board of Directors of the
Fund or the holders of a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act, on 60 days' written notice to the Investment
Manager, or by the Investment Manager on 60 days' written notice to the Fund,
and shall immediately terminate in the event of its assignment.
Group has granted the Fund a non-exclusive license to use the service marks
"Bull & Bear," "Bull & Bear Performance Driven," and "Performance Driven" under
certain terms and conditions on a royalty free basis. Such license will be
withdrawn in the event the investment manager of the Fund shall not be the
Investment Manager or another subsidiary of Group. If the license is terminated,
the Fund will eliminate all reference to "Bull & Bear" in its corporate name and
cease to use any of such service marks or any similar service marks in its
business.
PERFORMANCE INFORMATION
The Fund computes its average annual total return by determining the average
annual compounded rate of return during specified periods that equates the
initial amount invested to the ending redeemable value of such investment. This
is done by dividing the ending redeemable value of a hypothetical $1,000 initial
payment by $1,000 and raising the quotient to a power equal to one divided by
the number of years (or fractional portion thereof) covered by the computation
and subtracting one from the result. This calculation can be expressed as
follows:
ERV
T = ( ----- ) TO THE POWER OF 1 DIVIDED BY N - 1
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by the
computation of a hypothetical $1,000 payment made at the beginning
of the period which assumes all dividends and other distributions
by the Fund are reinvested on the reinvestment date during the
period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of years.
21
<PAGE>
The Fund's average annual total return for the one year and five year
periods ended December 31, 1994 and for the period December 20, 1986
(commencement of operations) to December 31, 1994 was, respectively, -16.54%,
2.19% and 8.48%.
The Fund's "total return" or "cumulative total return" or "cumulative
growth" is calculated by subtracting the amount of the Fund's net asset value
per share at the beginning of a stated period from the net asset value per share
at the end of the period (after giving effect to the reinvestment of all
distributions during the period), and dividing the result by the net asset value
per share at the beginning of the period. The Fund's average annual return,
"total return" or "cumulative total return" or "cumulative growth," expressed as
a percentage rate and as the value of a hypothetical $1,000 and $10,000 initial
investment at the end of the period, for the periods set forth below, commencing
on the dates set forth and ending on December 31, 1994, are set forth
below:
<TABLE>
<CAPTION>
Average
Start of Periods Annual Total Ending Value of Ending Value of a
Ending 12/31/94 Return Return a $1,000 Investment $10,000 Investment
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 1994 -16.54% -16.54% $ 834.59 $ 8,345.91
January 1, 1993 -1.46% -2.89% $ 971.07 $ 9,710.75
January 1, 1992 7.63% 24.67% $1,246.66 $12,466.60
January 1, 1991 15.05% 75.20% $1,752.00 $17,520.05
January 1, 1990 2.19% 11.44% $1,114.40 $11,144.00
January 1, 1989 7.99% 58.56% $1,585.61 $15,856.14
January 1, 1988 9.98% 94.60% $1,945.99 $19,459.90
January 1, 1987 7.78% 82.11% $1,821.13 $18,211.26
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Inception-March 20, 8.48% 104.33% $2,043.30 $20,432.99
1986
</TABLE>
The Fund may provide the above described standard total return for a period
which ends as of not earlier than the most recent calendar quarter end and which
begins either twelve months before or at the time of commencement of the Fund's
operations. In addition, the Fund may provide nonstandardized total return
results for differing periods, such as for a recent month or quarter. For
example, the Fund's nonstandardized total return for the three months ending
December 31, 1994 was -0.68%. Such nonstandardized total returns are computed as
otherwise described above except that no annualization is made. Since
performance will vary, these results are not necessarily representative of
future results. Performance is a function of the type and quality of portfolio
securities and will reflect general market conditions and operating expenses.
See "The Fund's Investment Program" in the Prospectus. This Statement of
Additional Information may be in use for a full year and performance results for
periods subsequent to December 31, 1994 may vary substantially from those shown
above.
The Investment Manager and certain of its affiliates serve as investment
managers to the Fund and the other Bull & Bear Funds, which Funds have
individual and institutional shareholder investors throughout the United States
and in 37 foreign countries. The Fund may also provide performance information
based on an initial investment in the Fund and/or cumulative investments of
varying amounts over periods of time. Some or all of this information may be
provided either graphically or in tabular form.
SOURCE MATERIAL
From time to time, in marketing pieces and other Fund literature, the Fund's
performance may be compared to the performance of broad groups of comparable
mutual funds or unmanaged indexes of comparable securities, including but not
limited to small company growth, capital appreciation, and growth funds indexes.
Indexes are fully invested in the securities they index, whereas the Fund is
managed and may hold cash, non-comparable securities, or be leveraged.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Bond Buyer Municipal Index (20 year) Bond. An index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
management results, income and dividend records, and price ranges.
Composite Index -- 70% Standard & Poor's 500 Composite Stock Price Index ("S&P
500") and 30% Nasdaq Industrial Index.
Composite Index -- 35% S&P 500 Index and 65% Salomon Brothers High Grade Bond
Index.
Composite Index -- 65% S&P 500 Index and 35% Salomon Brothers High Grade Bond
Index.
23
<PAGE>
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's Daily, a nationally distributed newspaper which regularly covers
financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed of
government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond -- is composed of all bonds covered by the Lehman
Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing mutual
funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a variety of
bond indices.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market value-
weighted average of the performance of over 900 securities listed on the stock
exchanges of countries in Europe, Australia and the Far East.
Morningstar, Mutual Fund Values, publications of Morningstar, Inc., periodically
reviewing mutual funds industry-wide by means of various methods of analysis and
textual commentary.
Mutual Fund Forecaster, a newsletter providing a mutual fund rating service.
Nasdaq Industrial Index -- is composed of more than 3000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performance, rates funds, and discusses investment strategies for mutual fund
investors.
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Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
special section reporting on mutual fund performance, yields, indexes, and
portfolio holdings.
Salomon Brothers GNMA Index -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
Salomon Brothers High-Grade Corporate Bond Index -- consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
Salomon Brothers Broad Investment-Grade Bond -- is a market-weighted index that
contains approximately 4700 individually priced investment-grade corporate bonds
rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.
Salomon Brothers Market Performance tracks the Salomon Brothers bond index.
S&P 500 -- is a well diversified list of 500 companies representing the U.S.
Stock Market.
Standard & Poor's 100 Composite Stock Price Index -- is a well diversified list
of 100 companies representing the U.S. Stock Market.
Standard & Poor's Preferred Index is an index of preferred securities.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
Russell 3000 Index -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
NASDAQ over-the-counter market, accounting for over 90% of the market value of
publicly traded Stocks in the U.S.
Russell 2000 Small Company Stock Index -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
Wall Street Journal, a nationally distributed newspaper which regularly covers
financial news.
Wilshire 5000 Equity Indexes -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
Wilshire 4500 Equity Index -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the S&P 500.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Bull & Bear Service Center, Inc. acts
as the Distributor of the Fund's shares. Under the Distribution Agreement, the
Distributor shall use its best efforts, consistent with its other businesses, to
sell shares of the Fund. Fund shares are offered continuously. Pursuant to a
Plan of Distribution ("Plan") adopted under Rule 12b-1 of the 1940 Act, the Fund
pays the Distributor monthly a fee in the amount of one-quarter of one percent
per annum of the Fund's average daily net assets as
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compensation for service activities and a fee in the amount of three-quarters of
one percent per annum of the Fund's average daily net assets as compensation for
distribution activities.
In performing distribution and service activities pursuant to the Plan, the
Distributor may spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of the Fund's shares or the
servicing and maintenance of shareholder accounts, including, but not limited
to: advertising, direct mail, and promotional expenses; compensation to the
Distributor and its employees; compensation to and expenses, including overhead
and telephone and other communication expenses, of the Distributor, the
Investment Manager, the Fund, and selected dealers and their affiliates who
engage in or support the distribution of shares or who service shareholder
accounts; fulfillment expenses, including the costs of printing and distributing
prospectuses, statements of additional information, and reports for other than
existing shareholders; the costs of preparing, printing and distributing sales
literature and advertising materials; and internal costs incurred by the
Distributor and allocated by the Distributor to its efforts to distribute shares
of the Fund such as office rent and equipment, employee salaries, employee
bonuses and other overhead expenses.
Among other things, the Plan provides that (1) the Distributor will submit
to the Fund's Board of Directors at least quarterly, and the Directors will
review, reports regarding all amounts expended under the Plan and the purposes
for which such expenditures were made, (2) the Plan will continue in effect only
so long as it is approved at least annually, and any material amendment or
agreement related thereto is approved, by the Fund's Board of Directors,
including those Directors who are not "interested persons" of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related to the Plan ("Plan Directors"), acting in person at a
meeting called for that purpose, unless terminated by vote of a majority of the
Plan Directors, or by vote of a majority of the outstanding voting securities of
the Fund, (3) payments by the Fund under the Plan shall not be materially
increased without the affirmative vote of the holders of a majority of the
outstanding voting securities of the Fund and (4) while the Plan remains in
effect, the selection and nomination of Directors who are not "interested
persons" of the Fund shall be committed to the discretion of the Directors who
are not interested persons of the Fund.
With the approval of the vote of a majority of the entire Board of Directors
and of the Plan Directors of the Fund, the Distributor has entered into a
related agreement with Hanover Direct Advertising Company, Inc. ("Hanover
Direct"), a wholly-owned subsidiary of Group, in an attempt to obtain cost
savings on the marketing of the Fund's shares. Hanover Direct will provide
services to the Distributor on behalf of the Fund and the other Bull & Bear
Funds at standard industry rates, which includes commissions. The amount of
Hanover Direct's commissions over its cost of providing Fund marketing will be
credited to the Fund's distribution expenses and represent a savings on
marketing to the benefit of the Fund. to the extent Hanover Direct's costs
exceed such commissions, Hanover Direct will absorb any such costs.
It is the opinion of the Board of Directors that the Plan is necessary to
maintain a flow of subscriptions to offset redemptions. Redemptions of mutual
fund shares are inevitable. If redemptions are not offset by subscriptions, a
fund shrinks in size and its ability to maintain quality shareholder services
declines. Eventually, redemptions could cause a fund to become uneconomic.
Furthermore, an extended period of significant net redemptions may be
detrimental to orderly management of the portfolio. Offsetting redemptions
through sales efforts benefits shareholders by maintaining the viability of a
fund. In periods where net sales are achieved, additional benefits may accrue
relative to portfolio management and increased shareholder servicing capability.
In addition, increased assets enable the establishment and maintenance of a
better shareholder servicing staff which can respond more effectively and
promptly to shareholder inquiries and needs. While net increases in total assets
are desirable, the primary goal of the Plan is to prevent a decline in assets
serious enough to cause disruption of portfolio management and to impair the
Fund's ability to maintain a high level of quality shareholder services.
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The Plan increases the overall expense ratio of the Fund; however, a
substantial decline in Fund assets is likely to increase the portion of the
Fund's expense ratio comprised of management fees and fixed costs (i.e., costs
other than the Plan) while a substantial increase in Fund assets would be
expected to reduce the portion of the expense ratio comprised of management fees
(reflecting a larger portion of the assets falling within fee scale-down
levels), as well as of fixed costs. Nevertheless, the net effect of the Plan is
to increase overall expenses. To the extent the Plan maintains a flow of
subscriptions to the Fund, there results an immediate and direct benefit to the
Investment Manager by maintaining or increasing its fee revenue base,
diminishing the obligation, if any, of the Investment Manager to make an expense
reimbursement to the Fund, and eliminating or reducing any contribution made by
the Investment Manager to marketing expenses. Other than as described herein, no
Director or interested person of the Fund had any direct or indirect financial
interest in the operation of the Plan or any related agreement.
Of the amounts paid to the Distributor during the Fund's fiscal year ended
December 31, 1994, approximately $104,035 represented paid expenses incurred for
advertising, $195,179 for printing and mailing prospectuses and other
information to other than current shareholders, $135,819 for salaries of
marketing and sales personnel, $1,795 for payments to third parties who sold
shares of the Fund and provided certain services in connection therewith, and
$86,356 for overhead and miscellaneous expenses. These amounts have been derived
by determining the ratio each such category represents to the total expenditures
incurred by the Distributor in performing services pursuant to the Plan and then
applying such ratio to the total amount of compensation received by the
Distributor pursuant to the Plan.
The Glass-Steagall Act prohibits certain banks from engaging in the business
of underwriting, selling, or distributing securities such as shares of a mutual
fund. Although the scope of this prohibition under the Glass-Steagall Act has
not been fully defined, in the Distributor's opinion it should not prohibit
banks from being paid for shareholder services under the Plan. If, because of
changes in law or regulation, or because of new interpretations of existing law,
a bank or the Fund were prevented from continuing these arrangements, it is
expected that other arrangements for these services will be made. In addition,
state securities laws on this issue may differ from the interpretation of
Federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
regular trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m.
eastern time, unless weather, equipment failure, or other factors contribute to
an earlier closing) each day the NYSE is open for trading ("Business Day"). The
NYSE is closed on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. Because a portion of the Fund's net assets may be invested in
foreign securities that are traded in foreign markets that are not necessarily
closed on days when the NYSE is closed, the net asset value per share may be
affected on days when shareholders have no access to the Fund or its transfer
agent.
Securities owned by the Fund are valued by various methods depending on the
market or exchange on which they trade. Securities traded on the NYSE, the
American Stock Exchange and the NASDAQ National Market System are valued at the
last sale price, or if no sale has occurred, at the mean between the current bid
and asked prices. Securities traded on other exchanges are valued as nearly as
possible in the same manner. Securities traded only over-the-counter are valued
at the mean between the last available bid and asked quotations, if available,
or at their fair value as determined in good faith by or under general
27
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direction of the Board of Directors. Short term securities are valued either at
amortized cost or at original cost plus accrued interest, both of which
approximate current value.
Foreign securities, if any, are valued at the last sale price in a principal
market where they are traded, or, if last sale prices are unavailable, at the
mean between the last available bid and asked quotations. Foreign security
prices are expressed in their local currency and translated the value of foreign
securities from the local currency into U.S. dollars at current exchange rates.
Any changes in the value of forward contracts due to exchange rate fluctuations
are included in the determination of net asset value. Foreign currency exchange
rates are generally determined prior to the close of trading on the NYSE.
Occasionally, events affecting the value of foreign securities and such exchange
rates occur between the time at which they are determined and the close of
trading on the NYSE, which events will not be reflected in a computation of a
Fund's net asset value on that day. If events materially affecting the value of
such securities or currency exchange rates occur during such time period, the
securities will be valued at their fair value as determined in good faith by or
under the direction of the Fund's Board of Directors.
Price quotations generally are furnished by pricing services, which may also
use a matrix system to determine valuations. This system considers such factors
as security prices, yields, maturities, call features, ratings, and developments
relating to specific securities in arriving at valuations.
PURCHASE OF SHARES
THE CONDITIONS OF ORDERS. The Fund reserves the right to reject any order for
any reason and to cancel any order due to nonpayment, with respect to any person
or class of persons. In order to permit the Fund's shareholder base to expand,
to avoid certain shareholder hardships, to correct transactional errors, and to
address similar exceptional situations, the Fund may waive or lower the
investment minimums with respect to any person or class of persons. Orders to
purchase shares are not binding on the Fund until they are confirmed by the
Transfer Agent.
ALLOCATION OF BROKERAGE
The Fund seeks to obtain prompt execution of orders at the most favorable
net prices. Transactions are directed to brokers and dealers qualified to
execute orders or provide research, statistical or other services, and who may
sell shares of the Fund or the other Bull & Bear Funds. The Investment Manager
may also allocate portfolio transactions to broker/dealers that remit a portion
of their commissions as a credit against the Custodian's charges. No formula
exists and no arrangement is made with or promised to any broker/dealer which
commits either a stated volume or percentage of brokerage business based on
research, statistical or other services furnished to the Investment Manager or
upon sale of Fund shares. Fund transactions in debt and over-the-counter
securities
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generally are with dealers acting as principals at net prices with little or no
brokerage costs. In certain circumstances, however, the Fund may engage a broker
as agent for a commission to effect transactions for such securities. Purchases
of securities from underwriters include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers include a spread between
the bid and asked price. While the Investment Manager generally seeks
competitive spreads or commissions, the Fund will not necessarily be paying the
lowest spread or commission available.
The Investment Manager directs portfolio transactions to broker/dealers for
execution on terms and at rates which it believes, in good faith, to be
reasonable in view of the overall nature and quality of services provided by a
particular broker/dealer, including brokerage and research services, sales of
Fund shares and shares of the other Bull & Bear Funds, and allocation of
commissions to the Fund's custodian. With respect to brokerage and research
services, consideration may be given in the selection of broker/dealers to
brokerage or research services provided and payment may be made of a fee higher
than that charged by another broker/dealer which does not furnish brokerage or
research services or which furnishes brokerage or research services deemed to be
of lesser value, so long as the criteria of Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), or other applicable law are
met. Section 28(e) of the 1934 Act was adopted in 1975 and specifies that a
person with investment discretion shall not be "deemed to have acted unlawfully
or to have breached a fiduciary duty" solely because such person has caused the
account to pay a higher commission than the lowest available under certain
circumstances. To obtain the benefit of Section 28(e), the person so exercising
investment discretion must make a good faith determination that the commissions
paid are "reasonable in relation to the value of the brokerage and research
services provided . . . viewed in terms of either that particular transaction or
his overall responsibilities with respect to the accounts as to which he
exercises investment discretion." Thus, although the Investment Manager may
direct portfolio transactions without necessarily obtaining the lowest price at
which such broker/dealer, or another, may be willing to do business, the
Investment Manager seeks the best value for the Fund on each trade that
circumstances in the market place permit, including the value inherent in on-
going relationships with quality brokers.
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for brokerage or research services might exceed
commissions that would be payable for execution alone, nor generally can the
value of such services to the Fund be measured, except to the extent such
services have a readily ascertainable market value. There is no certainty that
services so purchased, or the sale of fund shares, if any, will be beneficial to
the Fund, and it may be that the other Bull & Bear Funds will derive benefit
therefrom. Such services being largely intangible, no dollar amount can be
attributed to benefits realized by the Fund or to collateral benefits, if any,
conferred on affiliated entities. Those services may include (1) furnishing
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities and the availability of securities or
purchasers or sellers of securities, (2) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts, and (3) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement, and custody). Pursuant to arrangements with certain
broker/dealers, such broker/dealers provide and pay for various computer
hardware, software and services, market pricing information, investment
subscriptions and memberships, and other third party and internal research of
assistance to the Investment Manager in the performance of its investment
decision-making responsibilities for transactions effected by such
broker/dealers for the Fund. Commission "soft dollars" may be used only for
"brokerage and research services" provided directly or indirectly by the
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
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Bull & Bear Securities, Inc. ("BBSI"), a wholly-owned subsidiary of Group
and the Investment Manager's affiliate, provides discount brokerage services to
the public as an introducing broker clearing through an unaffiliated firm on a
fully-disclosed basis. The Investment Manager is authorized by the Board of
Directors of the Fund to place Fund brokerage through BBSI at its posted
discount rates and indirectly through BBSI's clearing firm. The Fund will not
deal with BBSI in any transaction in which BBSI acts as principal. The clearing
firm will execute trades in accordance with the fully-disclosed clearing
agreement between BBSI and the clearing firm. BBSI will be financially
responsible to the clearing firm for all trades of the Fund until complete
payment has been received by the Fund or the clearing firm. BBSI will provide
order entry services or order entry facilities to the Investment Manager,
arrange for execution and clearing of portfolio transactions through executing
and clearing brokers, monitor trades and settlements and perform limited back-
office functions including the maintenance of all records required of it by the
NASD.
In order for BBSI to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by BBSI must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. The Fund's Board of Directors has adopted procedures in conformity with
Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
BBSI are reasonable and fair. Although BBSI's posted discount rates may be lower
than those charged by full cost brokers, such rates may be higher than some
other discount brokers and certain brokers may be willing to do business at a
lower commission rate on certain trades. The Fund's Board of Directors has
determined that portfolio transactions may be executed through BBSI if, in the
judgement of the Investment Manager, the use of BBSI is likely to result in
price and execution at least as favorable as those of other qualified
broker/dealers and if, in particular transactions, BBSI charges the Fund a rate
consistent with that charged to comparable unaffiliated customers in similar
transactions. Brokerage transactions with BBSI are also subject to such
fiduciary standards as may be imposed by applicable law. The Investment
Manager's fees under its agreement with the Fund are not reduced by reason of
any brokerage commissions paid to BBSI.
During the fiscal years ended December 31, 1992, 1993 and 1994 the Fund paid
total brokerage commissions of $555,775, $631,267 and $787,320 respectively. For
the fiscal year ended 1994, $738,675 in brokerage commissions (representing
$240,238,574 in portfolio transactions) was allocated to broker/dealers that
provided research services. No transactions were directed to broker/dealers
during such periods for selling shares of the Fund or any of the other Bull &
Bear Funds. During the Fund's fiscal years ended December 31, 1992, 1993 and
1994, the Fund paid $30,079, $28,779 and $48,645, respectively, in brokerage
commissions to BBSI, which represented 5.37%, 4.56% and 6.17%, respectively, of
the total brokerage commissions paid by the Fund and 11.59%, 9.30%, and 14.57%
respectively, of the aggregate dollar amount of transactions involving the
payment of commissions.
Investment decisions for the Fund and for the other Funds managed by
subsidiaries of Group are made independently of each other in the light of
differing conditions. The same investment decision, however, may occasionally be
made for two or more of such Funds. In such cases, simultaneous transactions may
occur. Purchase or sales are then averaged as to price and allocated as to
amount according to a formula deemed equitable to each Fund. While in some cases
this practice could have a detrimental effect upon the price or value of the
security as far as the Fund is concerned, in other cases it is believed to be
beneficial to the Fund. The Fund is not obligated to deal with any particular
broker, dealer or group thereof. Certain broker/dealers that the Bull & Bear
Funds do business with may, from time to time, own more than 5% of the publicly
traded Class A non-voting Common Stock of Group, the parent of the Investment
Manager, and may provide clearing services to BBSI.
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DISTRIBUTIONS AND TAXES
If the U.S. Postal Service cannot deliver a shareholder's check, or if a
shareholder's check remains uncashed for six months, the Fund reserves the right
to credit the shareholder's account with additional shares of the Fund at the
then current net asset value in lieu of the cash payment and to thereafter issue
such shareholder's distributions in additional shares of the Fund.
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"). To qualify for this treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
Among these requirements are the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of investing
in securities or those currencies ("Income Requirement"); (2) the Fund must
derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities, or any of the following, that were held for
less than three months - options, futures, or forward contracts (other than
those on foreign currencies), or foreign currencies (or options, futures, or
forward contracts thereon) that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect
thereto) ("Short-Short Limitation"); and (3) the Fund's investments must satisfy
certain diversification requirements. In any year during which the applicable
provisions of the Code are satisfied, the Fund will not be liable for Federal
income tax on income and capital gain that are distributed to its shareholders.
If for any taxable year the Fund does not qualify for treatment as a RIC, all of
its taxable income will be taxed at corporate rates.
A portion of the dividends from the Fund's investment company taxable income
(whether paid in cash or in additional Fund shares) may be eligible for the
dividends-received deduction allowed to corporations. The eligible portion may
not exceed the aggregate dividends received by the Fund from U.S. corporations.
However, dividends received by a corporate shareholder and deducted by it
pursuant to the dividends-received deduction are subject indirectly to the
alternative minimum tax.
If shares of the Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails by the end of any calendar year to distribute an amount
equal to the sum of (1) 98% of its ordinary income, (2) 98% of its capital gain
net income (determined on an October 31 fiscal year basis), plus (3) generally,
income and gain not distributed or subject to corporate tax in the prior
calendar year. The Fund intends to avoid imposition of the Excise Tax by making
adequate distributions.
Dividends and interest received by the Fund may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible to, and may, file an election
with the Internal Revenue Service that will enable its shareholders, in effect,
to receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions income taxes paid by it. Pursuant to the election, the Fund
will treat those taxes as dividends paid to its shareholders and each
shareholder will be required to (1) include in gross income, and treat as paid
by such shareholder, such
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shareholder's proportionate share of those taxes, (2) treat such shareholder's
share of those taxes and of any dividend paid by the Fund that represents income
from foreign or U.S. possessions sources as such shareholder's own income from
those sources, and (3) either deduct the taxes deemed paid by such shareholder
in computing such shareholder's taxable income or, alternatively, use the
foregoing information in calculating the foreign tax credit against such
shareholder's Federal income tax. The Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's income
from sources within, and taxes paid to, foreign countries and U.S. possessions
if it makes this election.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, the Fund will be subject to
Federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain on disposition of the stock (collectively "PFIC
income"), plus interest thereon, even if the Fund distributes the PFIC income as
a taxable dividend to its shareholders. The balance of the PFIC income will be
included in the Fund's investment company taxable income and, accordingly, will
not be taxable to it to the extent that income is distributed to its
shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEFs annual ordinary earnings and net capital gain (the excess
of net long-term capital gain over net short-term capital loss) -- which would
have to be distributed to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax -- even if those earnings and gain were not
received by the Fund. In most instances it will be very difficult, if not
impossible, to make this election because of certain requirements thereof.
The "Tax Simplification and Technical Corrections Bill of 1993", passed in
May 1994 by the House of Representatives, would substantially modify the
taxation of U.S. shareholders of foreign corporations, including eliminating the
provisions described above dealing with PFICs and replacing them (and other
provisions) with a regulatory scheme involving entities called "passive foreign
corporations". Three similar bills were passed by Congress in 1991 and 1992 and
vetoed. It is unclear at this time whether, and in what form, the proposed
modifications may be enacted into law.
Proposed regulations have been published pursuant to which open-end RICs,
such as the Fund, would be entitled to elect to "mark-to-market" their stock in
certain PFICs. "Marking-to-market", in this context, means recognizing as gain
for each taxable year the excess, as of the end of that year, of the fair market
value of such a PFICs stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in
effect).
OPTIONS, FUTURES AND FORWARD CONTRACTS. The Fund's use of hedging
strategies, such as writing (selling) and purchasing options and futures
contracts and entering into forward contracts, involves complex rules that will
determine for income tax purposes the character and timing of recognition of the
gains and losses the Fund realizes in connection therewith. Income from foreign
currencies (except certain gains therefrom that may be excluded by future
regulations), and income from transactions in options, futures, and forward
contracts derived by the Fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
Income Requirement. However, income from the disposition of options and futures
contracts (other than those on foreign currencies) will be subject to the Short-
Short Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures, and forward contracts
on foreign currencies, that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect
thereto) also will be subject to the Short-Short Limitation if they are held for
less than three months.
32
<PAGE>
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The Fund
will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Fund does not so qualify, it may be
forced to defer the closing out of certain options, futures and forward
contracts beyond the time when it otherwise would be advantageous to do so, in
order for the Fund to continue to qualify as a RIC.
The foregoing discussion of Federal income tax consequences is based on the
tax law in effect on the date of this Statement of Additional Information, which
is subject to change by legislative, judicial or administrative action. The Fund
may be subject to state or local tax in jurisdictions in which it may be deemed
to be doing business.
REPORTS TO SHAREHOLDERS
The Fund issues, at least semi-annually, reports to its shareholders
including a list of investments held and statements of assets and liabilities,
operations, and changes in net assets of the Fund. The Fund's fiscal year ends
on December 31.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company, 89 South Street, Boston, MA 02109, has been
retained to act as Custodian of the Fund's investments and may appoint one or
more subcustodians. As part of its agreement with the Fund, the Custodian may
apply credits or charges for its services to the Fund for, respectively,
positive or deficit cash balances maintained by the Fund with the Custodian. DST
Systems, Inc., P.O. Box 419789, Kansas City, MO 64141-6789, acts as the Fund's
Transfer and Dividend Disbursing Agent. The Distributor provides certain
administrative and shareholder services to the Fund and is reimbursed by the
Fund the actual costs incurred with respect thereto. Among other such services,
the Distributor currently receives and responds to shareholder inquiries
concerning their accounts and processes shareholder telephone requests such as
telephone transfers, purchases and redemptions, changes of address and similar
matters. For shareholder services, the Fund reimbursed the Distributor
approximately $61,100, $118,676 and $153,664, for the fiscal years ended
December 31, 1992, 1993 and 1994, respectively.
AUDITORS
Tait, Weller & Baker, Two Penn Center, Suite 700, Philadelphia, PA 19101-
1707, are the independent accountants for the Fund. Financial statements of the
Fund are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended December 31, 1994,
together with the Report of the Fund's independent accountants thereon, appear
in the Fund's Annual Report to Shareholders and are incorporated herein by
reference.
33
<PAGE>
APPENDIX -- DESCRIPTIONS OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or 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
and, together with the Aaa group, 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 of fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the longer 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.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A Bonds rated A have a strong capacity to pay principal interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB Bonds rated BBB are regarded as having adequate capacity to pay principal
and interest. Whereas they normally exhibit protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this capacity than
for bonds in the A category.
BB, B, CCC, CC Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in
34
<PAGE>
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
35
<PAGE>
BULL & BEAR SPECIAL EQUITIES FUND, INC.
Part C. Other Information
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial statements for each of the seven years in the period ended
December 31, 1994, and for the period from March 20, 1993 (commencement
of operations) through December 31, 1994.
(b) Financial Highlights:
The Annual Report to Shareholders of the Fund for the fiscal year ended
December 31, 1994 containing financial statements as of and for the
fiscal year ended December 31, 1994 is filed herewith.
(b) Exhibits
(1) Articles of Incorporation. Incorporated herein by reference to
corresponding Exhibit of the initial Registration Statement, SEC
File No. 33-2847, filed January 22, 1986.
(2) By-Laws
(3) Voting trust agreement -- none
(4) Specimen security (filed herewith)
(5) Investment advisory contract; Transfer agreement and consent.
Incorporated herein by reference to corresponding Exhibit of Post-
Effective Amendment No. 11, SEC File No. 33-2847, filed March 2,
1993.
(6) Underwriting agreement
(7) Bonus, profit sharing or pension plans -- none
(8) (a) Custodian Agreement. Incorporated herein by reference to
corresponding Exhibit of Pre-Effective Amendment No. 1 to the
Registration Statement, SEC File No. 33-2847, filed March 17,
1986.; amendment. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 12, SEC
File No. 33-2847, filed April 30, 1993.
(b) Depository Agreements. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 12, SEC
File No. 33-2847, filed April 30, 1993.
(c) Service and Agency Agreement (filed herewith)
(d) Custodial Account and IRA Disclosure Statement (filed herewith)
(e) IRA Agreement (filed herewith)
(9) (a) Transfer Agency Agreement (filed herewith)
(b) Transfer Agency Assignment Agreement (filed herewith)
(c) Shareholder services agreement. Incorporated herein by
reference to corresponding Exhibit of Post-Effective Amendment
No. 11, SEC File No. 33-2847, filed March 2, 1993.
(d) Agency Agreement (filed herewith)
(10) (a) Opinion of counsel. Incorporated herein by reference to
corresponding Exhibit of the initial Registration Statement,
SEC File No. 33-2847, filed January 22, 1986.
(b) Opinion of counsel pursuant to Section 24 (e) (1) (filed
herewith)
<PAGE>
(11) Other opinions, appraisals, rulings and consents -Accountants'
consent (filed herewith)
(12) Financial statements omitted from Item 23 -- not applicable
(13) Agreement for providing initial capital. Incorporated herein by
reference to corresponding Exhibit of Pre-Effective Amendment No. 1
to the Registration Statement, SEC File No. 33-2847, filed March 17,
1986.
(14) Prototype retirement plans (filed herewith)
(a) Standardized Profit Sharing Adoption Agreement
(b) Defined Contribution Basic Plan Document
(c) Standardized Money Purchase Adoption Agreement
(d) Simplified Profit Sharing Adoption Agreement
(e) Simplified Money Purchase Adoption Agreement
(15) (a) Plan pursuant to Rule 12b-1
(b) Related Agreement to Plan of Distribution pursuant to Rule 12b-
1 between Bull & Bear Service Center, Inc. and Hanover Direct
Advertising Company, Inc. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 12, SEC
File No. 33-2847, filed April 30, 1993.
(c) Broker Services Agreements. Incorporated herein by
reference to corresponding Exhibit of Post-Effective Amendment
No. 11, SEC File No. 33-2847, filed March 2, 1993.
(16) Schedule for computation of performance quotations. Incorporated
herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 11, SEC File No. 33-2847, filed March 2, 1993.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Not applicable.
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class (as of March 31, 1995)
-------------- ----------------------
Shares of Common Stock,
$0.01 par value 8,846
Item 27. Indemnification
---------------
The Registrant is incorporated under Maryland law. Section 2-418 of the
Maryland General Corporation Law requires the Registrant to indemnify its
directors, officers and employees against expenses, including legal fees, in a
successful defense of a civil or criminal proceeding. The law also permits
indemnification of directors, officers, employees and agents unless it is proved
that (a) the act or omission of the person was material and was committed in bad
faith or was the result of active or deliberate dishonesty, (b) the person
received an improper personal benefit in money, property or services or (c) in
the case of a criminal action, the person had reasonable cause to believe that
the act or omission was unlawful.
Registrant's amended and restated Articles of Incorporation: (1) provide
that, to the maximum extent permitted by applicable law, a director or officer
<PAGE>
will not be liable to the Registrant or its stockholders for monetary damages;
(2) require the Registrant to indemnify and advance expense as provided in the
By-laws to its present and past directors, officers, employees and agents, and
persons who are serving or have served at the request of the Registrant in
similar capacities for other entities in advance of final disposition of any
action against that person to the extent permitted by Maryland law and the 1940
Act; (3) allow the corporation to purchase insurance for any present or past
director, officer, employee, or agent; and (4) require that any repeal or
modification of the amended and restated Articles of Incorporation by the
shareholders, or adoption or modification of any provision of the Articles of
Incorporation inconsistent with the indemnification provisions, be prospective
only to the extent such repeal or modification would, if applied
retrospectively, adversely affect any limitation on the liability of or
indemnification available to any person covered by the indemnification
provisions of the amended and restated Articles of Incorporation.
Section 11.01 of Article XI of the By-Laws sets forth the procedures by
which the Registrant will indemnify its directors, officers, employees and
agents. Section 11.02 of Article XI of the By-Laws further provides that the
Registrant may purchase and maintain insurance or other sources of reimbursement
to the extent permitted by law on behalf of any person who is or was a director
or officer of the Registrant, or is or was serving at the request of the
Registrant as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in or arising out of his or her position.
Registrant's amended Investment Management Agreement between the
Registrant and Bull & Bear Advisers, Inc. (the "Investment Manager") provides
that the Investment Manager shall not be liable to the Registrant or its series
or any shareholder of the Registrant or its series for any error of judgment or
mistake of law or for any loss suffered by the Registrant in connection with the
matters to which the Investment Management Agreement relates. However, the
Investment Manager is not protected against any liability to the Registrant or
to the series by reason of willful misfeasance, bad faith, or gross negligence
in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the Investment Management Agreement.
Section 9 of the Distribution Agreement between Bull & Bear Funds II,
Inc. and Bull & Bear Service Center, Inc. ("Service Center") provides that the
Registrant will indemnify Service Center and its officers, directors and
controlling persons against all liabilities arising from any alleged untrue
statement of material fact in the Registration Statement or from any alleged
omission to state in the Registration Statement a material fact required to be
stated in it or necessary to make the statements in it, in light of the
circumstances under which they were made, not misleading, except insofar as
liability arises from untrue statements or omissions made in reliance upon and
in conformity with information furnished by Service Center to the Registrant for
use in the Registration Statement; and provided that this indemnity agreement
shall not protect any such persons against liabilities arising by reason of
their bad faith, gross negligence or willful misfeasance; and shall not inure to
the benefit of any such persons unless a court of competent jurisdiction or
controlling precedent determines that such result is not against public policy
as expressed in the Securities Act of 1933. Section 9 of the Distribution
Agreement also provides that Service Center agrees to indemnify, defend and hold
the Registrant, its officers and Directors free and harmless of any claims
arising out of any alleged
<PAGE>
untrue statement or any alleged omission of material fact contained in
information furnished by Service Center for use in the Registration Statement or
arising out of any agreement between Service Center and any retail dealer, or
arising out of supplementary literature or advertising used by Service Center in
connection with the Distribution Agreement.
The Registrant undertakes to carry out all indemnification provisions of
its Articles of Incorporation and By-Laws and the above-described Investment
Management Agreement in accordance with Investment Company Act Release No. 11330
(September 4, 1980) and successor releases.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to directors, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions 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 director, officer or controlling
person of the Registrant with the successful defense of any action, suit or
proceeding or payment pursuant to any insurance policy) is asserted against the
Registrant by such director, 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 public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser
----------------------------------------------------
The directors and officers of Bull & Bear Advisers, Inc., the Investment
Manager, are also directors and officers of the other Funds managed by the
Investment Manager, a wholly-owned subsidiary of Bull & Bear Group, Inc. (the
"Bull & Bear Funds"). In addition, such officers are officers and directors of
Bull & Bear Group, Inc. and its other subsidiaries; Bull & Bear Service Center,
Inc., the distributor of the Bull & Bear Funds and a registered broker/dealer
and Bull & Bear Securities, Inc., a discount brokerage firm. The principal
business of both companies since their founding has been to serve as investment
manager to registered investment companies. The Investment Manager, also serves
as investment manager of Bull & Bear Dollar Reserves, Bull & Bear Global Income
Fund, and Bull & Bear U.S. Government Securities Fund, each a series of Bull &
Bear Funds II, Inc.; Bull & Bear Municipal Income Fund, a series of shares
issued by Bull & Bear Municipal Securities, Inc.; Bull & Bear Gold Investors
Ltd. and Bull & Bear U.S. and Overseas Fund and Bull & Bear Quality Growth Fund,
each a series of Bull & Bear Funds I, Inc.
Item 29. Principal Underwriters
----------------------
a) In addition to the Registrant, Bull & Bear Service Center, Inc. serves as
principal underwriter of Bull & Bear Gold Investors Ltd., Bull & Bear Funds II,
Inc., Bull & Bear Funds I, Inc., and Bull & Bear Municipal Securities, Inc.
b) Service Center will serve as the Registrant's principal underwriter with
respect to Bull & Bear Special Equities Fund, Inc. The directors and officers of
<PAGE>
Service Center, their principal business addresses, their positions and offices
with Service Center and their positions and offices with the Registrant (if any)
are set forth below.
Position and Offices Position and Offices
Name and Principal with Bull & Bear with Registrant
Business Address Service Center, Inc.
Bassett S. Winmill Director Chairman of the Board
11 Hanover Square
New York, NY 10005
Robert D. Anderson Vice Chairman and Vice Chairman and
11 Hanover Square Director Director
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Brett B. Sneed Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Mark C. Winmill Chairman, Director and Co-President and Chief
11 Hanover Square Chief Financial Officer Financial Officer
New York, NY 10005
Thomas B. Winmill President, Director Co-President and General
11 Hanover Square Counsel
New York, NY 10005
William J. Maynard Vice President and Vice President and
11 Hanover Square Secretary Secretary
New York, NY 10005
Kathleen B. Fliegauf Vice President and None
11 Hanover Square Assistant Secretary
New York, NY 10005
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
William K. Dean Treasurer Treasurer
11 Hanover Square
New York, NY 10005
Item 30. Location of Accounts and Records
--------------------------------
The minute books of Registrant and copies of its filings with the
Commission are located at 11 Hanover Square, New York, NY 10005 (the offices of
Registrant and its Investment Manager). All other records required by Section
31(a) of the Investment Company Act of 1940 are located at Investors Bank &
Trust Company, 89 South Street, Boston, MA 02111 (the offices of Registrant's
custodian) and at Supervised Service Company, P.O. Box 419789, Kansas City, MO
64141-6789 (the offices of the Registrant's transfer and dividend disbursing
agent). Copies of certain of the records located at Investors Bank & Trust
Company and Supervised Service Company are kept at 11 Hanover Square, New York,
NY 10005.
Item 31. Management Services -- none
-------------------
<PAGE>
Item 32. Undertakings -- none
------------
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City, County and State of New York on this 28th day of April,
1995.
BULL & BEAR SPECIAL EQUITIES FUND, INC.
By: Thomas B. Winmill
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Mark C. Winmill Co-President and Co-Chief April 28, 1995
- --------------------------
Mark C. Winmill Executive Officer
Thomas B. Winmill Co-President and Co-Chief April 28, 1995
- --------------------------
Thomas B. Winmill Executive Officer
Bassett S. Winmill Director, Chairman of the April 28, 1995
- --------------------------
Bassett S. Winmill Board of Directors
William K. Dean Treasurer, Principal April 28, 1995
- --------------------------
William K. Dean Accounting Officer
Robert D. Anderson Director April 28, 1995
- --------------------------
Robert D. Anderson
Bruce B. Huber Director April 28, 1995
- --------------------------
Bruce B. Huber
James E. Hunt Director April 28, 1995
- --------------------------
James E. Hunt
Frederick A. Parker, Jr. Director April 28, 1995
- --------------------------
Frederick A. Parker, Jr.
John B. Russell Director April 28, 1995
- --------------------------
John B. Russell
<PAGE>
EXHIBIT INDEX
EXHIBIT
- ----------
(4) Specimen security
(8) (c) Service and Agency Agreement
(d) Custodial Agreement and IRA Disclosure Statement
(e) IRA Agreement
(9) (a) Transfer Agency Agreement
(b) Assignment Agreement
(d) Agency Agreement
(10) (b) Opinion of counsel pursuant to Section 24(e)(1)
(11) Other opinions, appraisals, rulings and consents -Accountants' consent
(14) (a) Standardized Profit Sharing Adoption Agreement
(b) Defined Contribution Basic Plan Document
(c) Standardized Money Purchase Adoption Agreement
(d) Simplified Profit Sharing Adoption Agreement
(e) Simplified Money Purchase Adoption Agreement
(27) Financial Data Schedule
Annual Report to Shareholders of the Fund for the fiscal period ended December
31, 1994 containing financial statements as and for the fiscal period ended
December 31, 1994
NUMBER SHARES
BULL & BEAR SPECIAL EQUITIES FUND, INC.
INCORPORATED UNDER THE LAWS OF MARYLAND
THIS CERTIFIES THAT ACCOUNT NUMBER
CUSIP NUMBER
120177100
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CAPITAL STOCK, PAR
VALUE $0.01 PER
SHARE OF BULL & BEAR SPECIAL EQUITIES FUND, INC.
Herein called the "Corporation", transferable on the books of the Corporation
by the holder hereof in person or by duly authorized attorney upon the
surrender of this certificate properly endorsed. The Corporation will furnish
to any shareholder upon request and without charge a full statement of the
designations, relative rights, preferences and limitations of the shares of
each series and class authorized to be issued. This certificate is not valid
unless countersigned by the Transfer Agent.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
COUNTERSIGNED:
CO-PRESIDENT TREASURER
COUNTERSIGNED:
SUPERVISED SERVICE COMPANY, INC.
(KANSAS CITY, MISSOURI) TRANSFER AGENT
BY:
AUTHORIZED SIGNATURE
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S)
AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. SIGNATURE(S)
MUST BY DULY
GUARANTEED BY A COMMERCIAL BANK, TRUST COMPANY, SAVINGS AND LOAN
ASSOCIATION,
FEDERAL SAVINGS BANK, MEMBER FIRM OF A NATIONAL SECURITIES
EXCHANGE OR OTHER
ELIGIBLE FINANCIAL INSTITUTION.
The following abbreviations, when used in the inscription on the face of this
<PAGE>
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of survivorship under Uniform
Gifts to Minors Act
and not as tenants in common
(State)
Additional abbreviations may also be used though not in the above list.
For value received, do hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF
ASSIGNEE)
Shares of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,
Owner
Signature of Co-Owner, if any
IMPORTANT BEFORE SIGNING, READ AND COMPLY CAREFULLY
WITH NOTICE PRINTED ABOVE
Signature(s) guaranteed by:
<PAGE>
SERVICE AND AGENCY AGREEMENT
This Service and Agency Agreement (The "Agreement") is among
Investors Bank & Trust Company (hereinafter referred to as
"Investors Bank & Trust Company") and Bull & Bear Special
Equities Fund, Inc. (hereinafter referred to as "Bull & Bear"),
and is effective as of November 19, 1994. As of its effective
date, this Agreement supersedes any prior agreement relating to
the subject matter hereof.
Article 1: Recitals
1.1 Bull & Bear has developed certain materials that may be
used by an individual to establish an individual retirement
custodial account ("IRA"). These Bull & Bear materials use the
provisions of IRS Form 5305-A, Individual Retirement Custodial
Account, provisions developed by Bull & Bear in Article VIII of
Form 5305-A, an IRA disclosure statement and related forms and
materials (and such materials are hereinafter collectively called
the"IRA Materials"), and the provisions of IRS Form 5305-SEP,
Simplified Employee Pension - Individual Retirement Accounts
Contribution Agreement, and related informational or other
materials (and such materials are hereafter referred to
collectively as the "SEP Materials." In addition, Bull & Bear
has developed or contracted for certain materials that may be
used by an individual to establish a 403(b)(7) custodial account
(the "403(b) Account Materials") and master or prototype
qualified plan materials that may be used by an Employer to
establish a tax-qualified profit sharing or money purchase
pension plan (the "Prototype Plan Materials"). The IRA
Materials, the SEP Materials, the 403(b) Account Materials, and
the Prototype Plan Materials are hereinafter referred to
collectively as the "Materials". Contributions to an IRA, 403(b)
Account or Employer Plan established using the IRA Materials, the
403(b) Account Materials or the Prototype Plan Materials (as the
case may be) may be invested in shares of open-end regulated
investment companies in the Bull & Bear Funds Group ("Shares").
1.2 Bull & Bear desires to have Investors Bank & Trust
Company serve as Custodian of IRAs or 403(b) Accounts established
using the IRA Materials or the 403(b) Account Materials, and to
serve as Trustee of Employer Plans established using the
Prototype Plan Materials. Investors Bank & Trust Company is
willing to serve as such Custodian or Trustee in accordance with
<PAGE>
the terms and conditions of this Agreement. For purposes of this
Agreement, in its capacity as Custodian or Trustee of a Customer
Arrangement hereunder, Investors Bank & Trust Company will be
referred to as the "Custodian" (even though with respect to
Employer Plans, Investors Bank & Trust Company is serving as
Trustee).
1.3 Investors Bank & Trust represents to Bull & Bear that
it is and, as long as any Customer Arrangements established
hereunder are in effect, will be a "bank" as defined in Section
408(n)(1) of the Internal Revenue Code of 1986, as amended.
Article 2: Definitions
As used in this Agreement, the following terms have the following
meanings:
2.1 "Customer" means an individual or business maintaining
a Customer IRA, Customer 403(b) Account, or Employer Plan.
2.2 "Customer Arrangement" means a Customer IRA, a Customer
403(b) Account, or an Employer Plan.
2.3 "Customer IRA" means the individual retirement
custodial account, as hereafter adopted by an individual using
the IRA Materials.
2.4 "Customer 403(b) Account" means the 403(b)(7) custodial
account, as hereafter adopted by an individual using the 403(b)
Account Materials.
2.5 "Employer" means an entity (whether incorporated or
not) that has established an Employer SEP or an Employer Plan.
2.6 "Employer Plan" means a tax-qualified prototype profit
sharing or money purchase pension plan as hereafter established
by an Employer using the Prototype Plan Materials.
2.7 "Employer SEP" means a simplified employee pension
plan, as hereafter established by an Employer using the SEP
Materials.
Article 3: IRA Materials
3.1 Bull & Bear will be responsible for preparing and
maintaining all of the Materials. Bull & Bear will be
responsible for the legal and tax effect of such Materials, and
will take all steps necessary to ensure that all the Materials
contain such terms and conditions and meet such other
requirements as are necessary to comply with all provisions of
the Internal Revenue Code and any other laws applicable to
individual retirement accounts, simplified employee pension
plans, 403(b)(7) custodial accounts or tax-qualified profit
sharing or money purchase pension plans, in order to achieve tax
deferral for Customers who establish or employees or owner-
employees who participate in a Customer Arrangement and to
<PAGE>
achieve tax deductibility for the Employer for any contributions
to any such Customer Arrangement (within applicable limitations).
This responsibility will include (without limitation) timely
amending the Materials and causing amended Materials to be
distributed to and if necessary signed by Customers and/or
Employers. All costs and expense of the preparation and
maintenance of the Materials will be borne by Bull & Bear.
Bull & Bear may contract for or arrange with a vendor
selected with reasonable care by Bull & Bear for the provision of
any or all the Materials, provided that, as between Bull & Bear
and Investors Bank & Trust Company, Bull & Bear will be
responsible for all the Materials as provided in the preceding
paragraph and for all other purposes of this Agreement.
The Materials (and all explanatory, advertising, marketing
or other Materials used in connection with any Customer
Arrangement) will provide that Investors Bank & Trust Company as
Custodian of any Customer Arrangement will have no investment
responsibilities and no fiduciary or other responsibility or
liability for the selection of investments for any Customer
Arrangement, and will not serve as the "plan administrator" (as
defined in the Employee Retirement Income Security Act of 1974,
as amended) of any Customer Arrangement.
Article 4: Employment of Investors Bank & Trust Company as
Custodian
4.1 Investors Bank & Trust Company agrees to serve as
Custodian of any Customer Arrangement hereafter established by a
Customer using the Materials. As such Custodian, Investors Bank
& Trust Company will be designated as the owner of the Shares
purchased for each Customer Arrangement on the records of Bull &
Bear. Bull & Bear represents and warrants to Investors Bank &
Trust Company that the Shares will meet all applicable legal
requirements, including registration in accordance with the
Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, in order to be legal investments for
Customer Arrangements.
4.2 Records of the Custodian's ownership of Shares will be
maintained by Bull & Bear in the name of Investors Bank & Trust
Company as Custodian (or its nominee) and no physical shares will
be issued.
4.3 Investors Bank & Trust Company and Bull & Bear
acknowledge and agree that:
<PAGE>
(a) Under the Materials, Investors Bank & Trust Company
as Custodian has no investment responsibility for the
selection of Shares for any Customer Arrangement and
Investors Bank & Trust Company will have no liability for
any investments made for a Customer Arrangement.
(b) Investors Bank & Trust Company will not serve as
"plan administrator" (as defined in the Employee Retirement
Income Security Act of 1974, as amended) of any Customer
Arrangement whatsoever, or in any other administrative
capacity or other capacity except as Custodian thereof.
(c) Bull & Bear agrees that, in any written, oral, or
electronic communications from Bull & Bear to any
prospective or actual Customer or Employer, it will not
state or represent that Investors Bank & Trust Company has
any investment discretion or other power concerning
investments of any Customer Arrangement, or that Investors
Bank & Trust Company will serve as plan administrator or
have any administrative or other responsibility for the
administration or operation of any Customer Arrangement.
4.4 (a) Investors Bank & Trust Company hereby delegates to
Bull & Bear all recordkeeping and other duties of the Custodian
as are specified in any of the Materials or as may be necessary
or convenient to administer and maintain any Customer
Arrangement. With respect to any Customer Arrangement, such
<PAGE>
duties include, without implied limitation, receiving and
maintaining copies of the signed Materials and other
documentation necessary to reflect the establishment of and
activity in each Customer Arrangement, processing all
contributions to a Customer Arrangement (including rollover or
direct rollover contributions), properly investing all such
contributions in Shares in accordance with the Customer's
instructions, processing investment transfers among Shares in
accordance with the Customer's instructions, processing
distributions and rollovers or transfers from the Customer
Arrangement, providing periodic Customer Arrangement account
statements (including a year-end statement), performing all
required government reporting in a timely manner in accordance
with applicable requirements, including timely filing Form 5498
and Form 1099R (where applicable) with the Customer and the
Internal Revenue Service, performing income tax withholding,
where applicable, timely providing a Schedule P to each Employer
with an Employer Plan to be filed with the Annual Report of the
Employer Plan to the Internal Revenue Service, and responding to
all Customer and other inquiries concerning a Customer
Arrangement. With respect to Employer SEPs and Employer Plans,
such duties may include, without implied limitation, receiving
Employer SEP or Employer Plan contributions and properly
allocating such contributions to participants' accounts or (in
the case of an Employer SEP) individual retirement accounts
operating in connection with such Employer SEP or Employer Plan,
and responding to all Employer and other inquiries concerning an
Employer SEP or Employer Plan. Bull & Bear will perform all such
duties, and will do so with the same degree of care that
Investors Bank & Trust Company would be required to exercise if
it were performing such duties itself.
(b) Bull & Bear may delegate any of its duties under
the preceding subsection (a) to a third party service provider or
service bureau (which may include an affiliate of Bull & Bear or
the transfer agent or distributor of the Shares) selected by Bull
& Bear with reasonable care. Notwithstanding any such
delegation, Bull & Bear will remain responsible to Investors Bank
& Trust Company for the complete and proper performance of Bull &
Bear's duties under the preceding subsection (a).
4.5 Bull & Bear will upon reasonable advance notice make
available access to its facilities and access to or copies of
such records to Investors Bank & Trust Company as Investors Bank
& Trust Company may request in order that Investors Bank & Trust
Company may determine that Bull & Bear is properly performing its
duties and obligations hereunder or as may be necessary to comply
with bank regulatory or other legal requirements to which
Investors Bank & Trust Company is subject; Investors Bank & Trust
Company's right of access under this sentence will include access
to any service provider or service bureau performing any of Bull
&
Bear's duties and obligations under this Agreement on behalf of
Bull & Bear.
Article 5: Reviews of Materials
5.1 Bull & Bear will submit to Investors Bank & Trust
Company and await its advance approval of all Materials and of
any other materials concerning Investors Bank & Trust Company or
the duties of the Custodian which will be used by Bull & Bear in
marketing the Materials to prospective or actual Customers or
Employers or in communicating with Customers or Employers.
Investors Bank & Trust Company will not unreasonably withhold its
approval of any such materials.
5.2 Any approvals by Investors Bank & Trust Company under
Section 5.1 will constitute Investors Bank & Trust Company's
acquiescence to the use of such materials and not its approval of
<PAGE>
their contents or their effect. Bull & Bear will assume full
responsibility to Investors Bank & Trust Company and to all other
interested persons (including Customers and Employers) for such
contents and such effect.
Article 6: Applications and Correspondence
6.1 Investors Bank & Trust Company will sign all
applications to establish a Customer Arrangement or other
documents related to Customer Arrangements which Bull & Bear
submits to Investors Bank & Trust Company for its signature.
However, Investors Bank & Trust Company may in writing authorize
Bull & Bear or Bull & Bear's designee to execute Investors Bank &
Trust Company's name to one or more specific documents or
categories of documents (and such authorization may be a blanket
or standing authorization until revoked by Investors Bank & Trust
Company). In no event will Bull & Bear sign Investors Bank &
Trust Company's name on any application or other document without
Investors Bank & Trust Company's prior written approval.
6.2 Upon receipt, Investors Bank & Trust Company will
promptly forward or refer all written and oral inquiries from
Customers, Employers and/or other parties to Bull & Bear. Bull &
Bear will appropriately handle all inquiries directed to the
Custodian.
Article 7: Returns and Reports
7.1 Bull & Bear will timely prepare and file all returns,
reports and statements relating to Customer Arrangements required
by the Code and regulations thereunder or any other applicable
federal or state law, or as agreed to in the relevant Materials
relating to a Customer Arrangement.
Article 8: Fees and Expenses
8.1 In consideration for Investors Bank & Trust Company's
service as Custodian hereunder, Bull & Bear will pay Investors
Bank & Trust Company such compensation as is specified in
attached Schedule A. In addition, Investors Bank & Trust Company
will be entitled to be reimbursed by Bull & Bear for Investors
Bank & Trust Company's reasonable expenses (including fees of
legal counsel or other advisors) incurred in performing any
services under this Agreement other than serving as Custodian of
a Customer Arrangement (such as, by way of an example of a
reimbursable expense and not by way of limitation, fees of legal
counsel to review the Materials) or any services requested by
Bull & Bear.
8.2 Investors Bank & Trust Company will receive
reimbursement for any expenses it incurs in connection with
serving as Custodian of any Customer Arrangement to the extent
provided for under the relevant Materials and as Custodian will
have the right to charge such expenses directly to a Customer
<PAGE>
Arrangement (or an account thereunder) as provided for under the
relevant Materials. To the extent that Investors Bank & Trust
Company does not collect the entire amount of any such expense
from the Customer Arrangement involved, Bull & Bear will pay such
shortfall to Investors Bank & Trust Company.
Article 9: Indemnification of Investors Bank & Trust Company
9.1 Bull & Bear and its successors and assigns will at all
times jointly and severally indemnify and hold Investors Bank &
Trust Company and its successors and assigns harmless from any
and all liability, claims, actions, loss, costs or expense
(including (a) reasonable fees for counsel, (b) taxes, penalties,
expenses or fees, and (c) any liability imposed directly or
indirectly as a consequence of limiting investment options
available under any Customer Arrangement to the Shares),
hereinafter referred to as "Losses", which Investors Bank & Trust
Company incurs in any manner arising directly or indirectly from
or out of or in connection with the performance or non-
performance by Bull & Bear of Bull & Bear's duties and
obligations under this Agreement or applicable law, or arising
directly or indirectly from, out of or in connection with
Investors Bank & Trust Company's being named Custodian of any
Customer Arrangement under this Agreement or under any of the
Materials.
The indemnification of Investors Bank & Trust Company (and
its successors and assigns) provided for in the preceding
paragraph will include indemnification for any Losses arising
directly or indirectly from or out of or in connection with the
performance or non-performance by either any third-party service
provider or service bureau to whom Bull & Bear has delegated any
of its duties under Section 4.4(b) or any provider or vendor with
whom Bull & Bear has contracted for the provision of any of the
Materials under Section 3.1.
9.2 No Losses which might be subject to the indemnification
provision in Section 9.1 will be confessed, settled or
compromised by Investors Bank & Trust Company until Investors
Bank & Trust Company gives Bull & Bear at least ten business
days' written notice of the material facts as then known to
Investors Bank & Trust Company, and Bull & Bear will have the
right, upon written demand given to Investors Bank & Trust
Company within ten business days after the date of such notice
from Investors Bank & Trust Company, to confess or defend against
such Losses at its expense.
Article 10: Resignation or Removal of Custodian
10.1 If at any time hereafter, Bull & Bear chooses to
<PAGE>
discontinue performing any of its duties and obligations
described in or contemplated by this Agreement, either of a
general nature or in respect to any or all Customer Arrangements,
it will give Investors Bank & Trust Company at least 90 days'
written notice prior to such discontinuance. Investors Bank &
Trust Company may thereupon resign as Custodian in respect to any
or all Customer Arrangements in accordance with the provisions of
the relevant Materials. If within 30 days after Investors Bank &
Trust Company receives such a notice from Bull & Bear, or if any
other time prior to receipt of any such notice from Bull & Bear,
Investors Bank & Trust Company chooses to resign as Custodian of
any or all Customer Arrangements, Bull & Bear will promptly
distribute the notice of Investors Bank & Trust Company's
resignation to such persons and in such manner as are called for
under the applicable provisions of the relevant Materials and in
form and content satisfactory to Investors Bank & Trust Company.
Bull & Bear will continue to perform such duties and obligations
in respect to such Customer Arrangements at least until Investors
Bank & Trust Company's resignation takes effect and the assets
have been transferred to its successor custodian or trustee or
have been distributed.
Article 11: Miscellaneous
11.1 No party to this Agreement will be liable to any other
party for consequential damages under any provision of this
Agreement or for any consequential damages arising out of any act
or failure to act hereunder (provided that this Section 11.1 is
not intended to and will not be construed to reduce or terminate
in any way Bull & Bear's indemnification obligation under Section
9.1).
11.2 This Agreement will become effective as of the date
stated above and will continue in full force while Investors Bank
& Trust Company serves as Custodian of any Customer Arrangements,
and will terminate when Investors Bank & Trust Company no longer
serves as Custodian of any such Customer Arrangement; provided,
however, that the indemnification provisions of Article 9 will
continue to apply after termination of this Agreement with
respect to any act or omission which is alleged to have occurred
while this Agreement was in effect.
11.3 This Agreement may be amended from time to time by
mutual written agreement of the parties. Any such amendment must
be in writing and signed by both parties. Schedules appended
hereto may be amended by written agreement between the parties
without re-execution of this Agreement.
11.4 Bull & Bear represents and warrants to Investors Bank &
Trust Company that it has power under its Articles of
<PAGE>
Incorporation and by-laws (or equivalent) to enter into and
perform its obligations under this Agreement, and has duly
executed this Agreement so as to constitute its valid and binding
obligation.
11.5 Notices and other writings will be delivered or mailed
postage prepaid to:
Bull & Bear at
11 Hanover Square
New York, NY 10005
Attn: Thomas B. Winmill, President
Investors Bank & Trust Company at
P.O. Box 1537 - ADM27
Boston, MA 02205
Attn: Henry N. Joyce, Managing Director
or to such other addresses Bull & Bear or Investors Bank & Trust
Company may hereafter specify to the other in writing.
11.6 This Agreement will be construed and the provisions
thereof interpreted under and in accordance with the laws of the
Commonwealth of Massachusetts. Bull & Bear hereby submits to the
jurisdiction of the courts located in the Commonwealth of
Massachusetts, including any appellate court thereof or the
federal district court located therein with respect to any
litigation involving this Agreement.
11.7 Unless otherwise required by law, each party agrees to
maintain in confidence any confidential or proprietary
information of any other party and not to disclose any such
information without the consent of the party owning such
information.
IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be executed in its name and behalf by its duly authorized
officer and to be duly attested.
ATTEST:
BULL & BEAR SPECIAL EQUITIES FUND, INC.
_______________________ By:______________________________________
Authorized Signer
INVESTORS BANK & TRUST COMPANY
_______________________ By:______________________________________
Authorized Signer
<PAGE>
SCHEDULE A
In consideration for Investors Bank & Trust Company's service as
Custodian, Bull & Bear will pay Investors Bank & Trust Company
the per account or per participant amount shown below per
calendar year or any portion thereof that Investors Bank & Trust
Company is serving as Custodian of one or more Customer
Arrangements:
Customer IRAs (including SEP - IRAs):
$1.00 Per Customer IRA
Customer 403(b) Accounts:
$1.00 per Customer 403(b) Account
Employer Plans
$10.00 Per Participant in the Employer Plan
December 1994
SELF-DIRECTED
INDIVIDUAL RETIREMENT
CUSTODIAL ACCOUNT
DISCLOSURE STATEMENT
SELF-DIRECTED INDIVIDUAL RETIREMENT
CUSTODIAL ACCOUNT DISCLOSURE STATEMENT
If you do not receive this statement at least seven days before you
establish your Individual Retirement Account, you have the right to revoke
your account within seven days after it is established and to receive a return
of the entire amount of your investment in the account. If this right to
revoke applies to you and if you should desire to exercise your right to
revoke your Individual Retirement Custodial Account, you should mail or
deliver a written notice of revocation to the Service Company, the name and
address of which appear on the Application and Adoption Agreement. Mailed
notice will be deemed given on the date it is postmarked (or, if sent by
certified or registered mail, on the date of certification or registration by
the post office.) The Service Company has the right under the Custodial
Account Agreement to hold your initial contribution uninvested until the period
when you may revoke your account has expired.
1. ELIGIBILITY
You are eligible to set up an IRA if you are younger than age 70 1/2 and if,
at any time during the year, you are an employee or are self-employed and
receive compensation or earned income that is includible in your gross income.
Additionally, regardless of your age, you may also transfer funds from
another IRA or certain qualified plan distributions to a "Rollover" IRA,
which is described in paragraph 9 of this statement.
2. LIMIT ON ANNUAL CONTRIBUTIONS
(a) You can make annual contributions to an individual IRA of up to
$2,000, or 100% of your compensation or earned income, whichever is less.
(b) If you and your spouse both work and have compensation that is
includible in your gross income, each of you can annually contribute to a
separate IRA up to the lesser of $2,000 or 100% of compensation or earned
income.
(c) If your spouse earns no income from employment, or elects to be
treated as earning no income (this can be advantageous if your spouse has
$250 or less in earned income), and is under age 70 1/2, you can establish a
"spousal IRA" with two separate accounts if you file a joint Federal tax
return. The aggregate annual amount you can contribute to both IRAs each
year cannot exceed the lesser of $2,250 or 100% of your earned income or
compensation. This amount is divided between the two spousal IRA accounts as
you direct, but not more than $2,000 may be contributed to one account each
year.
(d) If you are a divorced spouse, all taxable alimony received by you
under a decree of divorce or separate maintenance will be treated as
compensation for purposes of the IRA contribution limit and the rules for
contributing to a regular IRA will apply. Accordingly, you can make annual
contributions of up to the lesser of $2,000, or 100% of compensation or
earned income (including taxable alimony).
3. DEDUCTIBILITY OF CONTRIBUTIONS
(a) You may deduct the full amount of your IRA contribution up to the
annual maximum limit if you are not an "active participant" in an employer-
sponsored retirement plan (including qualified 401(k), profit sharing or
retirement plans maintained by your employer, Simplified Employee Pension
plans, tax-sheltered annuity plans, and certain governmental plans) for any
part of such year. If you are married and you and your spouse file a joint
return, or you live together with your spouse at anytime during the year, you
will be deemed to be an active participant in an employer-sponsored
retirement plan if either you or your spouse is an active participant in such a
plan.
You are (or your spouse is) an "active participant" for a year if at any
time during the year you are covered by any employer plan under which
contributions are made to your account (including a required or voluntary
employee contribution by you) or under which you are eligible to earn pension
benefit credits. You are considered an active participant even if you are
not vested under the plan. Your Form W-2 for the year should indicate your
participation status. You should consult your own tax or financial advisor if
you should have any further questions.
Even if you are an active participant in such a plan, you may deduct the
full amount of your IRA contribution up to the annual maximum limit if you
have adjusted gross income equal to or below a specified level ($40,000 for
married taxpayers filing joint returns and $25,000 for single taxpayers). If
you are single and an active participant in an employer-sponsored retirement
plan, the amount of your IRA contribution which is deductible will be phased
out on the basis of adjusted gross income between $25,000 and $35,000. If you
are married and you and your spouse file a joint return, if either you or
your spouse is an active participant in an employer-sponsored retirement
plan, the amount of your IRA contribution which is deductible will be phased out
on the basis of your combined adjusted gross income between $40,000 and
$50,000. If you are married and file a separate return, the deduction for
IRA contributions phases out with adjusted gross income between $0 and $10,000.
In general, the IRA deduction is phased out at a rate of $200 per $1,000 of
adjusted gross income in excess of the phase out amount ($25,000 for single
taxpayers, $40,000 for married taxpayers who file joint returns and $0 for
married taxpayers who file separate returns). However, if you contribute to a
spousal IRA, your IRA deduction is phased out at a rate of $225 per $1,000 of
adjusted gross income in excess of $40,000.
When calculating your reduced IRA deduction limit, you always round up to
the next highest $10. Therefore, your deduction limit is always a multiple
of $10. In addition, if your adjusted gross income is within the phase-out
range and your reduced deduction limit is more than $0 but less than $200, you
are permitted to deduct up to $200 of your IRA contributions.
If your adjusted gross income exceeds the applicable level specified above
and you are an active participant in an employer-sponsored retirement plan
(or your spouse is an active participant in such a plan if you are married),
then you may not deduct any portion of your IRA contribution.
(b) Even if you will not be able to deduct the full amount of your IRA
contribution under the rules described above, you can still contribute up to
your annual maximum amount with all or part of the contribution being a non-
tax-deductible contribution. Of course, the combined total of deductible and
non-deductible contributions must not exceed your annual maximum contribution
limit amount. Any earnings on all your IRA contributions (deductible and
nondeductible) accumulate tax-free until you withdraw them.
4. CONTRIBUTIONS WHICH CAN NEVER BE DEDUCTED
You may not make any contribution (other than a rollover contribution) to
your IRA with respect to the tax year in which you reach age 70 1/2 or any
subsequent year. However, you may continue to make contributions to your
spouse's spousal IRA and deduct the deductible portion of such payments until
the year in which your spouse reaches age 70 1/2.
You may not deduct any portion of IRA contributions allocable to the cost of
life insurance. For this reason, life insurance is not offered as an
investment for your IRA.
5. ANNUAL CONTRIBUTIONS
Contributions to your IRA for a tax year must be made in cash on or before
the due date (not including extensions) for your Federal income tax return for
that tax year (April 15 for most individuals). If you intend to report
contributions made between January 1 and April 15 as contributions for your
prior tax year, you should notify us in writing that such contributions have
been made on account of such prior tax year. Otherwise, the Custodian will
assume the payment is for the current tax year.
6. EXCESS CONTRIBUTIONS
If you contribute to your IRA more than the maximum contribution limit
allowed any year, the excess contribution could be subject to a 6%
nondeductible excise tax. The excess is taxed in the year the excess
contribution is made and each year that the excess remains in your IRA at the
end of the year. (Remember, the excess contribution excise tax is based on
contributions above the maximum contribution limit, not the maximum deduction
limit.)
If, by accident, you should contribute more than the maximum amount allowed,
you can eliminate the excess contribution as follows:
(a) You can avoid the 6% excise tax by withdrawing the excess contribution
and the net earnings attributable to it before the due date (including any
extensions) for filing your Federal income tax return for the year the excess
occurred. Upon removing an excess contribution in this manner, the net
earnings attributable to it are includible in your income for the tax year in
which the excess contribution was made, and you may also have to pay an
additional 10% premature distribution tax on the amount of such net earnings
(see paragraph 7(a)). However, the excess contribution itself will not be
included in your taxable income and will not be subject to the 10% premature
distribution tax.
(b) If you elect not to withdraw an excess contribution, you can eliminate
the excess by contributing less than the maximum amount allowed to your IRA
in a later year. This is known as a "make-up" contribution and is allowed
only to the extent that you under-contribute in the later year. Further, to
the extent that you have not contributed your full deductible amount for that
later year, the amount of the excess so eliminated may be deductible as a
"make-up" deduction, depending on your active participant status and adjusted
gross income for the year. The 6% excise tax will, however, be imposed in
the year you make the excess contribution and each subsequent year until
eliminated.
(c) If you do not withdraw an excess contribution on or before the due
date for filing your Federal income tax return and your contribution did not
exceed $2,250, you can withdraw the excess at any time as long as you have
not deducted it on your Federal tax return. The amount of the excess which
you withdraw will not be included in your gross income and will not be
subject to regular Federal income tax. However, the 6% excise tax will be
imposed for the year in which you make the excess contribution and each
subsequent year, until the year of withdrawal.
(d) If you do not withdraw an excess contribution on or before the due
date for filing your Federal income tax return and your contribution exceeded
$2,250, you must include in your gross income any excess amount which you
withdraw even if you have not deducted it on your Federal income tax return.
You may also have to pay a 10% premature distribution tax on the amount you
withdraw (See paragraph 7 (a)). Additionally, the 6% excise tax will be
imposed for the year in which you make the excess contribution and each
subsequent year, until the year of withdrawal.
7. PAYMENTS FROM YOUR IRA DURING YOUR LIFE
(a) You can make withdrawals from your IRA at any time. However, if you
withdraw any of the funds in your IRA before age 59 1/2, the amount includible
in your gross income is subject to a 10% non-deductible premature distribution
tax unless:
(i) the withdrawal is made because of your death or permanent disability;
(ii) the withdrawal is an exempt withdrawal of an excess contribution; or
(iii) the withdrawal is rolled over into another qualified plan or IRA.
You are considered "disabled" for purposes of clause (i) if you are unable
to engage in any substantial gainful activity because of a physical or mental
impairment which can be expected to result in death or to be of long-lasting or
indefinite duration.
You can also withdraw funds held in your IRA without any tax penalty before
you reach age 59 1/2 if you choose to receive systematic payments in
substantially equal amounts over a period that does not exceed your life
expectancy or the life expectancy of you and your designated beneficiary. You
should be aware, however, that the 10% premature distribution tax will be
applied retroactively (with interest) to all systematic payments if you change
to a method of distribution that does not qualify for the exception either
before you attain age 59 1/2 or during the first five years of the
distributions.
The 10% premature distribution tax discussed above does not apply to the
portion of your IRA distribution which is not includible in your gross income.
(b) When you reach age 70 1/2, you must elect to receive distributions in
either (a) systematic payments (monthly, quarterly or annually), or (b) one
lump sum distribution of all the funds held in your IRA. The law requires that
you begin to receive distributions from your IRA no later than the April 1
following the year in which you reach age 70 1/2 (the "Required Distribution
Date"). If you elect systematic payments, there is a minimum amount which you
must withdraw by the Required Distribution Date and by each December 31
thereafter. This could result in two minimum distributions in one calendar
year. This minimum amount is determined by your life expectancy or the joint
life and last survivor expectancy of you and your designated beneficiary,
subject to the minimum distribution incidental death benefit rule. Your life
expectancy (and your spouse's life expectancy if your spouse is your designated
beneficiary) may be recalculated each year. If you established a spousal IRA,
the minimum required annual distribution from the spousal IRA is determined
using the life expectancy of your spouse.
You should consult your own tax or financial advisor with regard to the
calculation of the amount of your minimum distribution each year because it is
your responsibility to make sure that this requirement is met. The Custodian
is not required to advise you in this matter and will only make distributions
to you from your IRA in accordance with your specific instructions.
You may receive installment payments larger than the minimum amount.
However, if the amount distributed during a taxable year is less than the
minimum amount required to be distributed, the Internal Revenue Service may
impose a tax equal to 50% of the deficiency, unless it is satisfied that the
deficiency was due to reasonable error and that responsible steps are being
taken to remedy the deficiency.
8. PAYMENTS FROM YOUR IRA AFTER YOUR DEATH
If you die before all the funds held in your IRA have been distributed, the
remaining funds in the account will be distributed to your designated
beneficiary either outright or periodically, as selected by such beneficiary.
The Custodian will make distributions to your beneficiary in accordance with
his or her specific instructions. Your beneficiary should be aware that he or
she is subject to minimum distribution rules and it is his or her
responsibility to make sure that the rules are met. Under the post-death
minimum distribution rules, if you die after your Required Distribution Date,
the funds remaining in your IRA must continue to be distributed to your
designated beneficiary at least as rapidly as under the method of distribution
in effect prior to your death. If you die prior to your Required Distribution
Date, all the funds in your IRA must be completely distributed to your
designated beneficiary by December 31 of the year containing the fifth
anniversary of your death unless your designated beneficiary elects, no later
than December 31 of the year following the year of your death, to receive funds
from your IRA over a fixed period that is no longer than his or her life
expectancy. If your beneficiary is your surviving spouse, distribution of
funds from your IRA can be made to him or her over a fixed period that is no
longer than his or her life expectancy and commencing at any date prior to
<PAGE>
December 31 of the year in which you would have attained age 70 1/2. In all
instances, your spousal beneficiary may also elect to rollover the funds in
your IRA into his or her own account or treat your IRA as his or her own by
making contributions to it. In this case, he or she is not required to make
withdrawals from the IRA until April 1 following the year in which he or she
reaches age 70 1/2.
The designation of a beneficiary to receive funds from your IRA at your
death is not considered a transfer subject to Federal gift taxes. However, any
funds remaining in your IRA at your death would be includible in your Federal
gross estate.
Be sure to keep your designation of beneficiary up-to-date as your personal
or financial circumstances change. You may file a new designation of
beneficiary form at any time with the Custodian. If no designation of
beneficiary is in effect at your death, or if all designated beneficiaries have
predeceased you, the balance in your account will be paid to your estate.
9. TAX-FREE ROLLOVERS
(a) Under certain circumstances, you can receive a distribution from an
IRA, or from a qualified plan, or a tax-sheltered annuity or other arrangement
under Section 403(b) of the Code, and transfer the amount received to another
IRA without including the distribution in your income for federal income tax
purposes. Such a "tax-free rollover" must be completed within 60 days after
you receive the distribution. A transfer from a qualified plan or 403(b)
arrangement directly to an IRA is a way to avoid the required 20% income tax
withholding requirements. Starting in 1993, most distributions from qualified
plans or 403(b) accounts are subject to 20% withholding unless transferred
directly to another plan or 403(b) or to an IRA (this is called a "direct
rollover").
There are complex, specific rules for each kind of transfer, so you should
consult your tax advisor or the IRS if you have questions about the rules.
Rollover contributions are not subject to the limits on annual contributions
to an IRA. However, all amounts in your IRA, including rollover contributions,
are subject to the rules discussed above concerning the time and method of
withdrawal.
(b) IRA-to-IRA Rollover. If you have an IRA, you can withdraw all or part
of the amount in that account and transfer all or part of the amount withdrawn
to another IRA. The amount transferred will not be subject to federal income
tax (or the 10% premature withdrawal penalty) if you complete the transfer
within 60 days after the withdrawal. After an IRA-to-IRA tax-free rollover,
you must wait at least a year before making another IRA-to-IRA rollover.
(c) Direct Transfer. As an alternative to a rollover, arrangements may be
made for a direct transfer from one IRA custodian or trustee to another. The
one-year waiting period does not apply to direct transfers from one IRA
custodian or trustee to another.
(d) Rollovers from Qualified Plan or 403(b) Arrangement to IRA. Most
distributions from a qualified plan or 403(b) arrangement are now eligible for
rollover to an IRA. The main exceptions are:
* payments over the lifetime or life expectancy of the participant
(or participant and a designated beneficiary),
* installment payments for a period of 10 years or more,
* required distributions starting at age 70 1/2, and
* payments that are a return of after-tax amounts previously
contributed by the individual.
<PAGE>
If you will receive an eligible distribution from a qualified plan or 403(b)
or a distribution upon termination of such a plan, you can defer paying taxes
by requesting the plan administrator or 403(b) sponsor to transfer the
distribution amount (except amounts previously contributed by you) directly to
an IRA in a direct rollover. Or, you may receive the distribution and roll it
over to an IRA within 60 days after you receive the distribution. However,
unless you elect a direct rollover of your distribution, the person making
payment MUST WITHHOLD 20% OF YOUR DISTRIBUTION for federal income taxes. Your
plan or 403(b) sponsor will provide you with a notice concerning direct
rollovers, regular 60-day rollovers and withholding taxes before you receive
your distribution.
If you have a regular IRA, you should establish a separate IRA to receive
any rollover contribution from a qualified plan. You can later transfer the
separate rollover IRA into a different employer plan if you desire and the plan
permits such transfers.
(e) Rollovers by A Surviving Spouse. If a surviving spouse receives a
distribution from a qualified plan or 403(b) because of the employee-spouse's
death, the surviving spouse may be able to defer income taxes by having all or
a part of the distribution (other than employee contributions to the plan)
transferred directly to an IRA.
(f) Rollovers or transfers cannot include any amount you are required to
receive for the year from the qualified plan or IRA.
(g) Please note that: (i) the IRA you set up to receive "rollover"
amounts should be separate from an IRA you set up to receive annual
contributions; (ii) rollover amounts you receive may not be deposited in your
spouse's IRA or deducted on your Federal income tax return; (iii) if you
establish a "Rollover" IRA during the year in which you reach age 70 1/2, you
must be receiving distributions from such IRA no later than April 1 of such
following year; (iv) if you establish a "Rollover" IRA after the year in which
you reach age 70 1/2, you must begin receiving distributions from such IRA
immediately; and (v) strict limitations apply to rollovers, and a variety of
tax and financial planning issues should be considered in determining whether
to make a rollover contribution. You should consult your own tax or financial
advisor regarding these matters.
10. FEDERAL TAX RETURNS
(a) Deductible and non-deductible IRA contributions are reported on IRS
Form 1040 or Form 1040A. You may choose to file your Federal income tax return
before it is due (without extensions) and report your IRA contributions before
they are made. You must, however, make the contributions by the due date
(without extensions) of such return. To the extent your contribution is
deductible, you can claim a deduction on your tax return. To the extent your
contribution is not deductible, you must designate it on Form 8606. There is a
$100 penalty each time you overstate the amount of your non-deductible
contributions unless you can prove that the overstatement was due to reasonable
cause. You will also be required to give additional information on Form 8606
in years you make a withdrawal from your IRA. If you fail to file a required
Form 8606, there is a $50 penalty for each such failure unless you can prove
the failure was due to reasonable cause.
(Special Note: This Disclosure Statement discusses the effect and
requirements of the Federal tax laws. For Massachusetts tax purposes,
contributions to an IRA are not deductible, but interest earned each year is
currently not taxable until distributed. If you are a resident of another
state, you should check with your tax advisor with regard to the applicable tax
laws of your state.)
(b) IRS Form 5329 is required as an attachment to Form 1040 (or separately
if you do not file a Form 1040) for any year the contribution limits in
paragraph 2 are exceeded, a premature distribution (as described in paragraph
7(a)) takes place, less than the required minimum amount (as described in
paragraph 7(b)) is distributed, or a prohibited transaction (as described in
paragraph 11(e)) takes place.
<PAGE>
11. TAX CONSEQUENCES
(a) Income on your IRA account is not taxed as it is earned, but only when
it is distributed to you.
(b) Amounts paid to you from your IRA are taxable as ordinary income,
except that you recover your nondeductible IRA contributions tax free. The
special tax rules which permit recipients of certain lump sum distributions
from other tax-qualified retirement plans to get certain tax advantages (such
as capital gains treatment and five or ten-year averaging) do not apply to
distributions from IRAs.
(c) If you withdraw an amount from any IRA during a taxable year and you
have previously made non-deductible IRA contributions, then part of the amount
withdrawn is excludible from ordinary income and not subject to taxation. The
amount excludible for the taxable year is determined by multiplying the amount
withdrawn by a fraction, the numerator of which is your aggregate non-
deductible IRA contributions remaining in all your IRAs and the denominator of
which is the aggregate balance of all your IRAs at the end of the year plus
the amount withdrawn during the year. For example, in 1992 an individual
withdraws $1,000 from an IRA to which both deductible and non-deductible
contributions were made. At the end of 1992, the account balance of all his
IRAs is $4,000 of which $2,500 is non-deductible contributions. The amount
excludible from income is $500 ($2,500/$5,000 x $1,000). It should also be
pointed out that in the event you receive a distribution from your IRA within
the last 60 days of the calendar year, if you do not roll this amount into
another IRA by December 31 but you do so after December 31 and before the 60th
day after the distribution, this amount must be added to the denominator of the
fraction discussed above.
(d) In general, if you receive distributions from your IRAs, Section 403
annuities and custodial accounts, and qualified plans which, in the aggregate,
exceed $150,000 in any calendar year, you may be subject to a 15% penalty tax
on the amount in excess of $150,000. If the total amount of your benefits
payable from such plans at your death exceeds a certain permissible level, a
similar 15% estate tax is imposed on the amount in excess of the permissible
level. Special rules apply in certain circumstances and you should consult
your tax adviser if you have any questions regarding this tax.
(e) If you engage in a so-called "prohibited transaction" as defined in
the Internal Revenue Code, your IRA will be disqualified and the entire balance
in your IRA will be taxed as ordinary income during the year in which such
transaction occurs. You may also have to pay the 10% penalty tax on premature
distributions. A "prohibited transaction" includes:
(i) the sale, exchange, or leasing of any property between your IRA
account and you;
(ii) the lending of money or other extension of credit between your IRA
account and you;
(iii) the furnishing of goods, services, or facilities between your IRA
account and you; or
(iv) the transfer of assets of your IRA account for your use or for your
benefit.
(f) If you pledge all or part of your IRA as security for a loan, or
invest your IRA in "collectibles" such as art, antiques, coins (other than
certain United States gold and silver coins or coins issued by a state
government) or gems, the amount so pledged or invested is considered by the
Internal Revenue Service to have been distributed to you and will be taxed as
ordinary income during the year in which you make such pledge or investment.
You may also have to pay the 10% premature distribution tax.
(g) Amounts withdrawn from your IRA are subject to withholding of Federal
income tax unless you direct no withholding. Form W-4P provides a space to
elect against withholding, and contains additional information on withholding.
To make a withdrawal or to establish a program of installment withdrawals,
simply complete the Withdrawal Form and the W-4P Form and send both forms to
the Service Company which invests your funds.
<PAGE>
(h) Be sure to start withdrawals no later than the required starting date
to avoid penalties for insufficient withdrawals. Also, remember that the
minimum amount required to be withdrawn may change from year to year because of
earnings or changes in the value of your account or because you recalculated
your life expectancy. Therefore, if you have established a program of
installment withdrawals, you should submit a new Withdrawal Form each year if
you need (or want) to adjust the amount of each installment.
(i) If tax, or estate or financial planning considerations affect the
timing of your IRA withdrawals, be sure to consult a qualified professional.
12. CUSTODIAN
The Custodian of your IRA is Investors Bank & Trust Company. The Custodian,
through the Service Company, will invest your contributions and earnings in
accordance with your instructions in any of the investment vehicles permitted
under the Individual Retirement Custodian Account Agreement. You will receive
periodic reports describing each transaction in your account, and proxies on
securities will be sent to you to vote as you wish. Since the investment of
your account is at your discretion and return of the permissible investment
vehicles is generally not guaranteed, growth in the value of your account
cannot be projected.
For information concerning the custodial charges and service charges which
will be assessed against your account by Investors Bank & Trust Company, or by
the Service Company, be sure to read the schedule of charges attached to this
Statement. Custodial and service charges may be changed or adjusted on thirty
days' notice to you. In addition, you will incur normal brokerage commissions
on the purchases and sales of securities. Before making any decision
whatsoever to establish an IRA, you should carefully review all applicable
commissions with your Service Company representative.
13. ADDITIONAL INFORMATION
(a) Your IRA will help build your retirement income. Your IRA funds are
non-forfeitable. They are always yours, and will be invested according to your
agreement with the Custodian. Your IRA will be clearly identified as your
property and will not be commingled with property of any other depositor.
(b) The form of this Individual Retirement Custodial Account uses the
precise language of Form 5305-A, currently provided by the Internal Revenue
Service, and has therefore been approved as a form to use as a qualified
Individual Retirement Account. The IRS approval of the form does not represent
a determination as to the merits of the account. It simply means that the form
of the printed IRA document satisfies the requirements of the IRS. However, if
you adopt and maintain your IRA within the stated guidelines, you may assume
that you are properly meeting all requirements for a bona fide individual
retirement plan under Federal income tax law.
(c) Further information concerning your IRA can be obtained from any
district office of the Internal Revenue Service.
(d) You should consult with your tax or financial advisor to determine
whether this Individual Retirement Custodial Account is the right investment
for you, since we cannot offer legal or tax advice.
Schedule of Charges
1. Investors Bank & Trust Company:
2. Service Company:
R-S01 (2/93) 224077.1
AGREEMENT FOR
SELF-DIRECTED
INDIVIDUAL RETIREMENT
CUSTODIAL ACCOUNT
<PAGE>
Form 5305-A
(Rev. October, 1992)
SELF-DIRECTED INDIVIDUAL RETIREMENT
CUSTODIAL ACCOUNT
The Depositor whose name appears on the Application is establishing an
individual retirement account (under section 408(a) of the Internal Revenue
Code) to provide for his or her retirement and for the support of his or her
beneficiaries after death.
The Custodian, Investors Bank & Trust Company, has through its agent,
given the Depositor the disclosure statement required under the Income Tax
Regulations under section 408(i) of the Code.
The Depositor has made a cash deposit with the Custodian as indicated on
the Application.
The Depositor and the Custodian make the following agreement:
ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k). Rollover contributions
before January 1, 1993 include rollovers described in section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer
contribution to a simplified employee pension plan as described in section
408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with
other property except in a common trust fund or common investment fund
(within the meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold and silver coins
and coins issued under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be
made in accordance with the following requirements and shall otherwise
comply with section 408(a)(6) and Proposed Regulations section 1.408-8,
including the incidental death benefit provisions of Proposed Regulations
section 1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to
begin to the Depositor under paragraph 3, or to the surviving spouse under
paragraph 4, other than in the case of a life annuity, life expectancies
shall be recalculated annually. Such election shall be irrevocable as to the
Depositor and the surviving spouse and shall apply to all subsequent years.
The life expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be or
begin to be, distributed by the Depositor's required beginning date (April 1
following the calendar year end in which the Depositor reaches age 70 1/2). By
<PAGE>
that date, the Depositor may elect, in a manner acceptable to the Custodian,
to have the balance in the custodial account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated
beneficiary.
(d) Equal or substantially equal annual payments over a specified
period that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified
period that may not be longer than the joint life and last survivor
expectancy of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in
accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest
has begun, the entire remaining interest will, at the election of
the Depositor or, if the Depositor has not so elected, at the
election of the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following
the year of the Depositor's death. If, however, the
beneficiary is the Depositor's surviving spouse, then this
distribution is not required to begin before December 31 of
the year in which the Depositor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun
on the Depositor's required beginning date, even though payments
may actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions
may be accepted in the account.
5. In the case of distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual payment
for each year, divide the Depositor's entire interest in the custodial
account as of the close of business on December 31 of the preceding year by
the life expectancy of the Depositor (or the joint life and last survivor
expectancy of the Depositor and the Depositor's designated beneficiary, or
the life expectancy of the designated beneficiary, whichever applies). In
the case of distributions under paragraph 3, determine the initial life
expectancy (or joint life and last survivor expectancy) using the attained
ages of the Depositor and designated beneficiary as of their birthdays in the
year the Depositor reaches age 70 1/2. In the case of distribution in
accordance with paragraph 4(b)(ii), determine life expectancy using the
attained age of the designated beneficiary as of the beneficiary's birthday
in the year distributions are required to commence.
<PAGE>
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C B. 524, to satisfy
the minimum distribution requirements described above. This method permits
an individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under section 408(i) and
Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling.
Any additional articles that are not consistent with section 408(a) and
related regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be made
with the consent of the persons whose signatures appear below.
ARTICLE VIII
1. Except as otherwise permitted in Paragraph 5(a) below, all contributions
made under this Agreement shall be deposited in the form of cash. All such
contributions shall be credited to a Custodial Account for the account of the
Depositor. Any contribution so made with respect to a tax year of the
Depositor shall be made prior to the due date of the Depositor's tax return
(not including extensions). Unless otherwise indicated in writing by the
Depositor, contributions shall be credited to the tax year in which they are
received by the Custodian. Subject to the limitations set forth in the
Application, all funds in the Custodial Account (including contributions,
dividends, interest, proceeds from the sale or other disposition of
investments and any other cash receipts) shall be invested and reinvested in:
(a) any marketable securities obtainable through the service company
which is designated by the Depositor on the Application (the
"Service Company") either "over the counter" or on a recognized
exchange (excluding securities issued by the Custodian or the
Service Company);
(b) any interest-bearing deposits in any bank (including the
Custodian, the Service Company if it is a bank, or any bank
affiliated with the Service Company) approved by the Custodian;
(c) any shares of open-end regulated investment companies designated
by the Service Company; and
(d) any other investment, but only if, in the sole judgment of the
Custodian, such investment will not impose upon it an
administrative burden greater than that normally incident to
investments described in (a) above (such judgment by the
Custodian not to be construed in any respect as a judgment
concerning the prudence or advisability of such an investment).
Such investments shall be made in such specific securities and other
investments, in such proportions and in such amounts as the Depositor may
direct from time to time by notice to the Service Company (in such form as
may be acceptable to the Service Company). However, the Custodian or the
Service Company may establish minimum amounts for any type of investment.
The Service Company shall be responsible for the execution of such orders.
The Custodian shall maintain or cause to be maintained adequate records thereof
(provided that the Custodian may retain the Service Company as its agent or
<PAGE>
recordkeeper to maintain adequate records of transactions on behalf of the
Custodian). However, if any such orders are not received as required or, if
received, are unclear or incomplete in the opinion of the Service Company,
all or a portion of the assets of the Custodial Account may be held uninvested
without liability for loss of income or appreciation, and without liability for
interest, pending receipt of complete orders or
clarification; or such assets may be invested in an interest-bearing account
described in (b) above or in a money-market type open-end investment company
designated by the Service Company.
2. Any brokerage account maintained in connection herewith shall be in the
name of the Custodian for the benefit of the Depositor. All assets of the
Custodial Account shall be registered in the name of the Custodian or of a
suitable nominee (and the same nominee may be used with respect to assets of
other investors whether or not held under agreements similar to this one or in
any capacity whatsoever); provided, however, that the Custodian may hold any
security in bearer form or by or through the Service Company, or by or through
a central clearing corporation maintained by institutions active in the
national securities markets; provided further, however, that (a) the books
and records of the Custodian (or the Service Company acting as the agent or
recordkeeper for the Custodian) shall show that all such investments are part
of the Custodial Account; (b) each Custodial Account shall be separate and
distinct; (c) a separate account thereof shall be maintained by the party
having actual custody of such assets; and (d) the assets thereof shall be held
in individual or bulk segregation in such party's vaults or in depositories
approved by the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
3. Neither the Custodian, the Service Company nor any other party providing
services to the Custodial Account assumes any responsibility for rendering
advice with respect to the investment or reinvestment of the Depositor's
Custodial Account and shall not be liable for any loss which results from
Depositor's exercise of control over his or her Custodial Account. Depositor
shall have and exercise exclusive responsibility for and
control over the investment of the assets of his or her Custodial Account in
accordance with the terms of this Agreement, and neither the Custodian, the
Service Company nor any other such party shall have any duty to question his
or her directions in that regard or to advise him or her regarding purchase,
retention, or sale of such assets.
4. The Depositor shall have the right by written notice to the Custodian to
designate (or to change) one or more beneficiaries to receive any amount
remaining in the Custodial Account in the event of his or her death prior to
the complete distribution of all assets in the Custodial Account. Any such
designation (or change of designation) of beneficiary may be on a form
provided by the Custodian or the Service Company or on a written instrument
acceptable to the Custodian, signed by the Depositor and filed with the
Custodian. Any designation or change of designation shall be effective upon
receipt by the Custodian. Any change of designation received by the
Custodian will revoke all prior designations previously filed with the
Custodian. If no such designation is in effect on the Depositor's death, or
if all designated beneficiaries have predeceased the Depositor, the
Depositor's estate shall be deemed to be the beneficiary.
5. (a) The Custodian shall have the right to receive rollover
contributions as described in Article I of this Agreement and
amounts transferred from another individual retirement account or
individual retirement annuity. Any property so transferred to it
in a form other than cash shall be held by the Custodian in
accordance with the provisions of paragraph 1 of this Article
VIII. The Custodian reserves the right to refuse to accept any
property which is not in the form of cash.
(b) The Custodian, upon written direction of the Depositor, shall
transfer the assets held under this Agreement (reduced by (i) any
amounts referred to in paragraph 7 of this Article VIII and (ii) any
amounts required to be distributed during the calendar year of
transfer to the Depositor under Section 408(a)(6) or 408(b)(3) of
the Code) to a successor individual retirement account or
individual retirement annuity for the Depositor's benefit.
(c) Any amounts received or transferred by the Custodian under this
paragraph 5 shall be accomplished by such instructions, records and
other documents as the Custodian deems necessary.
6. The Depositor hereby delegates to the Custodian the power to amend at any
time and from time to time the terms and provisions of this Agreement
and hereby consents to all such amendments, provided that an amendment
<PAGE>
is not contrary to any applicable provision of the Internal Revenue Code,
the regulations thereunder, or any other applicable law, regulation or
ruling. Any such amendments shall be effective when the notice of such
amendments is mailed to the address of the Depositor indicated by the
Custodian's records.
7. Any income taxes or other taxes of any kind whatsoever which may be
levied or assessed upon or in respect of the assets of the Custodial Account,
or the income arising therefrom, any transfer taxes incurred, any expenses
incurred by the Custodian in the performance of its duties including fees for
legal services rendered to the Custodian, and the Custodian's and the Service
Company's compensation as set forth in the Disclosure Statement, may be paid
by the Depositor and, unless and until so paid within such time period as the
Custodian may establish, shall be paid from the assets of the Custodial
Account. The Custodian and the Service Company shall be empowered to take
any action necessary to effectuate the provisions of this paragraph and shall
have no liability to the Depositor therefor. The Custodian and the Service
Company shall each have the right to change or adjust its fees and
compensation upon 30 days' notice to the Depositor, and may reduce or waive
fees with respect to any class or group of Depositors.
8. Amounts in the Custodial Account and the benefits provided hereunder
shall not be subject to alienation, assignment, garnishment, attachment,
execution or levy of any kind, and any attempt to cause such benefits to be
so subjected shall not be recognized, except to such extent as may be required
by law.
9. Any pledging of assets in the Custodial Account by the Depositor as a
security for a loan, or any loan or other extension of credit from the
Custodial Account to the Depositor, shall be prohibited.
10. In taking or refraining from taking any action or determining any
factor or question which may arise under this Custodial Agreement, the
Custodian may rely upon any statement by the Depositor or the Service Company
with respect thereto. The Depositor hereby agrees that the Custodian will not
be liable for any loss or expense resulting from taking or not taking such
action or determination taken in reliance on any such statement.
11. The Custodian may resign at any time upon 90 days' written notice to
the Depositor and may be removed by the Depositor at any time upon 90 days'
written notice to the Custodian. Upon the resignation or removal of the
Custodian, a successor Custodian shall be appointed by the Depositor within
90 days of such resignation or removal and, in the absence of such
appointment, the Custodian may designate a successor unless this Agreement is
sooner terminated. Any successor Custodian shall be a bank (as defined in
section 408(n) of the Code) or another person found qualified to act as
custodian under an individual retirement account plan by the Secretary of
Treasury or his delegate. The appointment of a successor custodian shall be
effective upon receipt by the Custodian of such successor's written
acceptance which shall be submitted to the Custodian and to the Depositor.
As soon as reasonably practical after the effective date of the successor
custodian's appointment, the Custodian shall transfer and deliver to the
successor custodian applicable account records and assets of the Custodial
Account (reduced by any unpaid amounts referred to in paragraph 7 of this
Article VIII). The successor custodian shall be subject to the provisions of
this Agreement (or any successor thereto) on the effective date of its
appointment.
12. The Custodian shall, from time to time, in accordance with
instructions in writing from the Depositor, make distributions out of the
Custodial Account to the Depositor in the manner and amounts as may be specified
in such instructions. Notwithstanding the provision of Article IV above, the
Custodian assumes (and shall have) no responsibility to make any distribution
to the Depositor (or the Depositor's beneficiary if the Depositor is deceased)
unless and until such written instructions specify the occasion for such
distribution, the elected manner of distribution, and any other information
that may be required. If the Depositor (or, following the Depositor's death,
the beneficiary) does not direct the Custodian to make distributions from the
Custodial Account by the time that such distributions are required to begin
in accordance with the preceding Articles, the Custodian and the Service
Company may assume that the Depositor (or the beneficiary) is meeting the
minimum distribution requirements from another individual retirement
arrangement maintained by the Depositor and the Custodian and the Service
Company shall be fully protected in so doing.
Prior to making any distribution from the Custodial Account, the Custodian
shall be furnished with any and all applications, certificates, tax waivers,
signature guarantees, and other documents (including proof of any legal
representative's authority) deemed necessary or advisable by the Custodian, but
<PAGE>
the Custodian shall not be liable for complying with written instructions
which appear on their face to be genuine, or for refusing to comply if not
satisfied such instructions are genuine, and assumes no duty of further
inquiry. Upon receipt of proper written instructions as required above, the
Custodian shall cause the assets of the Custodial Account to be distributed, as
specified in such written order.
13. Distribution of the assets of the Custodial Account shall (subject to
the first paragraph of paragraph 12 of this Article VIII) be made in accordance
with the provisions of Article IV as the Depositor (or Depositor's
beneficiary if the Depositor is deceased) shall elect by written instructions
to the Custodian; subject, however, to the provisions of Sections 401(a)(9),
408(a)(6) and 408(b)(3) of the Code, the regulations promulgated thereunder,
and the following:
(i) No distribution from the Custodial Account shall be made in the
form of an annuity contract.
(ii) The recalculation of life expectancy of the Depositor and/or the
Depositor's spouse shall only be made at the written election
of the Depositor. The recalculation of life expectancy of the
surviving spouse shall only be made at the written election of
the surviving spouse. By establishing the Custodial Account,
the Depositor (for himself and his surviving spouse, if any)
elects not to recalculate life expectancies unless the
Depositor (or surviving spouse) specifically elects the
recalculation of life expectancies approach in accordance with
the following sentence. Any such election may be made in such
form as the Depositor (or the surviving spouse) provides for
(including instructions to such effect to the Custodian, or the
calculation of minimum distribution amounts in accordance with a
method that provides for recalculation of life expectancy and
instructions to the Custodian to make distributions in
accordance with such method).
(iii) If the Depositor dies before his/her entire interest in the
Custodial Account has been distributed, and if the designated
beneficiary of the Depositor is the Depositor's surviving
spouse, the spouse may treat the Custodial Account as the
spouse's own individual retirement arrangement. This election
will be deemed to have been made if the surviving spouse makes
a regular IRA contribution to the Custodial Account, makes a
rollover to or from the Custodial Account, or fails to receive
a payment from the Custodial Account within the appropriate
time period applicable to the deceased Depositor under Section
401(a)(9)(B) of the Code.
(iv) If the Depositor's designated beneficiary is not his/her spouse,
then distributions to the Depositor and his/her beneficiary,
commencing with the Depositor's required beginning date, shall
comply with the minimum distribution incidental benefit
requirement.
14. If the Depositor is disabled, as that term is defined in Section 72(m)
of the Code, he or she may give notice to the Custodian of such disability and
request that up to the balance of the Custodial Account be distributed. The
Custodian, within a reasonable time after submission of satisfactory proof of
such disability, shall order the distribution of the balance of the Custodial
Account to the Depositor or such portion as the Depositor requested.
15. This Agreement shall terminate coincident with the complete
distribution of the assets of the Custodial Account, and the Custodian shall
have no further duties or responsibilities with respect to the Custodial Account
after its termination.
16. The Depositor hereby agrees to indemnify and hold harmless the
Custodian from and against any and all claims, loss, damages, costs or
expenses (including reasonable attorneys' fees) which the Custodian may incur
or pay out by reason of any alleged or actual act, or failure to act, on the
part of the Depositor, the Service Company, or any other person. The
preceding sentence will survive the termination of the Agreement.
17. Any notice herein required or permitted to be given to the Custodian
shall be sufficiently given if mailed to the Custodian by first class mail,
care of Investors Bank & Trust Company, P.O. Box 1537, L07FPS, Boston, MA
02205-1537, or to such other address as the Custodian shall provide the
<PAGE>
Depositor from time to time in writing, stating that such other address shall
be used for purposes of this Agreement. Any notice herein required or
permitted to be given to the Depositor shall be sufficiently given if mailed to
the Depositor at the Depositor's address appearing on the Application, or at
such other address as the Depositor shall have provided the Custodian from
time to time in writing, which writing shall state that such other address is
to be used for purposes of this Agreement.
18. The Custodian and the Service Company shall keep or cause to be kept
adequate records of the transactions they are required to perform hereunder.
In addition to the reports required by paragraph 2 of Article V, the
Custodian or the Service Company shall cause to be mailed to the Depositor in
respect of each tax year an account of all transactions affecting the
Custodial Account during such year and a statement showing the Custodial
Account as of the end of such year. If, within 60 days after such mailing, the
Depositor has not given the Custodian or the Service Company written notice
of any exception or objection thereto, the annual accounting shall be deemed
to have been approved, and in such case, or upon the written approval of the
Depositor, the Custodian and the Service Company shall be released, relieved
and discharged with respect to all matters and statements set forth in such
accounting as though the account had been settled by judgment or decree of a
court of competent jurisdiction.
19. The Service Company shall deliver, or cause to be executed and
delivered, to the Depositor all notices, prospectuses, financial statements,
proxies and proxy soliciting materials relating to securities or other
investments credited to the Custodial Account. No shares of stock shall be
voted, and no other action shall be taken pursuant to such documents except
upon receipt of adequate written instructions from the Depositor.
20. The Custodian and the Service Company shall be agents for the
Depositor to perform the duties conferred on each of them, respectively
hereunder, as directed by the Depositor. The parties do not intend to
confer any fiduciary duties on the Custodian or the Service Company, and none
shall be implied. Neither shall be liable (nor assumes any responsibility
for) the collection of contributions, the deductibility of any contribution or
the propriety of any contributions under this Agreement, the selection of any
investments for the Custodial Account, or the purpose or propriety of any
distribution ordered in accordance with Article IV or paragraphs 12, 13, or
14 of this Article VIII, which matters are the sole responsibility of the
Depositor or the Depositor's beneficiary, as the case may be.
21. The Custodian and the Service Company shall each be responsible solely
for performance of those duties expressly assigned to it in this Agreement;
neither assumes any responsibility as to duties assigned to anyone else
hereunder or by operation of law.
22. This Agreement, which incorporates the Application as a part hereof,
shall be governed by and construed, administered and enforced according to
the laws of the Commonwealth of Massachusetts.
23. Notwithstanding anything in the foregoing to the contrary, any
provision which is inconsistent with section 219 and 408 of the Code shall be
disregarded and the regulations promulgated under said sections of the Code
shall be incorporated by reference and this Agreement shall be administered in
accordance with said regulations.
24. The Depositor may revoke the Custodial Account established under this
Agreement by written notice to the Custodian received by the Custodian within 7
calendar days after the Depositor establishes the Custodial Account. Upon
revocation, the amount of the Depositor's initial deposit or contribution will
be returned to him, without adjustment for interest, earnings, investment
fluctuations or fees or expenses. The Custodian or the Service Company may
retain the Depositor's initial contribution for a period of up to 10 days after
the receipt thereof, without investing such amount in accordance with the
Depositor's instructions, and may invest such amount after the expiration of
such period if the Depositor has not revoked the Custodial Account.
25. The Depositor acknowledges that he or she has received and read the
Disclosure Statement relating to the Custodial Account.
26. Articles I through VII of this Agreement are in the form promulgated
by the Internal Revenue Service as Form 5305-A. It is anticipated that, if
and when the Internal Revenue Service promulgates changes to Form
<PAGE>
5305-A, the Custodian will adopt such changes as an amendment to this
Agreement. Pending the adoption of any amendment necessary or desirable to
conform this Agreement to the requirements of any amendment to the Internal
Revenue Code or regulations or rulings thereunder, the Custodian and the
Service Company may operate the Depositor's Custodial Account in accordance
with such requirements to the extent that the Custodian and/or the Service
Company deem necessary to preserve the tax benefits of the Custodial Account.
* * *
Purpose. This model custodial account may be used by an individual who wishes
to adopt an individual retirement account under section 408(a). When fully
executed by the Depositor and the Custodian not later than the time
prescribed by law for filing the federal income tax return for the Depositor's
tax year (not including any extensions thereof), an individual will have an
individual retirement account (IRA) custodial account which meets the
requirements of section 408(a). This account must be created in the United
States for the exclusive benefit of the Depositor or his/her beneficiaries.
Definitions. Custodian - The Custodian must be a bank or savings and loan
association, as defined in section 408(n), or other person who has the
approval of the Internal Revenue Service to act as custodian. The Custodian
in this plan is Investors Bank & Trust Company.
Depositor - The Depositor is the person who establishes the custodial
account.
IRA FOR NON-WORKING SPOUSE
Contributions to an IRA custodial account for a non-working spouse must be
made to a separate IRA custodial account established by the non-working spouse.
This form may be used to establish the IRA custodial account for the non-
working spouse.
An employee's social security number will serve as the identification number
of his or her individual retirement account. An employer identification
number is only required for each individual retirement account that needs to
file an unrelated business income tax return. An employer identification
number is also required for a common fund created for individual retirement
accounts.
For more information, get a copy of the required disclosure statement from
your Custodian or get Publication 590, Individual Retirement Arrangements
(IRAs).
SPECIFIC INSTRUCTIONS
ARTICLE IV. Distributions made under this Article may be made in a single sum,
periodic payments, or a combination of both. The distribution option should be
reviewed in the year the Depositor reaches age 70 1/2 to make sure the
requirements of section 408(a)(6) have been met.
ARTICLE VIII. This Article and any that follow it may incorporate additional
provisions that are agreed upon by the Depositor and Custodian to complete
the agreement. These may include for example: definitions, investment
powers, voting rights, exculpatory provisions, amendment and termination,
removal of Custodian, Custodian's fees, State law requirements, beginning
date of distributions, prohibited transactions with the Depositor, etc. Use
additional pages if necessary and attach them to this form.
R-S02 (2/93)
224048.1
TRANSFER AGENCY AGREEMENT
This Agreement made as of the _____ of ____________, 1994 between
Bull & Bear Special Equities Fund, Inc., a Maryland corporation
("Fund"), having its principal office and place of business at
11 Hanover Square, New York, New York 10005 and Supervised
Service Company Inc., ("SSC") a Delaware corporation having
its principal office and place of business at 120 South LaSalle,
Chicago IL 60603 (hereinafter referred to as the "Transfer Agent").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter
set forth, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases
shall have the following meanings:
1. "Approved Institution" shall mean an entity so named in
a Certificate. From time to time the Fund may amend a previously
delivered Certificate by delivering to the Transfer Agent a
Certificate naming an additional entity or deleting any entity
named in a previously delivered Certificate.
2. The "Board of Directors" shall mean the Board of
<PAGE>
Directors of the Fund.
3. "Certificate" shall mean any notice, instruction, or
other instrument in writing, authorized or required by this
Agreement to be given to the Transfer Agent by the Fund which is
signed by any Officer, as hereinafter defined, and actually
received by the Transfer Agent.
4. "Custodian" shall mean the financial institution
appointed as custodian under the terms and conditions of the
Custody Agreement between the financial institution and the Fund,
or its successor(s).
5. "Fund Business Day" shall be deemed to be each day on
which the New York Stock Exchange, Inc. is open for trading.
6. "Officer" shall be deemed to be the Fund's President, any
Vice President of the Fund, the Fund's Secretary, the Fund's
Treasurer, the Fund's Controller, any Assistant Controller of the
Fund, any Assistant Treasurer of the Fund and any Assistant
Secretary of the Fund, and any other person duly authorized by the
Board of Directors of the Fund to execute any Certificate,
instruction, notice or other instrument on behalf of the Fund and
named in the Certificate annexed hereto as Appendix A, as such
Certificate may be amended from time to time, and any person
<PAGE>
reasonably believed by the Transfer Agent to be such a person.
7. "Out-of-Pocket Expenses" means amounts reasonably
necessary and actually incurred by Transfer Agent in the provision
of Transfer Agent services or pursuant to this Agreement for the
following purposes: postage (and first class mail insurance in
connection with mailing share certificates), envelopes, check
forms, continuous forms, forms for reports and statements,
stationery, and other similar items, telephone and telegraph
charges incurred in answering inquiries from dealers or
shareholders, microfilm used to record transactions in shareholder
accounts and computer tapes used for permanent storage of records
and cost of insertion of materials in mailing envelopes by outside
firms. Transfer Agent may, at its option, arrange to have various
service providers submit invoices directly to the Fund for payment
of out-of-pocket expenses reimbursable hereunder; and such other
expenses paid or incurred by Transfer Agent at the request of the
Fund. Any charges associated with special or exception processing
shall also be considered Out-of-Pocket Expenses.
8. "Prospectus" shall mean the most recent Fund prospectus
actually received by the Transfer Agent from the Fund with respect
to which the Fund has indicated a registration statement under the
<PAGE>
Federal Securities Act of 1933 has becomes effective, including the
Statement of Additional Information, incorporated by reference
therein.
9. "Shares" shall mean all or any part of each class or
series of the shares of common stock of the Fund or Portfolio
listed in the Certificate as to which the Transfer Agent acts as
transfer agent hereunder, as may be amended from time to time,
which are authorized and/or issued by the Fund.
10. "Transfer Agent" shall mean Supervised Service Company,
Inc., ("SSC"), as transfer agent and dividend disbursing agent
under the terms and conditions of this Agreement, its successor(s)
or assign(s).
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. The Fund hereby constitutes and appoints the Transfer
Agent as transfer agent of all the Shares of the Fund and as
dividend disbursing agent during the period of this Agreement.
2. The Transfer Agent hereby accepts appointment as transfer
agent and dividend disbursing agent and agrees to perform duties
thereof as hereinafter set forth.
3. In connection with such appointment, the Fund upon the
request of the Transfer Agent, shall deliver the following
<PAGE>
documents to the Transfer Agent:
(i) A copy of the Articles of Incorporation of the
Fund and all amendments thereto certified by the Secretary of the
Fund;
(ii) A copy of the By-Laws of the Fund certified by the
Secretary of the Fund;
(iii) A copy of a resolution of the Board of Directors
of the Fund certified by the Secretary of the Fund appointing the
Transfer Agent and authorizing the execution of this Transfer
Agency Agreement;
(iv) A Certificate signed by the Secretary of the Fund
specifying: the number of authorized Shares, the number of such
authorized Shares issued, the number of such authorized Shares
issued and currently outstanding; the names and specimen signatures
of the Officers of the Fund; and the name and address of the legal
counsel for the Fund;
(v) Specimen Share certificate for each or series class
of Shares in the form approved by the Board of Directors of the
Fund (and in a format compatible with the Transfer Agent's system),
together with a Certificate signed by the Secretary of the Fund as
to such approval;
(vi) Copies of the Fund's Registration Statement, as
<PAGE>
amended to date, and the most recently filed Post-Effective
Amendment thereto, filed by the Fund with the Securities and
Exchange Commission under the Securities Act of 1933, as amended,
and under the Investment Company Act of 1940, as amended, together
with any applications filed in connection therewith; and
(vii) Opinion of counsel for the Fund with respect to the
validity of the authorized and outstanding Shares, whether such
Shares are fully paid and non-assessable and the status of such
Shares under the Securities Act of 1933, as amended, and any other
applicable federal law or regulation (i.e., if subject to
registration, that they have been registered and that the
Registration Statement has become effective or, if exempt, the
specific grounds therefor.)
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Fund shall deliver to the Transfer Agent the
following documents on or before the effective date of any increase
or decrease in the total number of Shares authorized to be issued:
(a) A certified copy of the amendment to the Articles of
Incorporation giving effect to such increase or decrease;
(b) In the case of an increase, an opinion of counsel
for the Fund with respect to the validity of the Shares of the Fund
<PAGE>
and the status of such Shares under the Securities Act of 1933, as
amended, and any other applicable federal law or regulation (i.e.,
if subject to registration, that they have been registered and that
the Registration Statement has become effective or, if exempt, the
specific grounds therefor); and
(c) In the case of an increase, if the appointment of
the Transfer Agent was theretofore expressly limited, a certified
copy of a resolution of the Board of Directors of the Fund
increasing the authority of the Transfer Agent.
2. Prior to the issuance of any additional Shares of the
Fund pursuant to stock dividends or stock splits, etc., and prior
to any reduction in the number of shares outstanding, the Fund
shall deliver the following documents to the Transfer Agent:
(a) A certified copy of the resolution(s) adopted by the
Board of Directors and/or the shareholders of the Fund authorizing
such issuance of additional Shares of the Fund or such reduction,
as the case may be, and
(b) An opinion of counsel for the Fund with respect to
the validity of the Shares of the Fund and the status of such
Shares under the Securities Act of 1933, as amended, and any other
applicable federal law or regulation (i.e., if subject to
registration, that they have been registered and that the
<PAGE>
Registration Statement has become effective, or, if exempt, the
specific grounds therefor).
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization
or other capital adjustment requiring a change in the form of Share
certificates, the Transfer Agent will issue Share certificates in
the new form in exchange for, or upon transfer of, outstanding
Share certificates in the old form, upon receiving:
(a) A Certificate authorizing the issuance of the Share
certificates in the new form;
(b) A certified copy of any amendment to the Articles of
Incorporation with respect to the change;
(c) Specimen Share certificates for each class of Shares
in the new form approved by the Board of Directors of the Fund,
with a Certificate signed by the Secretary of the Fund as to such
approval; and
(d) An opinion of counsel for the Fund with respect to
the validity of the Shares in the new form and the status of such
Shares under the Securities Act of 1933, as amended, and any other
applicable federal law or regulation (i.e., if subject to
registration, that the Shares have been registered and that the
<PAGE>
Registration Statement has become effective or, if exempt, the
specific grounds therefor.)
2. The Fund at its expense shall furnish the Transfer Agent
with a sufficient supply of blank Share certificates in the new
form and from time to time will replenish such supply upon the
request of the Transfer Agent. Such blank Share certificates shall
be compatible with the Transfer Agent's system and shall be
properly signed by facsimile or otherwise by Officers of the Fund
authorized by law or by the By-Laws to sign Share certificates and,
if required shall bear the corporate Seal or facsimile thereof.
The Fund agrees to indemnify and exonerate, save and hold the
Transfer Agent harmless, from and against any and all claims or
demands that may be asserted against the Transfer Agent with
respect to the genuineness of any Share certificate supplied to the
Transfer Agent by the Fund pursuant to this section 2.
ARTICLE V
ISSUANCE,
REDEMPTION AND TRANSFER OF SHARES
1. (a) The Transfer Agent acknowledges that it has received
a copy of the Fund's Prospectus, which Prospectus describes how
sales and redemption of shares of the Fund shall be made, and the
Transfer Agent agrees to accept purchase orders and redemption
<PAGE>
requests with respect to Fund shares on each Fund Business Day in
accordance with such Prospectus. The Fund agrees to provide the
Transfer Agent with sufficient advance notice to enable the
Transfer Agent to effect any changes in the procedures set forth in
the Prospectus regarding such purchase and redemption procedure;
provided, however, that in no event will such advance notice be
less than 30 days.
(b) The Transfer Agent shall also accept with respect to
each Fund Business Day, at such times as are agreed upon from time
to time by the Transfer Agent and the Fund, a computer tape or
electronic data transmission consistent in all respects with the
Transfer Agent's record format, as amended from time to time, which
is reasonably believed by the Transfer Agent to be furnished by or
on behalf of any Approved Institution. The Transfer Agent shall
not be liable for any losses or damages to the Fund or its
shareholders in the event that a computer tape or electronic data
transmission from an Approved Institution is unable to be processed
for any reason beyond the control of the Transfer Agent, or if any
of the information on such tape or transmission is found to be
incorrect.
2. On each Fund Business Day the Transfer Agent shall, as of
the time at which the Fund computes the net asset value of the
<PAGE>
Fund, issue to and redeem from the accounts specified in a purchase
order, redemption request, or computer tape or electronic data
transmission, which in accordance with the Prospectus is effective
on such Fund Business Day, the appropriate number of full and
fractional Shares based on the net asset value per Share of such
Fund specified in an advice received on such Fund Business Day from
the Fund. Notwithstanding the foregoing, if a redemption specified
in a computer tape or electronic data transmission is for a dollar
value of Shares in excess of the dollar value of uncertificated
Shares in the specified account, the Transfer Agent shall not
effect such redemption in whole or in part and shall within twenty-
four hours orally advise the Approved Institution which supplied
such tape of the discrepancy.
3. In connection with a reinvestment of a dividend or
distribution of Shares of the Fund, the Transfer Agent shall as of
each Fund Business Day, as specified in a Certificate or resolution
described in paragraph 1 of succeeding Article VI, issue Shares of
the Fund based on the net asset value per Share of such Fund
specified in an advice received from the Fund on such Fund Business
Day.
4. On each Fund Business Day the Transfer Agent shall supply
the Fund with a statement specifying with respect to the
<PAGE>
immediately preceding Fund Business Day: the total number of
Shares of the Fund (including fractional Shares) issued and
outstanding at the opening of business on such day; the total
number of Shares of the Fund sold on such day, pursuant to
preceding paragraph 2 of this Article; the total number of Shares
of the Fund redeemed from Shareholders by the Transfer Agent on
such day; the total number of Shares of the Fund, if any, sold on
such day pursuant to preceding paragraph 3 of this Article, and the
total number of Shares of the Fund issued and outstanding.
5. In connection with each purchase and each redemption of
Shares, the Transfer Agent shall send such statements as are
prescribed by the Federal Securities laws applicable to transfer
agents or as described in the Prospectus. If the Prospectus
indicates that certificates for Shares are available and if
specifically requested in writing by any shareholder, or if
otherwise required hereunder, the Transfer Agent will countersign,
issue and mail to such shareholder at the address set forth in the
records of the Transfer Agent a Share certificate for any full
Share requested.
6. As of each Fund Business Day the Transfer Agent shall
furnish the Fund with an advice setting forth the number and dollar
amount of Shares to be redeemed on such Fund Business Day in
<PAGE>
accordance with paragraph 2 of this Article.
7. Upon receipt of a proper redemption request and moneys
paid to it by the Custodian in connection with a redemption of
Shares, the Transfer Agent shall cancel the redeemed Shares and
after making appropriate deduction for any withholding of taxes
required of it by applicable law (a) in the case of a redemption of
Shares pursuant to a redemption described in preceding paragraph
1(a) of this Article, make payment in accordance with the Fund's
redemption and payment procedures described in the Prospectus, and
(b) in the case of a redemption of Shares pursuant to a computer
tape or electronic data transmission described in preceding
paragraph 1(b) of this Article, make payment by directing a federal
funds wire order to the account previously designated by the
Approved Institution specified in said computer tape or electronic
data transmission.
8. The Transfer Agent shall not be required to issue any
Shares after it has received from an Officer of the Fund or from an
appropriate federal or state authority written notification that
the sale of Shares has been suspended or discontinued, and the
Transfer Agent shall be entitled to rely upon such written
notification.
9. Upon the issuance of any Shares in accordance with this
<PAGE>
Agreement the Transfer Agent shall not be responsible for the
payment of any original issue or other taxes required to be paid by
the Fund in connection with such issuance of any Shares.
10. The Transfer Agent shall accept a computer tape or
electronic data transmission consistent with the Transfer Agent's
record format, as amended from time to time, which is reasonably
believed by the Transfer Agent to be furnished by or on behalf of
any Approved Institution and is represented to be instructions with
respect to the transfer of Shares from one account of such Approved
Institution to another such account, and shall effect the transfers
specified in said computer tape or electronic data transmission.
The Transfer Agent shall not be liable for any losses to the Fund
or its shareholders in the event that a computer tape or electronic
data transmission from an Approved Institution is unable to be
processed for any reason beyond the control of the Transfer Agent,
or if any of the information on such tape or transmission is found
to be incorrect.
11.(a) Except as otherwise provided in sub-paragraph (b) of
this paragraph and in paragraph 13 of this Article, Shares will be
transferred or redeemed upon presentation to the Transfer Agent of
Share certificates or instructions properly endorsed for transfer
or redemption, accompanied by such documents as the Transfer Agent
<PAGE>
deems necessary to evidence the authority of the person making such
transfer or redemption, and bearing satisfactory evidence of the
payment of stock transfer taxes. In the case of small estates
where no administration is contemplated, the Transfer Agent may,
when furnished with an appropriate surety bond, and without further
approval of the Fund, transfer or redeem Shares registered in the
name of a decedent where the current market value of the Shares
being transferred does not exceed such amount as may from time to
time be prescribed by various states. The Transfer Agent reserves
the right to refuse to transfer or redeem Shares until it is
satisfied that the endorsement on the stock certificate or
instructions is valid and genuine, and for that purpose it will
require, unless otherwise instructed by an authorized officer of
the Fund, a guarantee of signature by an "Eligible Guarantor
Institution" as that term is defined by SEC Rule 17Ad-15 under the
Securities Exchange Act of 1934. The Transfer Agent also reserves
the right to refuse to transfer or redeem Shares until it is
satisfied that the requested transfer or redemption is legally
authorized, and it shall incur no liability for the refusal, in
good faith, to make transfers or redemptions which the Transfer
Agent, in its judgement, deems improper or unauthorized, or until
it is satisfied that there is no basis to any claims adverse to
<PAGE>
such transfer or redemption. The Transfer Agent may, in effecting
transfers and redemptions of Shares, rely upon those provisions of
the Uniform Act for the Simplification of Fiduciary Security
Transfers or the Uniform Commercial Code, as the same may be
amended from time to time, applicable to the transfer of
securities, and the Fund shall indemnify the Transfer Agent for any
act done or omitted by it in good faith in reliance upon such laws.
In no event will the Fund indemnify the Transfer Agent for any act
done by it as a result of willful misfeasance, bad faith,
negligence or reckless disregard of its duties.
(b) Notwithstanding the foregoing or any other provision
contained in this Agreement to the contrary, the Transfer Agent
shall be fully protected by the Fund in not requiring any
instruments, documents, assurances, endorsements or guarantees,
including, without limitation, any signature guarantees, in
connection with a redemption, or transfer, of Shares whenever the
Transfer Agent reasonably believes that requiring the same would be
inconsistent with the transfer and redemption procedures as
described in the Prospectus.
12. Notwithstanding any provision contained in this agreement
to the contrary, the Transfer Agent shall not be required or
expected to require, as a condition to any transfer of any Shares
<PAGE>
pursuant to paragraph 13 of this Article or any redemption of any
Shares pursuant to a computer tape or electronic data transmission
described in this Agreement, any documents, including, without
limitation, any documents of the kind described in sub-paragraph
(a) of paragraph 13 of this Article, to evidence the authority of
the person requesting the transfer or redemption and/or the payment
of any stock transfer taxes, and shall be fully protected in acting
in accordance with the applicable provisions of this Article.
13. (a) As used in this Agreement, the terms "computer tape
or electronic data transmission" and "computer tape believed by the
Transfer Agent to be furnished by an Approved Institution", shall
include any tapes generated by the Transfer Agent to reflect
information believed by the Transfer Agent to have been input by an
Approved Institution, via a remote terminal or other similar link,
into a data processing, storage, or collection system, or similar
system (the "System"), located on the Transfer Agent's premises.
For purposes of paragraph 1 of this Article, such a computer tape
or electronic data transmission shall be deemed to have been
furnished at such times as are agreed upon from time to time by the
Transfer Agent and Fund only if the information reflected thereon
was input to the System at such times as are agreed upon in writing
from time to time by the Transfer Agent and the Fund.
<PAGE>
(b) Nothing contained in this Agreement shall constitute any
agreement or representation by the Transfer Agent to permit, or to
agree to permit, any Approved Institution to input information into
a System.
(c) The Transfer Agent reserves the right to approve, in
advance, any Approved Institution, such approval not to be
unreasonably withheld. The Transfer Agent also reserves the right
to terminate any and all automated data communications, at its
discretion, upon a reasonable attempt to notify the Fund when in
the reasonable opinion of the Transfer Agent continuation of such
communications would jeopardize the accuracy and/or integrity of
the Fund's records on the System.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. The Fund shall furnish to the Transfer Agent a copy of a
resolution of its Board of Directors, certified by the Secretary or
any Assistant Secretary, either (i) setting forth the date of the
declaration of a dividend or distribution, the date of accrual or
payment, as the case may be, thereof, the record date as of which
Shareholders entitled to payment, or accrual, as the case may be,
shall be determined, the amount per Share of such dividend or
distribution, the payment date on which all previously accrued and
<PAGE>
unpaid dividends are to be paid, and the total amount, if any,
payable to the Transfer Agent on such payment date, or (ii)
authorizing the declaration of dividends and distributions on a
daily or other periodic basis and authorizing the Transfer Agent to
rely on a Certificate setting forth the information described in
subsection (i) of this paragraph.
2. Upon the mail date specified in such Certificate or
resolution, as the case may be, the Fund shall, in the case of a
cash dividend or distribution, cause the Custodian to deposit in an
account in the name of the Transfer Agent on behalf of the Fund an
amount of cash, if any, sufficient for the Transfer Agent to make
the payment, as of the mail date, specified in such Certificate or
resolution, as the case may be, to the Shareholders who were of
record on the record date. The Transfer Agent will, upon receipt
of any such cash, make payment of such cash dividends or
distributions to the shareholders of record as of the record date
by: (i) mailing a check, payable to the registered shareholder, to
the address of record or dividend mailing address, or (ii) wiring
such amounts to the accounts previously designated by an Approved
Institution, as the case may be. The Transfer Agent shall not be
liable for any improper payments made in good faith and without
negligence, in accordance with a Certificate or resolution
<PAGE>
described in the preceding paragraph. If the Transfer Agent shall
not receive from the Custodian sufficient cash to make payments of
any cash dividend or distribution to all shareholders of the Fund
as of the record date, the Transfer Agent shall, upon notifying the
Fund, withhold payment to all shareholders of record as of the
record date until sufficient cash is provided to the Transfer
Agent.
3. It is understood that the Transfer Agent shall in no way
be responsible for the determination of the rate or form of
dividends or capital gain distributions due to the shareholders.
It is expressly agreed and understood that the Transfer Agent is
not liable for any loss as a result of processing a distribution
based on information provided in the Certificate that is incorrect.
The Fund agrees to pay the Transfer Agent for any and all costs,
both direct and out-of-pocket expenses, incurred in such corrective
work as necessary to remedy such error.
4. It is understood that the Transfer Agent shall file such
appropriate information returns concerning the payment of dividend
and capital gain distributions with the proper federal, state and
local authorities as are required by law to be filed by the Fund
but shall in no way be responsible for the collection or
withholding of taxes due on such dividends or distributions due
<PAGE>
to shareholders, except and only to the extent, required by
applicable law.
ARTICLE VII
CONCERNING THE FUND
1. The Fund represents to the Transfer Agent that:
(a) It is a corporation duly organized and existing
under the laws of the State of Maryland.
(b) It is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform
this Agreement.
(c) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this Agreement.
(d) It is an investment company registered under the
Investment Company Act of 1940, as amended.
(e) A registration statement under the Securities Act of
1933, as amended, with respect to the Shares is effective. The
Fund shall notify the Transfer Agent if such registration statement
or any state securities registrations have been terminated or a
stop order has been entered with respect to the Shares.
2. Each copy of the Articles of Incorporation of the Fund
and copies of all amendments thereto shall be certified by the
Secretary of State (or other appropriate official) of the state of
<PAGE>
organization, and if such Articles of Incorporation and/or
amendments are required by law also to be filed with a county or
other officer or official body, a certificate of such filing shall
be filed with a certified copy submitted to the Transfer Agent.
Each copy of the By-Laws and copies of all amendments thereto, and
copies of resolutions of the Board of Directors of the Fund, shall
be certified by the Secretary of the Fund.
3. The Fund shall promptly deliver to the Transfer Agent
written notice of any change in the Officers authorized to sign
Share Certificates, notifications or requests, together with a
specimen signature of each new Officer. In the event any Officer
who shall have signed manually or whose facsimile signature shall
have been affixed to blank Share certificates shall die, resign or
be removed prior to issuance of such Share certificates, the
Transfer Agent may issue such Share certificates of the Fund
notwithstanding such death, resignation or removal, and the Fund
shall promptly deliver to the Transfer Agent such approval,
adoption or ratification as may be required by law.
4. It shall be the sole responsibility of the Fund to
deliver to the Transfer Agent the Fund's currently effective
Prospectus and, for purposes of this Agreement, the Transfer Agent
shall not be deemed to have notice of any information contained in
<PAGE>
such Prospectus until a reasonable time, not to exceed ten (10)
business days, after it is actually received by the Transfer Agent.
ARTICLE VIII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent represents and warrants to the Fund
that:
(a) It is a corporation duly organized and existing
under the laws of the State of Delaware.
(b) It is empowered under applicable law and by its
Charter and By-laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this Agreement.
(d) It is duly registered as a transfer agent under
Section 17A of the Securities Exchange Act of 1934, as amended.
2. The Transfer Agent shall not be liable and shall be
indemnified in acting upon any computer tape or electronic data
transmission, writing or document reasonably believed by it to be
genuine and to have been signed or made by an Officer of the Fund
or person designated by the Fund and shall not be held to have any
notice of any change of authority of any person until receipt of
written notice thereof from the Fund or such person. It shall also
be protected in processing Share certificates which bear the proper
<PAGE>
countersignature of the Transfer Agent and which it reasonably
believes to bear the proper manual or facsimile signature of the
Officers of the Fund.
3. The Transfer Agent upon reasonable notice to the Fund may
establish such additional procedures, rules and regulations
governing the transfer or registration of Share certificates as it
may deem advisable and consistent with such rules and regulations
generally adopted by mutual fund transfer agents.
4. The Transfer Agent shall keep such records as are
specified in Schedule II hereto in the form and manner, and for
such period, as it may deem advisable and is agreeable to the Fund
but not inconsistent with the rules and regulations of appropriate
government authorities, in particular Rules 31a-2 and 31a-3 under
the Investment Company Act of 1940, as amended. The Transfer Agent
acknowledges that such records are the property of the Fund. The
Transfer Agent may deliver to the Fund from time to time at its
discretion, for safekeeping or disposition by the Fund in
accordance with law, such records, papers, documents accumulated in
the execution of its duties as such Transfer Agent, as the Transfer
Agent may deem expedient, other than those which the Transfer Agent
is itself required to maintain pursuant to applicable laws and
regulations. The Fund shall assume all responsibility for any
<PAGE>
failure thereafter to produce any record, paper, cancelled Share
certificate, or other document so returned, if and when required.
The records specified in Schedule II hereto maintained by the
Transfer Agent pursuant to this paragraph 4, which have not been
previously delivered to the Fund pursuant to the foregoing
provisions of this paragraph 4, shall be considered to be the
property of the Fund, shall be made available upon request for
inspection by the officers, employees, auditors of the Fund, or
such staff of applicable regulatory agencies as the Fund may
designate, and records shall be delivered to the Fund upon request
and in any event upon the date of termination of this Agreement, as
specified in Article IX of this Agreement, in the form and manner
kept by the Transfer Agent on such date of termination or such
earlier date as may be requested by the Fund.
5. The Transfer Agent shall not be liable for any loss or
damage, including counsel fees, resulting from its actions or
omissions to act or otherwise, except for any loss or damage
arising out of its bad faith, negligence, willful misfeasance,
gross negligence or reckless disregard of its duties under this
agreement.
6 (a) The Fund shall indemnify and exonerate, save and
hold harmless the Transfer Agent from and against any and all
<PAGE>
claims (whether with or without basis in fact or law), demands,
expenses (including reasonable attorney's fees) and liabilities of
any and every nature which the Transfer Agent may sustain or incur
or which may be asserted against the Transfer Agent by any person
by reason of or as a result of any action taken or omitted to be
taken by any prior transfer agent of the Fund or as a result of any
action taken or omitted to be taken by the Transfer Agent in good
faith and without negligence or willful misconduct or in reliance
upon (i) any provision of this Agreement; (ii) the Prospectus;
(iii) any instruction or order including, without limitation, any
computer tape or electronic data transmission reasonably believed
by the Transfer Agent to have been received from an Approved
Institution; (iv) any instrument, order or Share certificate
reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized Officer of the
Fund; (v) any Certificate or other instructions of an Officer; or
(vi) any opinion of legal counsel for the Fund or the Transfer
Agent. The Fund shall indemnify and exonerate, save and hold the
Transfer Agent harmless from and against any and all claims
(whether with or without basis in fact or law), demands, expenses
(including reasonable attorney's fees) and liabilities of any and
every nature which the Transfer Agent may sustain or incur or which
<PAGE>
may be asserted against the Transfer Agent by any person by reason
of or as a result of any action taken or omitted to be taken by the
Transfer Agent in good faith and without negligence in connection
with its appointment or in reliance upon any law, act, regulation
or any interpretation of the same even though such law, act or
regulation may thereafter have been altered, changed, amended or
repealed.
(b) The Transfer Agent shall not settle any claim,
demand, expense or liability to which it may seek indemnity
pursuant to paragraph 6(a) above (each, an "Indemnifiable Claim")
without the express written consent of an Officer of the Fund. The
Transfer Agent shall notify the Fund within 15 days of receipt of
notification of an Indemnifiable Claim, provided that the failure
by the Transfer Agent to furnish such notification shall not impair
its right to seek indemnification from the Fund unless the Fund is
unable to adequately defend the Indemnifiable Claim as a result of
such failure, or if as a result of the Transfer Agent's failure to
provide the Fund with timely notice of the institution of
litigation a judgment by default is entered. The Fund shall have
the right to defend any Indemnifiable Claim at its own expense,
provided that such defense shall be conducted by counsel selected
by the Fund. The Transfer Agent may join in such defense at its
<PAGE>
own expense, but to the extent that it shall so desire the Fund
shall direct such defense. The Fund shall not settle any
Indemnifiable Claim without the express written consent of the
Transfer Agent if the Transfer Agent determines that such
settlement would have an adverse effect on the Transfer Agent
beyond the scope of this Agreement. In the event the Transfer
Agent does not provide its written consent, each of the Fund and
the Transfer Agent shall be responsible for their own defense at
their own cost and expense, and such claim shall not be deemed an
Indemnifiable Claim hereunder. If the Fund shall fail or refuse to
defend an Indemnifiable Claim, the Transfer Agent may provide its
own defense at the cost and expense of the Fund. Anything in this
Agreement to the contrary notwithstanding, the Fund shall not
indemnify the Transfer Agent against any liability or expense
arising out of the Transfer Agent's willful misfeasance, bad faith,
negligence or reckless disregard of its duties and obligations
under this Agreement.
The Transfer Agent shall indemnify and hold the Fund harmless
from and against any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of or
attributable to any action or failure or omission to act by the
Transfer Agent as a result of the Transfer Agent's lack of good
<PAGE>
faith, negligence or willful misconduct.
7. The Transfer Agent shall not be liable to the Fund with
respect to any redemption draft on which the signature of the
drawer is forged and which the Fund's Custodian or Cash Management
Bank has advised the Transfer Agent to honor the redemption.
Provided that the Transfer Agent inspects redemption drafts with
reasonable care to verify the drawer's signature against signatures
on file, the Transfer Agent shall not be liable for any material
alteration or absence or forgery of any endorsement.
8. There shall be excluded from the consideration of whether
the Transfer Agent has been negligent or has breached this
Agreement, any period of time, and only such period of time, during
which the Transfer Agent's performance is materially affected, by
reason of circumstances beyond its control and not reasonably
foreseeable in that the Transfer Agent could not reasonable have
made back-up or alternative arrangements (collectively, "Causes"),
including, without limitation (except as provided below),
mechanical breakdowns of equipment (including any alternative power
supply and operating systems software), flood or catastrophe, acts
of God, failures of transportation, communication or power supply,
strikes, lockouts, work stoppages or other similar circumstances.
9. At any time the Transfer Agent may apply to an Officer of
<PAGE>
the Fund for written instructions with respect to any matter
arising in connection with the Transfer Agent's duties and
obligations under this Agreement, and the Transfer Agent shall not
be liable for any action taken or permitted by it in good faith in
accordance with such written instructions. Such application by the
Transfer Agent for written instructions from an Officer of the Fund
may set forth in writing any action proposed to be taken or omitted
by the Transfer Agent with respect to its duties or obligations
under this Agreement and the date on and/or after which such action
shall be taken. The Transfer Agent shall not be liable for any
action taken or omitted in accordance with a proposal included in
any such application on or after the date specified therein unless,
prior to taking or omitting any such action, the Transfer Agent has
received written instructions in response to such application
specifying the action to be taken or omitted. The Transfer Agent
may consult counsel of the Fund, or if acceptable to the Fund, its
own counsel, at the expense of the Fund and shall be fully
protected with respect to anything done or omitted by it in good
faith in accordance with the advice or opinion of counsel to the
Fund or its own counsel.
10. The Transfer Agent may issue new Share certificates in
place of certificates represented to have been lost, stolen, or
<PAGE>
destroyed upon receiving written instructions from the shareholder
accompanied by proof of an indemnity or surety bond issued by a
recognized insurance institution specified by the Fund or the
Transfer Agent. If the Transfer Agent receives written
notification from the shareholder or broker dealer that the
certificate issued was never received, and such notification is
made within 30 days of the date of issuance, the Transfer Agent may
reissue the certificate without requiring a surety bond. The
Transfer Agent may also reissue certificates which are represented
as lost, stolen, or destroyed without requiring a surety bond
provided that the notification is in writing and accompanied by an
indemnification signed on behalf of a member firm of the New York
Stock Exchange and signed by an officer of said firm with the
signature guaranteed. Notwithstanding the foregoing, the Transfer
Agent will reissue a certificate upon written authorization from an
Officer of the Fund.
11. In case of any requests or demands for the inspection of
the shareholder records of the Fund, the Transfer Agent will
endeavor to notify the Fund promptly and to secure instructions
from an Officer as to such inspection. The Transfer Agent reserves
the right, however, to exhibit the shareholder records to any
person whenever it receives an opinion from its counsel that there
<PAGE>
is a reasonable likelihood that the Transfer Agent will be held
liable for the failure to exhibit the shareholder records to such
person; provided, however, that in connection with any such
disclosure the Transfer Agent shall promptly notify the Fund that
such disclosure has been made or is to be made.
12. At the request of an Officer of the Fund the Transfer
Agent will address and mail such appropriate notices to
shareholders as the Fund may direct.
13. Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation
to inquire into, and shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefor, or the authority
of the Approved Institution or of the Fund, as the case may be, to
request such sale or issuance;
(b) The legality of a transfer of Shares, or of a
redemption of any Shares, the propriety of the amount to be paid
therefor, or the authority of the Approved Institution or of the
Fund, as the case may be, to request such transfer or redemption;
(c) The legality of the declaration of any dividend by
the Fund, or the legality of the issue of any Shares in payment of
any stock dividend; or
<PAGE>
(d) The legality of any recapitalization or readjustment
of Shares.
14. The Transfer Agent shall be entitled to receive and the
Fund hereby agrees to pay to the Transfer Agent for its performance
hereunder, including its performance of the duties and functions
set forth in Schedule I hereto, (i) its reasonable out-of-pocket
expenses (including reasonable legal expenses and attorney's fees)
incurred in connection with its performance hereunder and (ii) such
compensation as may be agreed upon in writing from time to time by
the Transfer Agent and the Fund.
15. The Transfer Agent shall have no duties or
responsibilities whatsoever except such duties and responsibilities
as are specifically set forth in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the Transfer
Agent.
16. Purchase and Prices of Services.
(a) The Fund will compensate the Transfer Agent for, and
Transfer Agent will provide, beginning on the execution date of
this Agreement and continuing until the termination of this
Agreement as provided hereinafter, the Services set forth in
Schedule I.
(b) The current unit prices for the Services are set
<PAGE>
forth in Schedule III (the "Schedule III Fee Schedule"). Once in
each calendar year, after the third anniversary of the date hereof,
the Transfer Agent may elect to raise the Schedule III Fees upon
ninety (90) days prior notice to the Fund. Notwithstanding the
annual right to raise the Schedule III Fees, the Transfer Agent may
increase prices due to changes in legal or regulatory requirements
subject to the approval of the Fund, which approval shall not be
unreasonably withheld.
17. Billing and Payment.
(a) The Transfer Agent shall bill the Fund as follows:
(i) monthly in arrears for Accounts maintained and Out-of-Pocket
Expenses; and (ii) monthly in advance for estimated postage
expenses to be incurred by the Transfer Agent for the following
month. Documentation to support reconciliation of actual postage
expense charges will be provided to the Fund monthly. The Transfer
Agent may from time to time request the Fund to make additional
advances when appropriate.
(b) The Fund shall pay the Transfer Agent in immediately
available funds at United Missouri Bank in Kansas City, Missouri
within thirty (30) days of the date of the bill and receipt of
supporting documents. Any amounts due under this Agreement which
are not paid within said thirty (30) day period shall bear interest
<PAGE>
at the rate of one and one-half percent (1 1/2%) per month from
such date until paid in full.
ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement
by giving to the other party a notice in writing specifying the
date of such termination, which shall be not less than ninety (90)
days after the date of receipt of such notice. In the event such
notice is given by the Fund, it shall be accompanied by a copy of
a resolution of the Board of Directors of the Fund, certified by
the Secretary or any Assistant Secretary, electing to terminate
this Agreement and designating the successor transfer agent or
transfer agents. In the event such notice is given by the Transfer
Agent, the Fund shall on or before the termination date, deliver to
the Transfer Agent a copy of a resolution of its Board of Directors
certified by the Secretary or any Assistant Secretary designating
a successor transfer agent or transfer agents. In the absence of
such designation by the Fund, the Fund shall upon the date
specified in the notice of termination of this Agreement and
delivery of the records maintained hereunder, be deemed to be its
own transfer agent and the Transfer Agent shall thereby be relieved
of all duties and responsibilities pursuant to this Agreement.
<PAGE>
In the event this Agreement is terminated as provided herein,
the Transfer Agent, upon the written request of the Fund, shall
deliver the records of the Fund on electromagnetic media to the
Fund or its successor transfer agent. The Fund shall be
responsible to the Transfer Agent for the reasonable costs and
expenses associated with the preparation and delivery of such
media.
ARTICLE X
MISCELLANEOUS
1. The Fund agrees that prior to effecting any change in the
Prospectus which would increase or alter the duties and obligations
of the Transfer Agent hereunder, it shall advise the Transfer Agent
of such proposed change at least 30 days prior to the intended date
of the same, and shall proceed with such change only if it shall
have received the written consent of the Transfer Agent thereto,
which consent shall not be unreasonably withheld.
2. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be
sufficiently given if addressed to the Fund and mailed or delivered
to it at its office at the address first above written, or at such
other place as the Fund may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or
<PAGE>
required by this Agreement to be given to the Transfer Agent shall
be sufficiently given if addressed to the Transfer Agent and mailed
or delivered to the Secretary at 120 South LaSalle, Chicago, IL,
with a copy to the President at 811 Main Street, Kansas City, MO,
or at such other place as the Transfer Agent may from time to time
designate in writing.
4. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties with
the formality of this Agreement.
5. This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns.
This Agreement shall not be assignable by either party without the
written consent of the other party, except that the Transfer Agent
may assign this Agreement to a corporate affiliate with advance
written notice to and consent by the Fund, which consent shall not
be unreasonably withheld.
6. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
7. This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original; but
such counterparts shall, together, constitute only one instrument.
8. The provisions of this Agreement are intended to benefit
<PAGE>
only the Transfer Agent and the Fund, and no rights shall be
granted to any other person by virtue of this Agreement.
9. (a) The Transfer Agent will endeavor to assist in
resolving shareholder inquiries and errors relating to the period
during which prior transfer agents acted as such for the Fund. Any
such inquiries or errors which cannot be expediently resolved by
the Transfer Agent will be referred to the Fund.
(b) The Transfer Agent shall only be responsible for the
safekeeping and maintenance of transfer agency records, cancelled
certificates and correspondence of the Fund created or produced
prior to the time of conversion which are under its control and
acknowledged in a writing to the Fund to be in its possession. Any
expenses or liabilities incurred by the Transfer Agent as a result
of shareholder inquiries, regulatory compliance or audits related
to such records and not caused as a result of Transfer Agent's bad
faith, willful malfeasance or negligence shall be the
responsibility of the Fund as provided in Article VIII herein.
10. The Transfer Agent shall enter into and shall maintain in
effect with appropriate parties one or more agreements making
reasonable provision for periodic backup or computer files and data
with respect to the Fund and emergency use of electronic data
processing equipment. In the event of equipment failures the
<PAGE>
Transfer Agent shall at no additional expense to the Fund, take all
reasonable steps to minimize service interruptions, the Transfer
Agent shall have no liability with respect to the loss of data or
service interruptions caused by equipment failures, provided such
loss or interruption is not caused by the negligence of the
Transfer Agent and provided further that the Transfer Agent has
complied with the provisions of this Paragraph.
11. The Transfer Agent agrees on its own behalf and that of
its employees to make reasonable efforts to keep confidential all
records of the Fund and information relating to the Fund and its
shareholders (past, present and future), its investment advisor and
its principal underwriter, unless the release of such records or
information is otherwise consented to, in writing, by the Fund
prior to its release. The Fund agrees that such consent shall not
be unreasonably withheld, and may not be withheld where Transfer
Agent may be exposed to civil or criminal contempt proceedings or
when required to divulge such information or records to duly
constituted authorities.
12. The Transfer Agent shall maintain insurance of the types
and in the amounts deemed by it to be appropriate. To the extent
that policies of insurance may provide for coverage of claims for
liability or indemnity by the parties set forth in this Agreement,
<PAGE>
the contracts of insurance shall take precedence, and no provision
of this Agreement shall be construed to relieve an insurer of any
obligation to pay claims to the Fund, the Transfer Agent or other
insured party which would otherwise be a covered claim in the
absence of any provision of this Agreement.
13. The Transfer Agent represents and warrants that, to the
best of its knowledge, the various procedures and systems which the
Transfer Agent has implemented with regard to the safeguarding from
loss or damage attributable to fire, theft or any other cause
(including provision for twenty-four hours a day restricted access)
of the Fund's blank checks, certificates, records and other data
and the Transfer Agent's equipment, facilities and other property
used in the performance of its obligations hereunder are adequate,
and that it will make such changes therein from time to time as in
its judgment are required for the secure performance of its
obligations hereunder. The Transfer Agent shall review such
systems and procedures on a periodic basis and the Fund shall have
access to review these systems and procedures.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective corporate officer,
<PAGE>
thereunto duly authorized and their respective corporate seals to
be hereunto affixed, as the day and year first above written.
Supervised Service Company, Inc. Bull & Bear Special
Equities Fund, Inc.
By: __________________________ By: _______________________
(Signature) (Signature)
__________________________ _______________________
(Name) (Name)
__________________________ _______________________
(Title) (Title)
<PAGE>
SCHEDULE I
DESCRIPTION OF SERVICES
In consideration of the fees to be paid in such manner and at
such times as Fund and Transfer Agent may agree, Transfer Agent
will provide the services set forth below:
Examine and Process New Accounts, Subsequent Payments,
Liquidations, Exchanges, Telephone Transactions, Check Redemptions,
Automatic Withdrawals, Certificate Issuance, Wire Order Trades,
Dividends, Dividend Statements, Dealer Statements.
DAILY ACTIVITY
Maintain the following shareholder information in such a
manner as the Transfer Agent shall determine:
Name and Address, including Zip Code
Balance of Uncertificated Shares
Balance of Certificated Shares
Certificate number, number of shares, issuance date of each
certificate outstanding and cancellation date for each
certificate date for each certificate no longer outstanding,
if issued
Balance of dollars available for redemption
Dividend code (daily accrual, monthly reinvest, monthly cash
or quarterly cash)
Type of account code
Establishment date indicating the date an account was opened,
carrying forward pre-conversion data as available
Original establishment date for accounts opened by exchange
W-9 withholding status and periodic reporting
State of residence code
<PAGE>
Social Security or taxpayer identification number, and
indication of certification
Historical transactions on the account for the most recent 18
months, or other period as mutually agreed to from time-to-
time
Indication as to whether phone transactions can be accepted
for this account. Beneficial owner code, i.e. male, female,
joint tenant, etc.
An alternate or "secondary" account number issued by a dealer
(or bank, etc.) to a customer for use, inquiry and transaction
input by "remote accessors"
FUNCTIONS
Answer investor and dealer telephone and/or written inquiries,
except those concerning Fund policy, or requests for
investment advice which will be referred to the Fund, or those
which the Fund chooses to answer
Deposit Fund share certificates into accounts upon receipt of
instructions from the investor or other authorized person, if
issued
Examine and process transfers of shares insuring that all
transfer requirements and legal documents have been supplied
Process and confirm address changes
Process standard account record changes as required, i.e.
Dividend Codes, etc.
Microfilm source documents for transactions, such as account
applications and correspondence
Perform backup withholding for those accounts which federal
government regulations indicate is necessary
Perform withholdings on liquidations, if applicable, for
<PAGE>
employee benefit plans. Prepare and mail 5498s and 1099R's
Solicit missing taxpayer identification numbers
Provide remote access inquiry to Fund records via Fund
supplied hardware (Fund responsible for connection line and
monthly fee)
REPORTS PROVIDED
Daily Journals Reflecting all shares and
dollar activity for the
previous day
Blue Sky Report Supply information monthly
for Fund's preparation of
Blue Sky Reporting
N-SAR Report Supply monthly correspondence,
redemption and liquidation
information for use in fund's
N-SAR Report
Additionally, monthly average daily balance reports will be
provided at the Fund's request to the Fund at no charge.
Prepare and mail copies of summary statements to dealers and
investment advisers
Generate and mail confirmation statements for financial
transactions
DIVIDEND ACTIVITY
Reinvest or pay in cash including reinvesting in other funds
within the fund group serviced by the Transfer Agent as
described in each Fund Prospectus
Distribute capital gains simultaneously with income dividends
DEALER SERVICES
<PAGE>
Prepare and mail confirmation statements to dealers daily
Prepare and mail copies of statements to dealers, same
frequency as investor statements
ANNUAL MEETINGS
Assist Fund in obtaining a qualified service to: address and
mail proxies and related material, tabulate returned proxies
and supply daily reports when sufficient proxies have been
received
Prepare certified list of stockholders, hard copy or microform
PERIODIC ACTIVITIES
Mail transaction confirmation statements daily to investors
Address and mail four (4) periodic financial reports (material
must be adaptable to Transfer Agent's mechanical equipment as
reasonably specified by the Transfer Agent)
Mail periodic statement to investors
Compute, prepare and furnish all necessary reports to
Governmental authorities: Forms 1099R, 1099DIV, 1099B, 1042
and 1042S
Enclose various marketing material as designated by the Fund
in statement mailings, i.e. monthly and quarterly statements
(material must be adaptable to mechanical equipment as
reasonably specified by the Transfer Agent)
<PAGE>
SCHEDULE II
RECORDS MAINTAINED BY TRANSFER AGENT
- Account applications
- Cancelled certificates plus stock powers and supporting
documents
- Checks including check registers, reconciliation records,
any adjustment records and tax withholding documentation
- Indemnity bonds for replacement of lost or missing stock
certificates and checks
- Liquidation, redemption, withdrawal and transfer requests
including stock powers, signature guarantees and any
supporting documentation
SUPERVISED SERVICE COMPANY, INC.
April 4, 1995
VIA AIRBORNE EXPRESS
Bull & Bear Special Equities Fund, Inc.
Attn: Thomas B. Winmill
11 Hanover Square
New York, NY 10005
Dear Mr. Winmill
As we have advised you, Supervised Service Company, Inc. (SSC) has entered an
agreement to sell substantially all of its assets, including its mutual fund
transfer agency business to DST Systems, Inc. (DST). DST has agreed to assume
and perform all of SSC's obligations under the Transfer Agency Agreement
between BULL & BEAR SPECIAL EQUITIES FUND, INC. and SSC dated August 30, 1994,
(the "Agreement"). All of the terms and conditions of your agreement,
including the fee schedule, will remain in effect in accordance with the terms
of the Agreement.
We believe this transaction will ensure continued excellent service to you and
your shareholders. Please indicate your consent to the assignment of your
agreement to DST by executing and returning the enclosed copy of this letter
in the return Airborne Express envelope provided.
We would appreciate your prompt response. If you have questions, please
contact either of us at the numbers indicated below.
Supervised Service Company, Inc DST Systems, Inc.
By: Robert W. Ciarlelli By: Thomas A. McCullough
(816) 292-6206 (816) 435-8656
BULL & BEAR SPECIAL EQUITIES FUND, INC. hereby consents to the assignment of
the Agreement to DST Systems, Inc. as described above.
By: Thomas B. Winmill
Co-President
AGENCY AGREEMENT
This Agency Agreement is made as of November 19, 1994 by and
between Bull & Bear Special Equities Fund, Inc., a Maryland
corporation, having its principal office and place of business at
11 Hanover Square, New York, New York 10005 (hereinafter referred
to as "Bull & Bear"), and Supervised Service Company, Inc., a
Delaware corporation, having its principal office and place of
business at 120 South LaSalle, Chicago, IL (hereinafter referred to
as the "Agent").
WHEREAS, Agent is the transfer agent of Bull & Bear's mutual
funds ("Funds"), which Funds are listed on the attached Exhibit A;
and
WHEREAS, Bull & Bear is the sponsor of certain Individual
Retirement Accounts (the "Accounts") in the Funds; and
WHEREAS, Bull & Bear wishes to retain the Agent to perform
certain recordkeeping and other duties which have been delegated to
Bull & Bear by Investors Bank & Trust Company ("IBT") as Custodian
for the Accounts pursuant to the Service and Agency Agreement
("SAA") attached hereto as Exhibit B and the Agent wishes to
perform such duties.
NOW, THEREFORE, Bull & Bear and the Agent agree as follows:
1. Bull & Bear hereby retains and employs the Agent to
perform the duties described herein. The Agent accepts such
employment and agrees to perform such duties.
2. The Agent shall, in fulfilling its duties hereunder, act
in good faith, with due diligence, and without negligence. The
Agent shall perform its duties in accordance with the copy of the
Individual Retirement Account Custodial Agreement which is attached
hereto and made a part hereof ("Custodial Agreement") and present
and future requirements of Section 408(a) of the Internal Revenue
Code and any rule or regulation issued in interpretation of Section
408(a) and applicable law ("IRS Requirements").
3. The duties of the Agent will include the following:
(a) Receiving all Accounts which are in existence,
opening new Accounts and receiving cash contributions for
Accounts;
(b) Making distributions from Accounts as well as
withholding tax in accordance with the provisions of the
Custodial Agreement and IRS Requirements.
(c) Preparing and delivering all returns, reports,
proxies, valuations, and accounting in accordance with IRS
<PAGE>
Requirements and as reasonably required by Bull & Bear or by
IBT.
(d) Maintaining all records for the Accounts in
accordance with IRS Requirements and as reasonably required
by Bull & Bear or by IBT; and
(e) assuming all duties and obligations of Bull & Bear
as set forth in Article 4.4(a) of the SAA.
4. Agent agrees to permit Bull & Bear and IBT to conduct
review procedures as either may deem necessary to monitor the
activities of the Agent under this Agreement. The Agent also
agrees to perform or have performed such audit review procedures of
those activities as Bull & Bear and IBT may reasonably request at
the expense of Bull & Bear.
5. No provision of this Agreement shall modify or supersede
any provision of the Transfer Agency Agreements executed by the
Agent and Bull & Bear.
6. Bull & Bear agrees to indemnify and exonerate, save and
hold Agent harmless from and against any and all claims (whether
with or without basis in fact or law), demands, expenses (including
reasonable attorneys' fees) and liabilities of any nature which
Agent may sustain or incur unless such claims, demands, expenses,
and liabilities are caused as a result of Agent's bad faith,
willful misconduct, negligence or failure to perform its duties
hereunder in accordance with the standards set forth herein.
7. This Agreement may be terminated at any time by mutual
consent of the parties hereto or upon thirty (30) days' written
notice by either party. Further, this Agreement may be immediately
terminated by either party in the event the Bull & Bear appoints a
successor Custodian as provided in the Custodial Agreement. Upon
termination, Agent shall transfer the records of the Accounts as
directed by Bull & Bear at Bull & Bear's expense.
8. For its services hereunder, Agent shall be entitled to
receive 75% of all annual maintenance (fiduciary) fees collected
from the accounts.
9. No modification or amendment of this Agreement shall be
valid or binding on the parties unless made in writing and signed
on behalf of each of the parties by their respective duly
authorized officers or representatives.
10. Notices shall be communicated by fax and first class
mail, or by such other means as the parties may agree, to the
persons and addresses specified below or to such other persons and
addresses as the parties may specify in writing.
<PAGE>
If to Bull & Bear: Bull & Bear Special Equities, Inc.
11 Hanover Square
New York, NY 10005
with copy to: Bull & Bear Service Center, Inc.
11 Hanover Square
New York, NY 10005
Attn: Legal Department
If to Agent: Supervised Service Company, Inc.
Attn: Robert W. Ciarlelli
811 Main Street
Kansas City, Missouri 64105
with copy to: Supervised Service Company, Inc.
Legal Department
Attn: Walter R. Randall, Jr.
811 Main Street
Kansas City, Missouri 64105
11. This Agreement shall be governed by the laws of the State
of Missouri.
12. This Agreement may be executed in any number of
counterparts, and by the parties hereto on separate counterparts,
each of which when so executed shall be deemed an original and all
of which when taken together shall constitute one and the same
agreement.
Executed by the parties on the date(s) set forth below.
BULL & BEAR SPECIAL EQUITIES FUND, INC.
"Bull & Bear"
By: /s/
Thomas B. Winmill
Its: Co-President
Date: 11/14/95
SUPERVISED SERVICE COMPANY, INC.
"Agent"
By: /s/
Its: Senior Vice President
Date: 11/15/94
<PAGE>
EXHIBIT A - Dated November 19, 1994
Bull & Bear Dollar Reserves
Bull & Bear Global Income Fund
Bull & Bear Gold Investors Ltd.
Bull & Bear Municipal Income Fund
Bull & Bear Quality Growth Fund
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. and Overseas Fund
Bull & Bear U.S. Government Securities Fund
<PAGE>
April 25, 1995
Bull & Bear Special Equities Fund, Inc.
11 Hanover Square
New York, New York 10005
Dear Sir or Madam:
Bull & Bear Special Equities Fund, Inc. ("Company") is a corporation
organized under the laws of the State of Maryland. We understand that the
Company is about to file Post-Effective Amendment No. 15 to its registration
statement on Form N-1A for the purpose of registering additional shares of
capital stock of the Company, under the Securities Act of 1933, as amended
("1933 Act"), pursuant to Section 24(e)(1) of the Investment Company Act of
1940, as amended ("1940 Act").
We have, as counsel, participated in various corporate and other
proceedings relating to the Company. We have examined copies, either
certified or otherwise proved to be genuine, of the Company's Articles of
Incorporation and By-Laws, as now in effect and other documents relating to
its organization and operation. Based upon the foregoing, it is our opinion
that the shares of capital stock of the Company currently being registered
pursuant to Section 24(e)(1) as reflected in Post-Effective Amendment No. 15,
when sold in accordance with the Company's Articles of Incorpora-tion and
By-Laws, will be legally issued, fully paid and non-assessable, subject to
compliance with the 1933 Act, the 1940 Act and applicable state laws
regulating the offer and sale of securities.
We hereby consent to this opinion accompanying Post-Effective Amendment
No. 15 which you are about to file with the Securities and Exchange
Commission.
Sincerely,
KIRKPATRICK & LOCKHART
By: Arthur J. Brown
Arthur J. Brown
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 19, 1995 on the
financial statements and financial highlights of Bull & Bear Special Equities
Fund, Inc. Such financial statements and financial highlights appear in the
1994 Annual Report to Shareholders which is incorporated by reference in the
Statement of Additional Information filed in Post-Effective Amendment No. 15
under the Securities Act of 1933 and Amendment No. 15 under the Investment
Company Act of 1940 to the Registration Statement on Form N-1A of Bull & Bear
Special Equities Fund, Inc. We also consent to the references to our firm in
the Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 25, 1995
Standardized Profit Sharing Plan
ADOPTION AGREEMENT
_______________________________________________________________________________
SECTION 1. EMPLOYER INFORMATION
Name of Employer: _______________________________________________________
Address____________________________________________________________________
City: _______________________State:______________________ Zip: ______________
Telephone: _________________ Federal Tax Identification Number_______________
Income Tax Year End __________________________
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 _____________. The Effective Date of this amendment
and restatement is ________________. 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. 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.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
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.
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.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
SECTION 5. VESTING
A Participant shall become Vested in his or her Individual Account
attributable to Employer Contributions and Forfeitures as follows
(Choose one):
________________________________________________________________________________
YEARS OF VESTED PERCENTAGE
VESTING SERVICE
Option A [ ] Option B [ ] Option C [ ] Option D [ ] (Complete if Chosen)
_______________________________________________________________________________
1 0% 0% 100% ____%
2 0% 20% 100% ____%
3 100% 40% 100% ____% (not less than 20%)
4 100% 60% 100% ____% (not less than 40%)
5 100% 80% 100% ____% (not less than 60%)
6 100% 100% 100% ____% (not less than 80%)
______________________________________________________________________________
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
C. In-Service Withdrawals: Will Participants be permitted to make
withdrawals during service pursuant to Section 6.01(A)(3) of the
Plan? [ ] Yes [ ] No
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. [ ]
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.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
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,
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_________________________
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(l)(2) of the Code, under which amounts are
treated as annual additions with respect to any Participant in this Plan.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
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 Section 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:
_______________________________________
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
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 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 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 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 not-
withstanding 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.
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 an Employer maintaining the Plan or of
any other employer required to be aggregated with such Employer under
Sections 414(b), (c), (m) or (o) or 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 Section 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 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
<PAGE>
Highly Compensated Employees ranked 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 there-
under.
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 excludable 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 89-13.
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 non-
discriminatory 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
<PAGE>
prebreak and postbreak portions of his Individual Account derived
from Employer Contributions. Both subaccounts will share in the
gains and losses of the Fund.
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 indi-
cated 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 Agreementment.
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 require-
ments 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 infor-
mation 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 satis-
fied 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 any 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 Par-
ticipant'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 Contri-
butions 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
otherwise 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 Employer 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 Profit
Sharing Contribution -
1. General - The Employer Contribution for any Plan Year will be
allocated or contributed to the Individual Accounts of quali-
fying Participants in accordance with the allocation or contri-
bution 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 Partic-
ipant and is entitled to share in the Employer Contribution for
any Plan Year if (1) 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 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 Termi-
nation 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.
MAXIMUM DISPARITY RATE
Top-Heavy Nontop-Heavy
Integration Level Money Purchase Profit Sharing Profit Sharing
_______________________________________________________________________________
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.
C. Allocation of Forfeitures - Forfeitures for a Plan Year which arise
as a result of the application of Section 6.01(D) shall be allo-
cated as follows:
1. Profit Sharing Plan - If this is a profit sharing plan, Forfei-
tures 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 Contri-
bution for such Plan Year.
2. Money Purchase Pension and Target Benefit Plan - If this Plan is
a money purchase 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
Individual 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 Profit Sharing 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 allo-
cation 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 Partici-
pant who is not a Key Employee 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 allo-
cation 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 Contri-
butions 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 adop-
tion agreement that the minimum allocation or benefit require-
ment 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 mini-
mum contribution. Such minimum contribution will 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 dispar-
ity 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 contri-
butions 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 dis-
allowed, 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 errone-
ously 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 Admin-
istrator withdraw the lesser of the portion of his Individual Account
attributable to his nondeductible employee contributions or the amount
he contributed as nondeductible employee contributions.
Employee contributions and earnings thereon will 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 contribu-
tions 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 re-
quirements (if applicable), the Participant may withdraw any part of
the deductible employee contribution account by making a written appli-
cation 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, satisfac-
tory 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 con-
tribution 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 partici-
pated 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
3.08(E)(1), the following rules shall apply:
<PAGE>
1. The amount of annual additions which may be credited to the Par-
ticipant'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 Partici-
pant'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 per-
missible 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 limi-
tation year will be determined on the basis of the Participant's
actual compensation for the limitation year.
4. If pursuant to Section 3.08(A)(3) or as a result of the allo-
cation 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 Forfeit-
ures) for such Participant in the next limitation year, and
each succeeding limitation year if necessary.
c. If after the application of paragraph (b) 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 Contri-
butions (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 par-
ticipate 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 Par-
ticipants' Individual Accounts before any Employer Contribu-
tions or any Employee contributions may be made to the Plan
for that limitation year. Excess amounts may not be distri-
buted to Participants or former Participants.
B. If, in addition to this Plan, the Participant is covered under anoth-
er 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 limi-
tation year. If the annual additions with respect to the Partici-
pant under other defined contribution plans and welfare benefit
funds maintained by the employer are less than the maximum per-
missible amount and the Employer Contribution that would other-
wise be contributed or allocated to the Participant's Individual
Account under this Plan would cause the annual additions for the
limitation year to exceed this limitation, the amount contributed
or allocated will be reduced so that the annual additions under
all such plans and funds for the limitation year will equal the
maximum permissible amount. If the annual additions with respect
to the Participant under such other defined contribution plans and
welfare benefit funds in the aggregate are equal to or greater
than the maximum permissible amount, no amount will be contributed
or allocated to the Participant's 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 permissi-
ble 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 limi-
tation 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 alloca-
tion 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 alloca-
tion 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 ration of (i) the annual additions allocated to the Parti-
cipant for the limitation year as of such date under this Plan
to (ii) the total annual additions allocated to the Partici-
pant for the limitation year as of such date under this and
all the other qualified prototype defined contribution plans.
6. Any excess amount attributed to this Plan will be disposed in the
manner described in Section 3.05(A)(4).
C. If the Participant is covered under another qualified defined contri-
bution plan maintained by the Employer which is not a master or pro-
totype plan, annual additions which may be credited to the Partici-
pant's Individual Account under this Plan for any limitation year
will be limited in accordance with Sections 3.05(B)(1) through
3.08(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 de-
fined benefit plan covering any Participant in this Plan, the sum of
the Participant's defined benefit plan fraction and defined contribu-
tion plan fraction will not exceed 1.0 in any limitation year. The
annual additions which may be credited to the Participant's Indivi-
dual 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 contri-
bution 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, main-
tained 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 Agreem-
ent (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 loca-
tion 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 (2)).
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 lo-
cation 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 per-
sonal 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 ser-
vices on the basis of a percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe benefits, reimburse-
ments, 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 contri-
butions under a simplified employee pension plan to the ex-
tent 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 disposit-
ion of stock acquired under a qualified stock option; and
4. Other amounts which received special tax benefits, or con-
tributions 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 excludable from the gross
income of the Employee).
For any Self-Employed Individual, Compensation will mean
Earned Income. For limitation years beginning after Decem-
ber 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 perma-
nently 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
<PAGE>
December 31, 1986, in one or more defined benefit plans maintained
by the employer which were in existence on May 6, 1986, the denom-
inator 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
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 terminat-
ed) maintained by the Employer for the current and all prior limi-
tation 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 indi-
vidual 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 Employ-
er). 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 de-
fined benefit fraction would otherwise exceed 1.0 under the terms
of this Plan. Under the adjustment, an amount equal to the pro-
duct of (1) the excess of the sum of the fractions over 1.0 times
(2) the denominator of this fraction, will be permanently sub-
tracted 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 Jan-
uary 1, 1987, shall not be recomputed to treat all employee con-
tributions 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 con-
trolled 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 414(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 notification 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 Sec-
tion 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 retire-
ment 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 es-
tablished 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.
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 deter-
mined. 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 pre-
vious Valuation Date. The resulting amounts are the net Indi-
vidual 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 Indivi-
dual Account during the first Plan Year.
3. Thirdly, any contributions to the Plan and Forfeitures are
allocated in accordance with the appropriate allocation provi-
sions 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 indica-
ting 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 non-
discriminatory) for determining the fair market value of the Indivi-
dual 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 di-
verted to, purposes other than for the exclusive benefit of Partici-
pants 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 Trustee (or
<PAGE>
Custodian, if applicable), shall have exclusive management and
control over the investment of the Fund into any permitted invest-
ment. 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 indi-
cated 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 Custo-
dian 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) represent-
ing assets within the Fund;
2. To maintain accurate records of contributions, earnings, with-
drawals and other information the Custodian deems relevant with
respect to the Plan;
3. To make disbursements from the Fund to Participants or Benefic-
iaries 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 re-
sponsibilities under this Plan including, but not limited to, the
following powers:
1. To invest all or a portion of the Fund (including idle cash bal-
ances) 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 gen-
eral 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, corpor-
ate reorganizations or other changes affecting corporate securi-
ties, and to pay any assessment or charges in connection there-
with; 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 indi-
cated in the Adoption Agreement that it will serve as Trustee with
full trust powers. This Section also applies where one or more indi-
viduals 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 organi-
zation (whether or not the Trustee hereunder); savings accounts,
time deposits or money market accounts of a bank or similar finan-
cial 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 physical 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, with-
drawals and other information the Trustee deems relevant with re-
spect to the Plan;
3. To make disbursements from the Fund to Participants or Beneficiar-
ies 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>
1. 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 con-
tract 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 gen-
eral 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, corpor-
ate reorganizations or other changes affecting corporate securi-
ties, and to delegate discretionary powers, and to pay any ass-
essments 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 bal-
ances) in certificates of deposit, demand or time deposits, sav-
ings accounts, money market accounts or similar investments of the
Trustee (if the Trustee is a bank or similar financial organiza-
tion), 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 reim-
bursement 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 by such a Trustee or the
Prototype Sponsor, or by 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, ini-
tiate such proceedings, and exercise all such rights and privi-
leges 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) 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 reason-
able 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 nec-
essary 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 fur-
ther 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 Partici-
pant (or Beneficiary, where applicable) elects not to have such taxes
withheld. However, the Trustee (or Custodian) shall act as agent for
the Plan Administrator to withhold such taxes and to make the appro-
priate distribution reports, subject to the Plan Administrator's ob-
ligation 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 resigna-
tion shall become effective 30 days after receipt of such notice un-
less a shorter period is agreed upon.
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 re-
serving 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 re-
served 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)
<PAGE>
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 or-
ganization 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 Regu-
lations, 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) 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 Par-
ticipant 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 spe-
cifically 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 lia-
bilities, damages, judgments, settlements, losses, costs, charges, or
expenses (including legal expenses) at any time arising out of or in-
curred 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 miscon-
duct 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 Custo-
dian's) or Prototype Sponsor's reliance on the facts and other direc-
tions and elections the Employer communicates or fails to communi-
cate.
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, acquisi-
tion 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 in-
vestments which may be acquired at the direction of the investment
manager are 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 invest-
ment manager and a copy of such agreement (and any modification
or termination thereof) must be given to the Trustee (or Custo-
dian).
The agreement shall set forth, among other matters, the effective
date of the investment manager's appointment and an acknowledge-
ment 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 appoint-
ment. 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 in-
vestment 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 Par-
ticipant must be less than a certain percentage of the aggregate
Employer Contributions and Forfeitures allocated to a Partici-
pant's Individual Account at any particular time as follows:
<PAGE>
1. Ordinary Life Insurance - For purposes of these incidental in-
surance provisions, ordinary life insurance contracts are con-
tracts 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 in-
surance 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 Partici-
pant 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 con-
tract(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 cir-
cumstances unless a qualified election has been made in accordance
with Section 6.05. 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 here-
under, the Plan provisions shall control.
E. The Plan Administrator 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 indi-
vidually direct the Trustee (or Custodian, if applicable) regarding
the investment of part or all of his Individual Account. To the ex-
tent so directed, the Employer, Plan Administrator, Trustee (or Cus-
todian) 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 estab-
lished 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 nondiscrimi-
natory 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 individu-
ally 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 Admini-
strator may, in a uniform and nondiscriminatory manner, limit the
available investments for Participants' individual direction to cer-
tain 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 Partici-
pant's Individual Account shall be distributable to the Partici-
pant 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;
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 Cus-
todian, 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
<PAGE>
(A)(1) may elect to receive a distribution of all or part of the
Vested portion of his Individual Account, subject to the require-
ments of Section 6.05 and further subject to the following limits:
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 sen-
tence, 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 ne-
cessary 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 res-
idence for the Employee; payment of tuition and related educa-
tional fees for the next 12 months of post-secondary education
for the Employee, the Employee's spouse, children or depend-
ents; 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 plan 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 provi-
sion, 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 Par-
ticipant commenced participation in the Plan; or
c. the Participant incurs a Termination of Employment.
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 Con-
tributions 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 contribu-
tions.
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.
4. Participants in a Prior Plan - If a Participant was a partici-
pant in a Prior Plan on the Effective Date, his Vested percen-
tage 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 Individual 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 be-
fore 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 Em-
ployee who does not have an Hour of Service after the Plan has ini-
tially 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 amend-
ment 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 por-
tion of such Participant's Individual Account derived from Employ-
ee and Employer Contributions does not exceed $3,500, the Partici-
pant 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 and allocated in the year of the cash-
out. For purposes of this Section, if the value of the Vested
portion of a Participant's Individual Account is zero, the Parti-
cipant 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 Partici-
pant 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 por-
tion 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 bal-
ance will be restored to the amount on the date of distribution if
the Participant repays to the Plan the full amount of the distri-
bution attributable to Employer Contributions before the earlier
of 5 years after the first date on which the Participant is sub-
sequently 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 in-
terest in the Plan as of the time of the distribution, and
2. at any relevant time the Participant's Vested portion of the sep-
arate 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 bal-
ance at the relevant time; "D" is the amount of the distribution;
and "R" is the ratio of the separate account balance at the rele-
vant 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, distribu-
tion 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 Partici-
pant and the Participants 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 Admini-
strator 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 distribu-
tion 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 particu-
lar 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 immedi-
ately 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 Partici-
pant 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 in-
clude amounts attributable to accumulated deductible employee con-
tributions within the meaning of Section 72(o)(5)(B) o 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: 91) 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 ex-
pectancy 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 Par-
ticipant 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 Admini-
strator, 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 desi-
gnation 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 Benefi-
ciary 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. Not-
withstanding this consent requirement, if the Participant establishes
to the satisfaction of the Plan Administrator that such written con-
sent may not be obtained because there is no spouse or the spouse
cannot be located, no consent shall be required. Any change of Bene-
ficiary will require a new spousal consent.
B. Payment to Beneficiary - If a Participant dies before his entire In-
dividual Account has been paid to him, such deceased Participant's
Individual Account shall be payable to any surviving Beneficiary des-
ignated by the Participant, or, if no Beneficiary survives the Par-
ticipant, to the Participant's estate.
C. Written Request: When Distributed - A Beneficiary of a deceased Par-
ticipant entitled to a distribution who wishes to receive a distribu-
tion 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 dili-
gent effort, to ascertain the whereabouts of such Participant or his
Beneficiary, the amount so distributable shall be forfeited and allo-
cated in accordance with the terms of the Plan. In the event a Par-
ticipant 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 dis-
tribution 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 Par-
ticipant's Individual Account derived from Employee and Employer Con-
tributions exceeds $3,500 the preretirement survivor annuity require-
ments 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 Par-
ticipant'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 re-
quirements 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 ex-
pectancy 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 Partici-
pant'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 attain-
ment of the earliest retirement age under the Plan.
C. Qualified Preretirement Survivor Annuity - Unless an option 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 distri-
buted 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. If 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 separa-
tion.
Pre-age 35 waiver - A Participant who will not yet attain age 35
as of the end of any current Plan Year may make 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 Par-
ticipant receives a written explanation of the qualified prere-
tirement survivor annuity in such terms as are comparable to the
explanation required under Section 6.05(E)(1). Qualified prere-
tirement survivor annuity coverage will be automatically rein-
stated as of the first day of the Plan Year in which the Partici-
pant 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 prere-
tirement 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 con-
sent); (c) the spouse's consent acknowledges the effect of the
election; and (d) the spouse's consent is witnessed by a plan rep-
resentative 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 fur-
ther 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 estab-
lishment 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 bene-
ficiary 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 contri-
butions (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 qual-
ified 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 Partici-
pant'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 annuity as described in
Section 6.05(C), the Plan Administrator shall provide each Parti-
cipant 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 expla-
nation 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 reason-
able 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 fore-
going, 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 ser-
vice 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 Participants failure to
elect another benefit.
F. Safe Harbor Rules
1. If the Employer so indicates in the Adoption Agreement, this Sec-
tion 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 Sec-
tion 72(o)(5)(B) of the Code, and maintained on behalf of a Par-
ticipant 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 sur-
viving spouse has consented in a manner conforming to a qual-
ified election, then to the Participant's designated benefi-
ciary. The surviving spouse may elect to have distribution
of the Vested account balance commence within the 90-day per-
iod following the date of the Participant's death. The
account balance shall be adjusted for gains or losses occurr-
ing after the Participant's death in accordance with the pro-
visions of the Plan governing the adjustment of account bal-
ances 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. If this Sec-
tion 6.05(F) is operative, then the provisions of this Sect-
ion 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 qual-
ified 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 attribut-
able solely to accumulated deductible employee contributions with-
in 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 be-
ginning 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 Par-
ticipants during the period commencing on August 23, 1984, and
ending on the date benefits would otherwise commence to said Par-
ticipants.
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 Par-
ticipant 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
3. begins to receive payments on or after the qualified early
retirement age; or
<PAGE>
4. separates from service on or after attaining Normal Retire-
ment 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 per-
iod. The election period must begin at least 6 months be-
fore 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 retirement 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 92) 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 Parti-
cipant 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 inconsist-
ent provisions of this Plan. Unless otherwise specified, the pro-
visions 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 deter-
mined 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 Partici-
pant's interest is to be distributed in other than a single sum, the
following minimum distribution rules shall apply on or after the re-
quired beginning date:
1. Individual Account
a. If a Participant's benefit is to be distributed over (1) a per-
iod not extending beyond the life expectancy of the Participant
or the joint life and last survivor expectancy of the Partici-
pant and the Participant's designated Beneficiary or (2) a per-
iod 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 dis-
tribution calendar year, must at least equal the quotient ob-
tained by dividing the Participant's benefit by the applicable
life expectancy.
b. For calendar years beginning before January 1, 1989, if the Par-
ticipant'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 Par-
ticipant's spouse is not the designated Beneficiary, the appli-
cable divisor determined from the table set forth in Q&A-4 of
Section 1.401(a)(9)-2 of the Income Tax Regulations. Distri-
butions after the death of the Participant shall be distributed
using the applicable life expectancy in Section 6.05(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 Parti-
cipant'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 be-
ginning 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 Partici-
pant's death.
2. Distribution Beginning After Death - If the Participant dies before
distribution of his or her interest begins, distribution of the Par-
ticipant'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 dis-
tributions 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 accord-
ance with (a) above shall not be earlier than the later of (1)
December 31 of the calendar year immediately following the cal-
endar 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 6.05(E)(2) by the time of his or her death, the Par-
ticipant's designated Beneficiary must elect the method of dis-
tribution no later than the earlier of (1) December 31 of the
calendar year in which distributions would be required to begin
under this Section 6.05(E)(2), or (2) December 31 of the calen-
dar 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 sur-
viving 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 be-
ginning 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 be-
ginning 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 Parti-
cipant (or designated Beneficiary) as of the Participant's (or desig-
nated 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 recal-
culated, 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 recalcu-
lated such succeeding calendar year.
2. Designated Beneficiary - The individual who is designated as the Ben-
eficiary 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 dis-
tribution is required. For distributions beginning before the Par-
ticipant's death, the first distribution calendar year is the calen-
dar 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 6.05(E) above.
4. Life Expectancy - Life expectancy and joint and last survivor expect-
ancy 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 6.05(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 recalcu-
lated.
5. Participant's Benefit
a. The account balance as of the last valuation date in the valu-
ation 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 distri-
bution for the first distribution calendar year is made in the
second distribution calendar year on or before the required be-
ginning 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 calen-
dar year in which the Participant attains age 70 1/2.
b. Transitional Rules - The required beginning date of a Partici-
pant who attains age 70 1/2 before January 1, 1988, shall be de-
termined in accordance with (1) or (2) below:
(1) Non 5% Owners - The required beginning date of a Partici-
pant 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 sub-
sequent Plan Year.
(d) Once distributions have begun to a 5% owner under this
Section 6.06(F)(6) they must continue to be distribu-
ted, 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 sub-
ject 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 require-
ments (regardless of when such distribution commences):
a. The distribution by the Fund is one which would not have disquali-
fied 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 Bene-
ficiary 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 con-
tinues after December 31, 1983, the Employee, or the Beneficiary, to
whom such distribution is being made, will be presumed to have desig-
nated the method of distribution under which the distribution is be-
ing made if the method of distribution was specified in writing and
the distribution satisfies the requirements in Sections 6.06(G)(1)(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 dis-
tributions are required to begin, the Plan must distribute by the end
of the calendar year following the calendar year in which the revoca-
tion 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 inciden-
tal 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 trans-
ferred 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 con-
tract 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 por-
tion 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 con-
sent shall be required if the account balance is used for renegotia-
tion, extension, renewal, or other revision of the loan.
F. In the event of default, foreclosure on the note and attachment of se-
curity 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) cor-
poration 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 corpor-
ation.
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 secur-
ity 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 distribu-
tion, but only if the reduction is used as repayment of the loan. If
less than 100% of the Participant's Vested Individual Account (deter-
mined without regard to the preceding sentence) is payable to the sur-
viving spouse, then the account balance shall be adjusted by first re-
ducing 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 Parti-
cipant 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. Fur-
thermore, 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 para-
graph.
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 proce-
dure 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 fore-
going 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 pre-
scribed by the Plan Administrator, to have any portion of an eligible
rollover distribution paid directly to an eligible retirement plan speci-
fied by the distributee in a direct rollover.
B. Definitions
1. 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 distri-
bution 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 un-
der 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 unrea-
lized appreciation with respect to employer securities).
2. Eligible retirement plan - An eligible retirement plan is an indivi-
dual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the
<PAGE>
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 indi-
vidual 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 re-
quest 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 addi-
tional information or material needed to perfect the claim, an explanation
of why such additional information or material is necessary and an expla-
nation of the procedures for appeal.
7.03 REMEDIES AVAILABLE
The Participant or Beneficiary shall have 60 days from receipt of the de-
nial 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 Partici-
pant 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 follow-
ing:
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 nondis-
criminatory 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 disburse-
ments under the Plan, and, when requested by the Trustee (or Custo-
dian), to furnish the Trustee (or Custodian) with instructions, in
writing, on matters pertaining to the Plan and the Trustee (or Cus-
todian) 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 appro-
priate to accomplish his duties under the Plan, including, but not lim-
ited 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 administra-
tion 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 incon-
sistency in such manner and to such extent as shall be deemed nec-
essary 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 Admin-
istrator 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 des-
ignated agents) on all matters relating to the Compensation of all Parti-
cipants, their regular employment, retirement, death, Disability or Termi-
nation of Employment, and such other pertinent facts as the Plan Admini-
strator (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 re-
sponsibility 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 Proto-
type Sponsor the power, but no 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 be under-
stood 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 sub-
mitter 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 indi-
vidually 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 Agree-
ment, (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 specifi-
cally 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 applic-
able). 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 entire-
ty 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 Par-
ticipant'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 Contri-
butions will not be less than the percentage computed under the Plan with-
out 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 Partici-
pant'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 contri-
butions 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 con-
tributions 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 Proto-
type 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), 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 reg-
ulations. Until all of the assets have been distributed from the Fund,
the Employer must keep the Plan in compliance with current laws and regu-
lations 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 plan document.
9.08 FAILURE OF PLAN QUALIFICATION
If the Plan fails to 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, con-
solidation, 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) 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 docu-
ments 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 31, 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 excludable 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 re-
quired 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 de-
termination date(s)), and the denominator of which is the sum of all
account balances (including any part of any account balance distri-
buted 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 aggre-
gated defined contribution plan or plans for all Key Employees, de-
termined 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 de-
nominator 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 there-
under. 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 bal-
ances 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 employ-
er 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, roll-
overs, and transfers are taken into account will be made in accord-
ance 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 calcula-
ted 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 con-
sidered as a group with the required aggregation group, would con-
tinue 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 require-
ments 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 inter-
est 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 estab-
lished 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 employ-
ees 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 contribu-
tions 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 con-
trols 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-Employ-
ees, 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 con-
trol 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 sen-
tence 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 quali-
fied domestic relations order, as defined in Section 414(p) of the Code.
Generally, a domestic relations order cannot be a qualified domestic rela-
tions order until January 1, 1985. However, in the case of a domestic re-
lations 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 quali-
fied domestic relations order even if such order does not meet the
requirements of Section 414(p) of the Code.
#709 (1/94) 1994 Universal Pensions, Inc., Brainerd, MN 56401
National Standardized Money Purchase Pension Plan
ADOPTION AGREEMENT
_______________________________________________________________________________
SECTION 1. EMPLOYER INFORMATION
Name of Employer: ________________________________________________________
Address: _________________________________________________________________
City: __________________________ State:________________ Zip: ____________
Telephone _______________ Federal Tax Identification Number _____________
Income Tax Year End
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 this 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 sch-
edule of Section 5, Option C will automatically apply. If left blank,
the Years of Eligibility Service required will be deemed to be 0.
#713(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
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 those checked below:
[ ] Those Employees included in a unit of Employees covered by the
terms of a collective bargaining agreement between Employee rep-
resentatives (the term "Employee representatives" does not in-
clude any organization more than half of whose members are Em-
ployees who are owners, officers or executives of the Employer)
and the Employer under which retirement benefits were the sub-
ject 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.
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 per-
centage) 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 con-
tribution percentage by more than the lesser of: (1)
the base contribution percentage, or (2) the money
purchase maximum disparity rate as described in Sec-
tion 3.01(b)(3) of the Plan) of such Participant's
Compensation for the Plan Year in excess of the in-
tegration 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 Complete Parts A and B
A Participant shall become Vested in his or her Individual Account attribu-
table to Employer Contributions and Forfeitures as follows (Choose one):
_______________________________________________________________________________
YEARS OF VESTED PERCENTAGE (Complete
VESTING SERVICE Option A [ ] Option B [ ] Option C [ ] Option D [ ] if Chosen)
________________________________________________________________________________
1 0% 0% 100% ____%
2 0% 20% 100% ____%
3 100% 40% 100% ____% (not less than 20%)
4 100% 60% 100% ____% (not less than 40%)
5 100% 80% 100% ____% (not less than 60%)
6 100% 100% 100% ____% (not less than 80%)
_______________________________________________________________________________
NOTE: If left blank, Option C, 100% vesting, will be deemed to be selected.
#713(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
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 ques-
tions 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 Sec-
tion 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.
SECTION 10. ADDITIONAL PLANS
An Employer who has ever maintained or who later adopts any plan (in-
cluding a welfare benefit fund, as defined in Section 419(e) of the
Code, which provides post-retirement medical benefits allocated to sep-
arate 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 stan-
dardized profit sharing plan using Basic Plan Document No. 03) may not
rely on the opinion letter issued by the National Office of the Inter-
nal Revenue Service as evidence that this Plan is qualified under Sec-
tion 401 of the Code. If the Employer who adopts or maintains multiple
plans wishes to obtain reliance that the Employer's plan(s) are quali-
fied, 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 impli-
cations 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 discon-
tinue or abandon the Plan.
4. I have received a copy of this Adoption Agreement and the corres-
ponding 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__________________________________________________________________
#713(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
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 com-
plete 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 con-
tribution plan maintained by the Employer, other than a regional
prototype plan:
1. [ ] The provisions of Section 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:
______________________
#713(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
Standardized Profit Sharing Plan
ADOPTION AGREEMENT
_______________________________________________________________________________
SECTION 1. EMPLOYER INFORMATION
Name of Employer: _______________________________________________________
Address____________________________________________________________________
City: _______________________State:______________________ Zip: ______________
Telephone: _________________ Federal Tax Identification Number_______________
Income Tax Year End __________________________
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 _____________. The Effective Date of this amendment
and restatement is ________________. 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. 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.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
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.
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.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
SECTION 5. VESTING
A Participant shall become Vested in his or her Individual Account
attributable to Employer Contributions and Forfeitures as follows
(Choose one):
________________________________________________________________________________
YEARS OF VESTED PERCENTAGE
VESTING SERVICE
Option A [ ] Option B [ ] Option C [ ] Option D [ ] (Complete if Chosen)
_______________________________________________________________________________
1 0% 0% 100% ____%
2 0% 20% 100% ____%
3 100% 40% 100% ____% (not less than 20%)
4 100% 60% 100% ____% (not less than 40%)
5 100% 80% 100% ____% (not less than 60%)
6 100% 100% 100% ____% (not less than 80%)
______________________________________________________________________________
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
C. In-Service Withdrawals: Will Participants be permitted to make
withdrawals during service pursuant to Section 6.01(A)(3) of the
Plan? [ ] Yes [ ] No
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. [ ]
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.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
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,
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_________________________
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(l)(2) of the Code, under which amounts are
treated as annual additions with respect to any Participant in this Plan.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
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 Section 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:
_______________________________________
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
Simplified Standardized Money Purchase Pension Plan
ADOPTION AGREEMENT
_____________________________________________________________________________
EMPLOYER INFORMATION
Name of Employer_____________________________Telephone__________________________
Business Address______________________________________________________________
City__________________________State________________________Zip_________________
Federal Tax Identification Number_________________Income Tax Year End_________
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 infor-
mation 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 pur-
chase 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 Par-
ticipant in the Plan after completing _____ (enter 0, 1 or 2) Years
of Eligibility Service. NOTE: If left blank, the Years of Eligibil-
ity Service required will be deemed to be 0.
Part B. Age Requirement: An Employee will be eligible to become a Partici-
pant 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 contrib-
ute for each qualifying Participant an amount equal to ______% (not
to exceed 25%) of the qualifying Participant's Compensation for the
Plan Year.
#726(12/90) 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
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 comple-
tion 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
[ ] Check this box only if a financial organization is named as Trustee and it
has full trust powers.
Trustee or Custodian_______________________________________________
Signature________________________________________________________
Type Name______________________________________________________
PROTOTYPE SPONSOR
Name of Prototype Sponsor_________________________________________
Address____________________________Telephone Number______________________
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 employ-
ees 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 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.
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 partici-
pant, 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 Partici-
pant in this Plan.
#726(12/90) 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
Part A. If the Participant is covered under another qualified defined contri-
bution 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 lim-
it total annual additions to the maximum permissible amount, and
will properly reduce any excess amounts, in a manner that pre-
cludes Employer discretion.)____________________________________
Part B. If the Participant is or has ever been a participant in a defined ben-
efit plan maintained by the Employer, the Employer will provide below the lang-
uage which will satisfy the 1.0 limitation of Section 415(e) of the Code. Such
language must preclude Employer discretion.
Part C. The limitation year is the following 12-consecutive month period:_____
_______________________________________
#726(12/90) 1990 Universal Pensions, Inc., Brainerd, MN 56401
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
BULL & BEAR SPECIAL EQUITIES, INC. ANNUAL REPORT
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 50,775,604
<INVESTMENTS-AT-VALUE> 53,978,313
<RECEIVABLES> 2,778,167
<ASSETS-OTHER> 43,168
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 56,799,648
<PAYABLE-FOR-SECURITIES> 3,623,296
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,562,303
<TOTAL-LIABILITIES> 11,185,599
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,942,511
<SHARES-COMMON-STOCK> 2,386,819
<SHARES-COMMON-PRIOR> 3,197,910
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,531,171)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,202,709
<NET-ASSETS> 45,614,049
<DIVIDEND-INCOME> 123,524
<INTEREST-INCOME> 132,728
<OTHER-INCOME> 0
<EXPENSES-NET> 1,729,093
<NET-INVESTMENT-INCOME> (1,472,841)
<REALIZED-GAINS-CURRENT> (9,080,429)
<APPREC-INCREASE-CURRENT> (688,522)
<NET-CHANGE-FROM-OPS> (11,241,792)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 473,631
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,376,232
<NUMBER-OF-SHARES-REDEEMED> 6,208,346
<SHARES-REINVESTED> 21,023
<NET-CHANGE-IN-ASSETS> (28,343,275)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (713,080)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 442,387
<INTEREST-EXPENSE> 200,723
<GROSS-EXPENSE> 1,729,093
<AVERAGE-NET-ASSETS> 52,318,524
<PER-SHARE-NAV-BEGIN> 23.13
<PER-SHARE-NII> (0.55)
<PER-SHARE-GAIN-APPREC> (3.28)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.19)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.11
<EXPENSE-RATIO> 2.92
<AVG-DEBT-OUTSTANDING> 2,566,493
<AVG-DEBT-PER-SHARE> 1.08
</TABLE>
[LOGO]
February 17, 1995
Fellow Shareholders:
It is a pleasure to welcome the many investors who have opened Bull & Bear
Special Equities Fund regular, IRA and Gifts-to-Minors accounts over the past
six months.
Growth Fund Guide Gives Fund its Top-Ranked Five
Star ***** Rating for Rising Markets
------------
Fund in Top Five In Rally Begun Last December
We are also pleased to report that Growth Fund Guide, a well-established
mutual fund rating service now in its 27th year of publication, has given the
Fund its highest five star rating for how the Fund is expected to perform,
relative to 101 other equity funds the Guide rates, during prolonged rising
markets. The Guide's ratings range from five stars down to one star and are
derived from dividing all the rated funds into performance quintiles.
Reflecting the Fund's above-average volatility, it received a single star for
its expected performance in prolonged declining markets. The Fund has strongly
participated in the stock market rally which began last December, putting it in
the top five of 382 cross-sectional equity funds with a gain of 11% for the
period, as reported by Mutual Fund Forecaster.
1994 was a year of turmoil for the stock market. The Fund closed out the year
with a negative total return of 16.54%. This followed results of +16.35%,
+28.38% and +40.54%, respectively, in each of the prior three years. Broad
stock market averages continued to move to record highs as the year began. This
upward progress was abruptly halted, however, on February 4, 1994 with the
announcement that the Federal Reserve was raising interest rates. This was the
first tightening move after five years of monetary ease and was not favorably
received in financial markets worldwide. In late March, leading inflation
indicators rose and the dollar weakened, putting further strain on bond and
stock prices. During the second quarter, major stock market averages recorded
their lowest levels for the year.
When economic reports for the first six months of 1994 indicated signs of a
sharp deceleration in growth with inflationary pressures remaining subdued at
the wholesale and consumer levels, investor fears eased and stock prices moved
upward through the summer, approaching the highs recorded in the year's opening
months. A renewed surge in the economy during the summer, however, led again by
strong consumer durables spending, heightened inflation fears and prompted a
series of additional Federal Reserve tightening moves. Both the bond and stock
markets declined, pressure on the dollar escalated, and foreign markets,
particularly emerging markets, followed suit. Broad market averages, however,
did not fully reflect the extent of the stock market's deterioration.
Between early September and early December, internal stock market indicators
weakened significantly, with a climactic low following the shocking Orange
County derivatives-related bankruptcy in late November. When investor fears
eased concerning the extent of additional Orange County like problems, bond and
stock prices rallied through year-end. Broad stock market averages recorded
only
<PAGE>
moderate gains or losses for the year, despite the bond market having recorded
its worst performance since 1927. The Fund's investment strategy of investing
primarily in emerging growth companies was stymied by several earnings
disappointments and the equivalent of a bear market in secondary
over-the-counter issues.
From the December market lows, performance of the Fund has recovered sharply,
however, reflecting what we see as a much improved environment for emerging
growth companies, particularly those benefitting from continued heavy spending
worldwide for communications infrastructure and productivity enhancing
technology. We believe the Federal Reserve is close to achieving its goal of
subdued inflation in an economy growing at a sustainable rate. This, combined
with the very real potential for a dramatic improvement in government fiscal
policy after the November election results, bodes well for improving stock
prices.
As a result, we believe there are significant capital appreciation
opportunities in the stock market, with the potential for significant
appreciation in the price of selected stocks over the next year. As we have
noted regularly in past reports, Bull & Bear makes available without charge
three exceptionally convenient ways to add to your account automatically: the
Bull & Bear Bank Transfer Plan, the Bull & Bear Salary Investing Plan and the
Bull & Bear Government Direct Deposit Plan. For information on these free
services, simply give us a call and we will help you get started.
If you have any questions or would like information on any of the Bull & Bear
Funds, the Bull & Bear No-Fee IRA SM or opening a discount brokerage account at
Bull & Bear Securities, we would be pleased to hear from you. Just call
1-800-847-4200, and a Bull & Bear Service Representative will be glad to assist
you, as always, without any obligation on your part.
Sincerely,
Robert D. Anderson
Vice Chairman
Brett B. Sneed, CFA
Senior Vice President
Portfolio Manager
<PAGE>
INCOME FUNDS-
MONEY MARKET,
U.S. GOVERNMENT,
MUNICIPAL AND
GLOBAL
Monthly Dividends
Free, Unlimited
Check Writing
($250 minimum
per check)
Bull & Bear
Dollar Reserves
A high quality money market fund investing in U.S. Government securities.
Income is generally free from state income and intangible personal property
taxes. (The check writing minimum is $100 for Bull & Bear Performance PlusSM
discount brokerage accounts.)
- -------------------------------------------------------------------------------
Bull & Bear
U.S. Government
Securities Fund
Investing for a high level of current income, liquidity and safety of
principal.
- -------------------------------------------------------------------------------
Bull & Bear
Municipal Income Fund
Investing for the highest possible income exempt from Federal income tax that
is consistent with preservation of principal.
- -------------------------------------------------------------------------------
Bull & Bear
Global Income Fund
Investing for a high level of income from a global portfolio of primarily
investment grade fixed income securities.
- -------------------------------------------------------------------------------
GROWTH FUNDS-U.S., GLOBAL
AND PRECIOUS
METALS
Bull & Bear
Quality Growth Fund
Investing in quality companies for growth of capital
and income.
- -------------------------------------------------------------------------------
Bull & Bear
U.S. and Overseas Fund
Invests worldwide for the highest possible total return.
- -------------------------------------------------------------------------------
Bull & Bear
Special Equities Fund
Invests aggressively for maximum capital
appreciation.
- -------------------------------------------------------------------------------
Bull & Bear
Gold Investors
Seeks long term capital appreciation in investments with the potential to
provide a hedge against inflation and preserve the purchasing power of the
dollar.
- -------------------------------------------------------------------------------
Call our toll-free number for a prospectus containing more complete
information, including charges and expenses. Please read it carefully before
you invest.
- -------------------------------------------------------------------------------
DISCOUNT
BROKERAGE
SERVICES
Call Toll Free
1-800-VIP-4200
Bull & Bear
Securities, Inc.
Investors receive the investment information they need and the low commissions
they expect. Commission savings of up to 84% and more over full cost firms and
guaranteed 20% lower than Charles Schwab & Co. on every stock, bond and option
trade. (Transactions are subject to a low $31 minimum commission; comparisons
are based on a January 1995 survey of standard telephone orders; full cost
firms and larger discount brokers may offer additional services not available
from Bull & Bear Securities and rates may vary markedly for other types of
products.)
- -------------------------------------------------------------------------------
Total Return Performance. For the periods ended December 31, 1994, Bull & Bear
Special Equities Fund's total return for one year was a negative 16.54%,
average annual total return for the past three years was 7.63%, for the past
five years was 2.19% and for the life of the Fund (from March 20, 1986) was
8.48%. Past performance does not guarantee future results. Investment return
will fluctuate, so shares when redeemed may be worth more or less than their
cost. Dollar cost averaging does not assure a profit or protect against loss in
a declining market, and investors should consider their ability to make
purchases when prices are low.
<PAGE>
BULL & BEAR SPECIAL EQUITIES FUND, INC.
Schedule of Portfolio Investments - December 31, 1994
Market
Shares Cost Value
- ------- ----------- -----------
COMMON STOCKS (100.0%)
Basic Industry (1.0%)
60,000 Universal Stainless & Alloy Products, Inc.*... $493,125 $540,000
----------- -----------
Business Services (6.0%)
160,000 Aurora Electronics Inc.*...................... 1,276,104 740,000
125,000 Brite Voice Systems Inc.*..................... 1,547,580 2,234,375
30,000 BTG Inc.*...................................... 240,000 247,500
----------- -----------
3,063,684 3,221,875
----------- -----------
Communications Products and Equipment (15.3%)
78,000 ANTEC Corp.*.................................. 2,061,624 1,433,250
40,000 DSC Communications Corp.*..................... 1,044,375 1,435,000
28,500 Motorola, Inc................................. 1,540,622 1,649,438
60,000 Newbridge Networks Corp.*..................... 1,922,546 2,295,000
60,000 PictureTel Corp.*............................. 1,236,250 1,455,000
----------- -----------
7,805,417 8,267,688
----------- -----------
Communication Services (2.3%)
95,000 Intelcom Group Inc.*.......................... 1,451,057 1,258,750
----------- -----------
Communications Software (6.9%)
55,000 Cisco Systems, Inc. .......................... 1,785,625 1,931,875
74,000 Network Equipment Technology Inc.*............ 1,454,108 1,776,000
----------- -----------
3,239,733 3,707,875
----------- -----------
Computer Hardware (9.4%)
70,000 EMC Corp.*.................................... 1,589,939 1,513,750
52,000 Sun Microsystems, Inc.*....................... 1,753,625 1,842,750
100,000 Tandem Computers, Inc.*....................... 1,786,930 1,712,500
----------- -----------
5,130,494 5,069,000
----------- -----------
Computer Software (19.0%)
40,000 BMC Software, Inc.*........................... 1,808,250 2,275,000
35,000 Computer Associates International, Inc........ 1,441,225 1,697,500
50,000 Informix Corp.*............................... 1,243,070 1,606,250
195,000 System Software Associates Inc. .............. 2,756,188 3,071,250
90,000 VMARK Software*............................... 1,429,372 1,597,500
----------- -----------
8,678,105 10,247,500
----------- -----------
Consumer Products & Services (7.1%)
180,000 Globalink Inc.*............................... 2,266,540 2,677,500
85,000 Nature's Sunshine Products Inc................ 1,276,875 1,147,500
----------- -----------
3,543,415 3,825,000
----------- -----------
<PAGE>
Market
Shares Cost Value
- ------- ----------- -----------
Financial Services (6.5%)
420,000 Americredit Corp.*.......................... $ 2,116,672 $ 2,520,000
90,000 First Republic Bancorp Inc.*................ 1,411,783 1,012,500
----------- -----------
3,528,455 3,532,500
----------- -----------
Health Care Products & Services (10.7%)
75,000 Abbey Healthcare Group Inc.*................ 1,717,500 1,743,750
50,000 Health Systems International Inc. Class A*.. 1,303,713 1,518,750
85,000 National Medical Enterprises, Inc.*......... 1,596,102 1,200,625
40,000 Shared Medical Systems Corp................. 1,209,687 1,310,000
----------- -----------
5,827,002 5,773,125
----------- -----------
Media (6.5%)
200,000 New World Communications Group, Inc.*....... 2,416,562 2,362,500
120,000 Westwood One, Inc.*......................... 1,036,562 1,170,000
----------- -----------
3,453,124 3,532,500
----------- -----------
Retailing (6.0%)
40,000 Barnes & Noble Inc.*........................ 1,058,666 1,250,000
75,000 OfficeMax, Inc.*............................ 1,735,764 1,987,500
----------- -----------
2,794,430 3,237,500
----------- -----------
Semiconductors (3.3%)
40,000 Micron Technology Inc....................... 1,767,563 1,765,000
----------- -----------
Total Investments (100.0%).................. $50,775,604 $53,978,313
=========== ===========
* Indicates non-income producing security.
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
ASSETS:
Investments at market value (identified
cost: $50,775,604) (note 1)................... $53,978,313
Cash.......................................... 687
Receivables:
Investment securities sold.................... 1,996,858
Fund shares sold.............................. 742,359
Dividends..................................... 38,950
Prepaid expenses.............................. 42,481
------------
Total assets.................................. 56,799,648
------------
LIABILITIES:
Payables:
Demand note payable to bank (note 5).......... 6,820,000
Investment securities purchased............... 3,623,296
Fund shares redeemed.......................... 579,076
Accrued management and distribution fees...... 36,366
Accrued expenses.............................. 126,861
------------
Total liabilities............................. 11,185,599
------------
NET ASSETS: (applicable to 2,386,819
outstanding shares: 500,000,000 shares of
$.01 par value authorized).................... $45,614,049
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
($45,614,049 ~ 2,386,819)..................... $19.11
============
At December 31, 1994 net assets consisted of:
Paid-in capital............................... $51,942,511
Accumulated net realized loss on investments.. (9,531,171)
Net unrealized appreciation on investments.... 3,202,709
------------
$45,614,049
============
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
INVESTMENT INCOME:
Dividends................................ $123,524
Interest................................. 132,728
--------------
Total investment income.................. 256,252
--------------
EXPENSES:
Distribution plan expenses (note 3)...... 523,183
Management fees (note 3)................. 442,387
Interest (note 5)........................ 200,723
Transfer agent fees...................... 199,711
Shareholder servicing expenses (note 3).. 153,664
Custodian fees........................... 67,750
Professional fees (note 3)............... 61,612
Registration fees (note 3)............... 37,120
Directors' fees.......................... 14,568
Printing................................. 9,412
Other.................................... 18,963
--------------
Total expenses........................... 1,729,093
--------------
Net investment loss...................... (1,472,841)
--------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss from security
transactions............................. (9,080,429)
Unrealized depreciation of investments
during the period........................ (688,522)
--------------
Net realized and unrealized loss on
investments.............................. (9,768,951)
--------------
Net decrease in net assets resulting
from operations.......................... $(11,241,792)
==============
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<S> <C> <C>
1994 1993
-------------- --------------
OPERATIONS:
Net investment loss.............................................................. $ (1,472,841) $ (1,943,630)
Net realized gain (loss) from security transactions.............................. (9,080,429) 20,656,050
Unrealized depreciation of investments and futures contracts during the period... (688,522) (9,137,587)
-------------- --------------
Net increase (decrease) in net assets resulting from operations.................. (11,241,792) 9,574,833
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from realized gains ($0.19 and $5.64 per share, respectively)...... (473,631) (14,337,548)
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting from capital share transactions (a).. (16,627,852) 10,406,212
-------------- --------------
Total change in net assets....................................................... (28,343,275) 5,643,497
NET ASSETS:
Beginning of year................................................................ 73,957,324 68,313,827
-------------- --------------
End of year...................................................................... $45,614,049 $73,957,324
============== ==============
</TABLE>
<PAGE>
(a) Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Shares Value Shares Value
------------ --------------- ------------ ---------------
Shares sold..................................... 5,376,232 $106,999,445 4,694,110 $128,799,532
Shares issued in reinvestment of distributions.. 21,023 388,975 588,283 13,189,974
Shares redeemed................................. (6,208,346) (124,016,272) (4,830,151) (131,583,294)
------------ --------------- ------------ ---------------
Net increase (decrease)......................... (811,091) $(16,627,852) 452,242 $ 10,406,212
============ =============== ============ ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
(1) The Fund is registered under the Investment Company Act of 1940, as
amended, as a non-diversified, open-end management investment company. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. With respect to
security valuation, securities traded on a national securities exchange and
securities traded on the NASDAQ National Market System ("NMS") are valued at
the last reported sales price on the day the valuations are made. Such
securities that are not traded on a particular day and securities traded in the
over-the-counter market that are not on NMS are valued at the mean between the
current bid and asked prices. Securities for which quotations are not readily
available and other assets are valued at fair value as determined in good faith
by or under the direction of the Board of Directors. Securities denominated in
foreign currencies are translated into U.S. dollars at prevailing exchange
rates. Debt obligations with remaining maturities of 60 days or less are valued
at cost adjusted for amortization of premiums and accretion of discounts.
Futures contracts are marked to market daily and the variation margin is
recorded as an unrealized gain or loss. In connection with futures contracts,
the Fund is required to segregate portfolio securities it owns as collateral.
When a contract is closed, a realized gain or loss is recorded equal to the
difference between the opening and closing value of the contract. Investment
transactions are accounted for on the trade date (date the order to buy or sell
is executed). Dividend income and distributions to shareholders are recorded on
the ex-dividend date and interest income is recorded on the accrual basis.
(2) The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all its taxable investment income and net capital gains, if any,
after utilization of any capital loss carryforward, to its shareholders and
therefore no Federal income tax provision is required. Based upon Federal
income tax cost of $51,226,346, gross unrealized appreciation and gross
unrealized depreciation were $5,540,214 and $2,788,247, respectively at
December 31, 1994.
(3) The Fund retains Bull & Bear Advisers, Inc. as its Investment Manager.
Under the Investment Management Agreement, the Investment Manager receives a
management fee, payable monthly, based on the average daily net assets of the
Fund at the annual rate of 1% on the first $10 million, 7/8 of 1% from $10
million to $30 million, 3/4 of 1% from $30 million to $150 million, 5/8 of 1%
from $150 million to $500 million, and 1/2 of 1% over $500 million. The
Investment Manager has undertaken that the operating expenses of the Fund for
each fiscal year (including management fees but excluding taxes, interest,
brokerage commissions and distribution plan expenses), expressed as a
percentage of average daily net assets, will not exceed the lowest rate
prescribed by any state in which shares of the Fund are qualified for sale.
Currently such limitation is 2.5% of the first $30 million of such assets, 2%
of the next $70 million and 1.5% of the remaining net assets. If the Fund's
expenses exceed such rates, the Investment Manager will reimburse the Fund for
any excess. Certain officers and directors of the Fund are officers and
directors of the Investment Manager and Bull & Bear Service Center, Inc., the
Fund's Distributor. For the year ended December 31, 1994 the Fund paid $33,409
to Bull & Bear Securities, Inc., an affiliate of the Investment Manager as
commissions for brokerage services. The Fund reimbursed the Investment Manager
$18,345 for providing certain administrative and accounting services at cost
for the year ended December 31, 1994.
<PAGE>
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"). Pursuant to the Plan, the Fund
pays the Distributor a distribution fee an amount of three-quarters of one
percent per annum of the Fund's average daily net assets and a service fee an
amount of one-quarter of one percent per annum of the Fund's average daily net
assets. The fee for service activities is intended to cover personal services
provided to shareholders in the Fund and the maintenance of shareholder
accounts. The fee for distribution activities is to cover all other activities
and expenses primarily intended to result in the sale of the Fund's shares.
Bull & Bear Service Center also received $153,664 for certain shareholder
services which it provided to the Fund at cost for the year ended December 31,
1994.
(4) Purchases and proceeds of sales of securities other than short term notes
aggregated $164,187,232 and $182,707,546, respectively.
(5) The Fund has a committed bank line of credit in an amount which may vary
from time to time pursuant to the Fund's investment policies. As part of the
agreement, the Fund is required to pledge securities it holds in its portfolio
if there is an outstanding balance. At December 31, 1994, the balance
outstanding was $6,820,000 and the interest rate was prime minus 20 basis
points. For the year ended December 31, 1994, the weighted average interest
rate was 7.0% based on the balances outstanding during the year and the
weighted average amount outstanding was $2,566,493. Included in interest
expense is $15,508 for commitment fees related to this line of credit.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
Years Ended December 31,
--------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
PER SHARE DATA*
Net asset value at beginning of period.................. $23.13 $24.88 $19.38 $13.79 $21.68
-------- -------- -------- -------- --------
Income from investment operations:
Net investment loss..................................... (.55) (.76) (.58) (.36) (.68)
Net realized and unrealized gain (loss) on investments.. (3.28) 4.65 6.08 5.95 (7.21)
-------- -------- -------- -------- --------
Total from investment operations........................ (3.83) 3.89 5.50 5.59 (7.89)
Less distributions:
Distributions from net realized gains on investments.... (.19) (5.64) - - -
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value.............. (4.02) (1.75) 5.50 5.59 (7.89)
-------- -------- -------- -------- --------
Net asset value at end of period........................ $19.11 $23.13 $24.88 $19.38 $13.79
======== ======== ======== ======== ========
TOTAL RETURN............................................ (16.5)% 16.4% 28.4% 40.5% (36.4)%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)............. $45,614 $73,957 $68,314 $16,738 $8,475
======== ======== ======== ======== ========
Ratio of expenses to average net assets................. 2.92% 2.74% 3.07% 2.83% 3.10%
======== ======== ======== ======== ========
Ratio of net investment loss to average net assets...... 2.43% 2.73% 2.78% 2.11% 3.19%
======== ======== ======== ======== ========
Portfolio turnover rate................................. 309% 256% 261% 384% 475%
======== ======== ======== ======== ========
</TABLE>
* Per share net investment loss and net realized and unrealized gain (loss) on
investments have been computed using the average number of shares
outstanding. These computations had no effect on net asset value per share.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of Bull & Bear Special Equities Fund,
Inc.:
We have audited the accompanying statement of assets and liabilities of Bull
& Bear Special Equities Fund, Inc., including the schedule of portfolio
investments as of December 31, 1994, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the five years in the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Bull
& Bear Special Equities Fund, Inc. as of December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 19, 1995
10