As filed with the Securities and Exchange Commission on April 30, 1998.
1933 Act File No. 33-2847
1940 Act File No. 811-4625
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 19
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19
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:
Deborah A. Sullivan Stuart H. Coleman, Esq.
Bull & Bear Advisers, Inc. Stroock & Stroock & Lavan LLP
11 Hanover Square 180 Maiden Lane
New York, NY 10005 New York, NY 10038-4982
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of rule 485
X on May 1, 1998 pursuant to paragraph (b) of rule 485
60 days after filing pursuant to paragraph (a) of rule 485
on (specify date) pursuant to paragraph (a) of rule 485
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, 1997 was filed on March 25, 1998.
<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 Investment Manager
Custodian and Transfer Agent
6 Cover Page
General
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
Investment Manager
16 Officers and Directors
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 investment objective.
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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.
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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 1, 1998, has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated by reference in this
prospectus. It is available at no charge by calling 1-800-847-4200. The SEC
maintains a Web site (http://www.sec.gov) that contains the Fund's Statement of
Additional Information, material incorporated by reference, and other
information regarding registrants that file electronically with the SEC, as does
the Fund. Fund shares 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 TABLES. 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 ANNUAL FUND OPERATING EXPENSES
Sales Load Imposed on Purchases.....NONE (as a percentage of average net assets)
Sales Load Imposed on Management Fees........ 0.87%
Reinvested Dividends....... NONE
Deferred Sales Load.................NONE 12b-1 Fees............. 1.00%
Redemption Fee within Other Expenses ......... 0.94%
30 days of purchase........ 1.00%
-----
Redemption Fee after Total Fund Operating
30 days of purchase......... NONE Expenses................... 2.81%
Exchange Fees.................... NONE
EXAMPLE 1 year 3 years 5 years 10 years
------ ------- ------- --------
You would pay the following $28 $87 $148 $314
expenses on a $1,000 investment,
assuming a 5% annual return and a
redemption at the end of each time period.
The example set forth above assumes reinvestment of all dividends and other
distributions and assumes a 5% annual rate of return as required by the 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 Operating
Expenses are based on the Fund's operating expenses and average daily net assets
during its fiscal year ended December 31, 1997. 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 and Transfer Agent and reimbursable to the Investment
Manager and the Distributor for certain administrative and shareholder services.
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, 1997 Annual Report to Shareholders and incorporated by reference in
the Statement of Additional Information.
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER SHARE DATA*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $22.96 $25.42 $19.11 $23.13 $24.88 $19.38 $13.79 $21.68 $18.17 $15.75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment loss.............. (.38) (.73) (.81) (.55) (.76) (.58) (.36) (.68) (1.14) (.86)
Net realized and unrealized gain
(loss) on investments............... 1.55 0.99 8.51 (3.28) 4.65 6.08 5.95 (7.21) 8.70 4.43
---- ---- ---- ----- ----- ---- ------ ----- --- -----
Total from investment operations. 1.17 0.26 7.70 (3.83) 3.89 5.50 5.59 (7.89) 7.56 3.57
---- ---- ---- ------ ---- ---- ---- ------ ---- ----
Less distributions:
Distributions from net realized
gains on investments............ (.75) (2.72) (1.39) (.19) (5.64) -- -- -- (4.05) (1.15)
Net increase (decrease) in
net asset value................ .42 (2.46) 6.31 (4.02)(1.75) 5.50 5.59 (7.89) 3.51 2.42
Net asset value at end of period.... $23.38 $22.96 $25.42 $19.11 $23.13 $24.88 $19.38 $13.79 $21.68 $18.17
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN........................ 5.25% 1.0% 40.5% (16.5)% 16.4% 28.4% 40.5% (36.4)% 42.3% 22.7%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (000's omitted)............. $44,773 $49,840 $56,340$45,614 $73,957 $68,314 $16,738 $8,475 $6,317 $2,982
Ratio of expenses to average
net assets(a)..................... 2.53% 2.45% 2.88% 2.92% 2.74% 3.07% 2.83% 3.10% 3.50% 2.94%
Ratio of net investment loss to
average net assets............... 1.48% 2.81% 2.70% 2.43% 2.73% 2.78% 2.11% 3.19% 3.23% 1.49%
Portfolio turnover rate............. 260% 311% 319% 309% 256% 261% 384% 475% 433% 514%
Average commission per share........ $0.0505 $0.0714
</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. (a) Ratios
including interest expense were 2.81%, 2.92% and 3.67% for the years ended
December 31, 1997, 1996 and 1995, respectively. (b) Ratio after custodian fee
credits was 2.51% for the year ended December 31, 1997. Prior to 1995, such
credits were reflected in the ratio. There were no custodian fee credits for
1996 and 1995.
Information relating to outstanding debt during the fiscal
periods shown below:
<TABLE>
<CAPTION>
Amount of Debt Average Amount of Average Number of Average Amount of
Fiscal Year Ended Outstanding at Debt Outstanding Shares Outstanding Debt Per Share
December 31 End of Period During the Period During the Period During the Period
<S> <C> <C> <C> <C>
1997 $3,462,218 $2,160,383 2,000,257 $1.08
1996 9,147,819 3,633,850 2,105,499 1.73
1995 0 4,925,275 2,345,320 2.10
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>
TABLE OF CONTENTS
Expense Tables.............2 Distributions and Taxes....................10
Financial Highlights.......2 Determination of Net Asset Value...........11
General....................3 Investment Manager.........................11
Risk Factors...............3 Performance Information....................11
How to Purchase Shares.....6 Distribution of Shares.....................12
Shareholder Services.......7 Capital Stock..............................12
How to Redeem Shares.......9 Custodian and Transfer Agent...............12
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.
THE FUND'S INVESTMENT PROGRAM. Under normal conditions, at least 65% of the
Fund's total assets will be invested long or short 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
practices of most mutual funds and may result in higher portfolio turnover,
increased expenses, and a greater amount of 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.
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 1995 the Fund's portfolio turnover rate was
319%, in 1996 it was 311% and in 1997 it was 260%. Higher turn over may increase
Fund brokerage costs and taxes payable by shareholders.
2
<PAGE>
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,
as amended ("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 or
liquid securities whose value is marked to the market daily. 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 current market value of the securities sold short. Ordinarily, no
interest will be received by the Fund on the proceeds of the short sale held by
the broker, although income from 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 Fund's net assets will be used to collateralize short
sales. To adhere to the 25% limitation, the Fund may be required to cover short
sales at a disadvantageous time.
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.
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 Fund's net assets. This non-fundamental limitation 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 futures contracts on interest rates, stock and bond indexes,
and foreign currencies 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
3
<PAGE>
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 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. To the extent that the Fund enters into futures
contracts, options on futures contracts and options on foreign currencies traded
on a Commodity Futures Trading Commission ("CFTC") regulated exchange, in each
case that is not for bona fide hedging purposes (as defined by the CFTC), the
aggregate initial margin and premiums required to establish these positions
(excluding the amount by which options are "in-the-money") may not exceed 5% of
the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any contracts to which the Fund is a
party.
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 a non-fundamental investment restriction, the Fund may invest up
to 15% of its net assets in illiquid securities, including repurchase agreements
with a maturity of more than seven days.
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; non-negotiable brokerage commissions; 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,
exchange controls (which may include suspension of the ability to transfer
currency from a given country), and currency restrictions; and the possible
greater political, economic and social instability of developing as well as
developed countries, including nationalization, expropriation of assets, and
war. Furthermore, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments position. 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 investments 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.
Since investment in foreign securities usually involves foreign
currencies and since the Fund may temporarily hold cash in bank deposits in
foreign currencies in order to facilitate portfolio transactions, 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 in which a Fund investment is denominated or which
4
<PAGE>
is temporarily held by the Fund to facilitate portfolio transactions, the value
of such Fund assets and 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 currency contracts. The Fund generally will not enter into a forward
contract with a term of greater than one year.
LENDING. Pursuant to an agency arrangement with an affiliate of its Custodian,
the Fund may lend portfolio securities or other assets through such affiliate
for a fee to other parties. The Fund's agreement requires that the loans be
continuously secured by cash, securities issued or guaranteed by the U. S.
Government, its agencies or instrumentalities, or any combination of cash and
such securities, as collateral equal at all times to at least the market value
of the assets lent. Loans of portfolio securities may not exceed one-third of
the Fund's total assets. There are risks to the Fund of delay 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 to
be creditworthy. Any loan made by the Fund will provide that it may be
terminated by either party upon reasonable notice to the other party.
OTHER INVESTMENTS. The Fund may also invest in repurchase agreements, U.S.
Government Securities, municipal securities, preferred stocks, 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.
OTHER INFORMATION. The Fund is "non-diversified," as defined in the 1940 Act,
but intends to continue to qualify as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended (the "Code") 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
(see "Determination of Net Asset Value"). The minimum initial investment is
$1,000 for regular and Uniform Gifts/Transfers to Minors Act custody accounts,
$1,000 for traditional deductible individual retirement accounts ("IRAs"), Roth
IRAs, simplified employee pension plan IRAs ("SEP-IRAs"), savings incentive
match plan for employee IRAs ("SIMPLE IRAs"), rollover IRAs, 403(b) plan
accounts, and $500 for Education IRAs. The minimum subsequent investment is
$100. The initial investment minimums are waived if a shareholder elects to
invest $100 or more each month in the Fund through the Bull & Bear Automatic
Investment Program (see "Additional Investments" below). The Fund in its
discretion may waive or lower the investment minimums.
INITIAL INVESTMENT. The Account Application that accompanies this prospectus
should be completed, signed and, with a check or other negotiable bank draft
drawn to the order of Special Equities Fund, mailed to Investor Service Center,
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:
o 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.
In the BULL & BEAR SALARY INVESTING PLAN, part or all of your
salary may be invested electronically in Fund shares on each
pay date, depending upon your employer's direct deposit
program.
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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 these Plans, or to request the
necessary authorization form(s), please call Investor Service Center,
1-800-847-4200. You may modify or terminate the Bank Transfer Plan at 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
$1,000. The Program and the Plans do 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.
o CHECK. Mail a check or other negotiable bank draft ($100 minimum),
drawn to the order of Special Equities Fund, together with a Bull &
Bear FastDeposit form to Investor Service Center, 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).
o ELECTRONIC FUNDS TRANSFER (EFT). With EFT, you may purchase additional Fund
shares quickly and simply, just by calling Investor 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.
o 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
Investor 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: 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 Investor Service
Center, 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 Investor Service Center by
simply following the same wiring procedures.
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 and other distributions that are paid in additional shares (see
"Distributions and Taxes"). For joint tenant accounts, any account owner has the
authority to act on the account without notice to the other account owners.
Investor Service Center in its sole discretion and for its protection may, but
is not obligated to, require the written consent of all account owners of a
joint tenant account prior to acting upon the instructions of any account owner.
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. Shares of the Fund may also be purchased through certain
broker-dealers and other financial intermediaries that have entered into selling
agreements or related arrangements. Investors may be charged a fee by such
broker or financial intermediary if they effect transactions through such
entity. The Fund or the Distributor may, from time to time, make payments to
broker/dealers or other financial intermediaries for certain services to the
Fund and/or their shareholders, including sub-administration, sub-transfer
agency and shareholder servicing.
WHEN ORDERS ARE EFFECTIVE. The purchase price for Fund shares is the net asset
value of such shares next determined after receipt 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. No third
party checks will be accepted and the Fund reserves the right to reject any
order for any reason. Accounts are charged $30 by the Transfer Agent for
submitting checks for investment which are not honored by the investor's bank.
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
Investor Service Center, 1-800-847-4200.
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ELECTRONIC FUNDS TRANSFER (EFT). You automatically have the privilege of linking
your bank account 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 and other distributions 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 Transfer Agent
may require the signature to be guaranteed), with a voided check.
DIVIDEND SWEEP PRIVILEGE. You may elect to have automatically invested either
all dividends or all dividends and other 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 Investor Service
Center, 1-800-847-4200. You may cancel this privilege by mailing written
notification to Investor Service Center, Box 419789, Kansas City, MO 64141-6789.
To select a new Bull & Bear 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 Investor Service Center, 1-800-847-4200.
EXCHANGE PRIVILEGE. You may exchange at least $500 worth of Fund shares for
shares of any Bull & Bear Fund listed below (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).
To exchange shares, please call Investor Service Center toll-free at
1-800-847-4200 between 9 a.m. and 5 p.m., eastern time, on any Fund business day
and provide the following information: account registration information
including address, account number and 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:
o 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.
o 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.
o BULL & BEAR U.S. AND OVERSEAS FUND invests worldwide for the highest
possible total return.
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 net asset values of the Fund
and the other Bull & Bear Fund as determined at the close of the next Fund
business day. The Fund is designed as a long term investment, and short term
trading is discouraged. Accordingly, if shares of the Fund held for 30 days or
less are redeemed or exchanged, the Fund will deduct a redemption fee equal to
one percent of the net asset value of shares redeemed or exchanged. The fee will
be retained by the Fund and used to offset the transaction costs that short term
trading imposes on the Fund and its shareholders. If an account contains shares
with different holding periods (i.e. some shares held 30 days or less, some
shares held 31 days or more), the shares with the longest holding period will be
redeemed first to determine if the Fund's redemption fee applies. If you are
unable to reach Investor 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.
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, an exchange is 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 Investor Service Center, 1-800-847-4200.
The other Fund's prospectus should be read carefully before exchanging shares.
You may give exchange instructions to Investor 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.
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o 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. by calling toll-free at 1-800-262-5800.
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 these plans is available from
Investor Service Center by calling toll-free at 1-800-847-4200.
The minimum initial investment to establish a Bull & Bear Education IRA
is $500. The minimum initial investment to establish any other Bull & Bear IRA
or retirement account is $1,000.
Minimum subsequent investments are $100. The initial minimum
investments 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 IRA or retirement account. Subject to change on 30
days' notice, the plan custodian charges Bull & Bear IRAs (excluding Bull & Bear
Education IRA) and retirement accounts 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 Bull & Bear IRA or retirement account has
assets of $10,000 or more or if you invest regularly through the Bull & Bear
Automatic Investment Program.
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 Investor Service Center, Box 419789, Kansas City, MO
64141-6789, signed by the record owner(s). If the written 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 Investor 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 Investor 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. If you are
unable to reach Investor 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.
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
(there is no check writing minimum for Bull & Bear Securities Performance
Plus(R) 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 Investor Service Center, 1-800-847-4200. Please read the prospectus
carefully before exchanging.
REDEMPTION PRICE AND FEES. The redemption price is the net asset value per share
next determined after receipt of a redemption request in proper form. The Fund
is designed as a long term investment, and short term trading is discouraged.
Accordingly, if shares of the Fund held for 30 days or less are redeemed or
exchanged, the Fund will deduct a redemption fee equal to one percent of the net
asset value of shares redeemed or exchanged. The fee will be retained by the
Fund and used to offset the transaction costs that short term trading imposes on
the Fund and its shareholders. If an account contains shares with different
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holding periods (i.e. some shares held 30 days or less, some shares held 31 days
or more), the shares with the longest holding period will be redeemed first to
determine if the Fund's redemption fee applies. Shares acquired through the
Dividend Sweep Privilege and the reinvestment of dividends and capital gains or
redeemed under the Systematic Withdrawal Plan are exempt from the redemption
fee. 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 ordinarily be made 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 fifteen
business day delay to allow the check or transfer to clear. The fifteen 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 Investor 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
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 60 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 paid in additional Fund shares or
shares of another Bull & Bear Fund pursuant to the Dividend Sweep Privilege,
unless you elect to receive cash on the Account Application or so elect
subsequently by calling Investor Service Center, 1-800-847-4200. For Federal
income tax purposes, dividends and other distributions are treated in the same
manner whether received in additional shares of the Fund or another Bull & Bear
Fund or in cash. Any election will remain in effect until you notify Investor
Service Center to the contrary.
TAXES. The Fund intends to continue to qualify for treatment as a RIC 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 shares) generally are taxable to its
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 shares) when designated as such by the Fund, are taxable
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to its shareholders as long term capital gains, regardless of how long they have
held their Fund shares. The Code provides that an individual generally will be
taxed on his or her net capital gain at a maximum rate of 28% with respect to
capital gain from securities held for more than one year but not more than 18
months and at a maximum rate of 20% with respect to capital gain from securities
held for more than 18 months. 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 tax.
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 also is required from
dividends and capital gain distributions payable to 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. Since 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 its 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, Martin Luther King Jr. 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.
INVESTMENT MANAGER
Bull & Bear Advisers, Inc. ("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 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 other affiliated investment companies. The Investment Manager may also
allocate transactions to broker/dealers that remit a portion of their
commissions as a credit against the Fund's expenses. Thomas B. Winmill,
President and Chief Executive Officer of the Investment Manager and the Fund, is
the Fund's portfolio manager. Mr. Winmill has served as a member of the
Investment Manager's Investment Policy Committee since 1990 and as portfolio
manager of the Fund since May 1, 1998.
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. 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, 1997, investment management fees paid by the Fund represented
approximately 0.87% 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 The Nasdaq Stock 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.
PERFORMANCE INFORMATION
Advertisements and other sales literature for the Fund may refer to the
Fund's "average annual total return" and "cumulative total return." All such
quotations are based upon historical earnings and are not intended to indicate
future performance. The investment return on and principal value of an
investment in the Fund will fluctuate, so that an investor's shares when
redeemed may be worth more or less than their original cost. In
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addition to advertising average annual total return and cumulative total return,
comparative performance information may be used from time to time in advertising
the Fund's shares, including data from Morningstar, Inc., Lipper Analytical
Services, Inc. and other sources. "Average annual total return" is the average
annual compounded rate of return on a hypothetical $1,000 investment made at the
beginning of the advertised period. In calculating average annual total return,
all dividends and other distributions are assumed to be reinvested. "Cumulative
total return" is calculated by subtracting a hypothetical $1,000 payment to the
Fund from the ending redeemable value of such payment (at the end of the
relevant advertised period), dividing such difference by $1,000 and multiplying
the quotient by 100. In calculating ending redeemable value, all dividends and
other distributions are assumed to be reinvested in additional Fund shares.
Although the Fund imposes a 1% redemption fee on the redemption of shares held
for 30 days or less, all of the periods for which performance is quoted are
longer than 30 days, and therefore the 1% fee is not reflected in the
performance calculations. In addition, there is no sales charge upon
reinvestment of dividends or other distributions. Additional information
regarding the Fund's performance is available in its Annual Report to
Shareholders, which is available at no charge upon request to Investor Service
Center, 1-800-847-4200.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement between the Fund and Investor
Service Center, Inc., 11 Hanover Square, New York, NY 10005 ("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 ("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 or to the Distributor. 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 affiliated investment companies. 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.
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 Fund's Board of Directors may
establish additional series or classes of shares, although it has no current
intention of doing so.
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 a majority 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 Fiduciary Trust Company, 801 Pennsylvania, Kansas City, MO
64105, acts as custodian of the Fund's assets, performs certain accounting
services for the Fund, 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).
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<PAGE>
The Fund's transfer and dividend disbursing agent is DST Systems, Inc.,
Box 419789, Kansas City, MO 64141-6789. The Distributor provides certain
shareholder administration 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 Fund and other affiliated investment companies based on the
relative number of inquiries and other factors. The Fund may also enter into
agreements with brokers, banks and others who may perform on behalf of their
customers certain shareholder services not otherwise provided by the Transfer
Agent or the Distributor.
12
<PAGE>
[Left Side of Back Cover Page]
SPECIAL
EQUITIES
FUND
- -----------------------------------------------------
1-800-847-4200
CALL TOLL-FREE FOR FUND PERFORMANCE,
EXCHANGES AMONG THE BULL & BEAR FUNDS,
AND TO OBTAIN INFORMATION CONCERNING YOUR
ACCOUNT. OR, ACCESS THE FUND ON THE WEB AT
HTTP://WWW.MUTUALFUNDS.NET
11 HANOVER SQUARE
NEW YORK, NY 10005
Printed on recycled paper.
[Right Side of Back Cover Page]
SPECIAL
EQUITIES
FUND
- ---------------------------------------------
INVESTING AGGRESSIVELY
FOR MAXIMUM CAPITAL
APPRECIATION
ELECTRONIC FUNDS TRANSFERS
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS:
TRADITIONAL DEDUCTIBLE IRA, ROTH IRA, SEP-IRA,
SIMPLE IRA, EDUCATION IRA AND 403(B)
- ---------------------------------------------------------
PROSPECTUS
MAY 1, 1998
- ---------------------------------------------------------
MINIMUM INITIAL INVESTMENT:
REGULAR ACCOUNTS, $1,000
TRADITIONAL DEDUCTIBLE IRA, ROTH IRA, SEP-IRA,
SIMPLE IRA, AND 403(B), $1,000
EDUCATION IRA, $500
AUTOMATIC INVESTMENT PROGRAMS, $100
MINIMUM SUBSEQUENT INVESTMENTS, $100
BULL
&
BEAR -----------------------------------------
PERFORMANCE DRIVEN(R)
13
<PAGE>
Statement of Additional Information May 1, 1998
BULL & BEAR SPECIAL EQUITIES FUND
11 Hanover Square
New York, NY 10005
1-800-847-4200
This Statement of Additional Information regarding Bull & Bear Special
Equities Fund, Inc. ("Fund") is not a prospectus and should be read in
conjunction with the Fund's Prospectus dated May 1, 1998. The Prospectus is
available to prospective investors without charge upon request to Investor
Service Center, Inc., the Fund's Distributor, by calling 1-800-847-4200.
TABLE OF CONTENTS
THE FUND'S INVESTMENT PROGRAM............................................2
INVESTMENT RESTRICTIONS..................................................3
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES................4
THE INVESTMENT COMPANY COMPLEX..........................................10
OFFICERS AND DIRECTORS..................................................10
INVESTMENT MANAGER......................................................11
INVESTMENT MANAGEMENT AGREEMENT.........................................11
DETERMINATION OF NET ASSET VALUE........................................12
PURCHASE OF SHARES......................................................12
PERFORMANCE INFORMATION.................................................12
DISTRIBUTION OF SHARES..................................................15
ALLOCATION OF BROKERAGE.................................................16
DISTRIBUTIONS AND TAXES.................................................17
REPORTS TO SHAREHOLDERS.................................................18
CUSTODIAN AND TRANSFER AGENT............................................19
AUDITORS................................................................19
FINANCIAL STATEMENTS....................................................19
APPENDIX -- DESCRIPTIONS OF BOND RATINGS................................20
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, more than 15% of the Fund's
net assets would be invested in illiquid assets, including repurchase agreements
not entitling the holder to payment of principal within seven days. 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 Securities Act of 1933, as amended
("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 regis tration 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 ("QIBs"). 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. ("NASD") An insufficient number of QIBs interested
in purchasing certain restricted securities held by the Fund, however, could
affect adversely the marketability of such portfolio securities, and the Fund
might be unable to dispose of such securities promptly or at favorable prices.
The Fund's Board of Directors has delegated the function of making day-to-day
determinations of liquidity to Bull & Bear Advisers, Inc. ("Investment Manager")
pursuant to guidelines approved by the Board. The Investment Manager takes into
account a number of factors in reaching liquidity determinations, 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 determinations 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 securi ties 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
2
<PAGE>
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
dramati cally, 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, 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 securi ties.
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 such securities. 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 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 Federal alternative minimum tax. Even though the
interest from municipal securities may be exempt from Federal income tax,
dividends paid by the Fund attributable to that interest will be fully taxable
to Fund shareholders.
EQUITY SECURITIES. The Fund may invest in equity securities 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.
YEAR 2000 RISKS. Like other investment companies, financial and business
organizations around the world, the Fund will be adversely affected if the
computer systems used by Bull & Bear Advisers, Inc. and the Fund's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to the computer systems it uses and
to obtain satisfactory assurances that comparable steps are being taken by each
of the Fund's major service providers. The Fund does not expect to incur any
significant costs in order to address the Year 2000 Problem. However, at this
time there can be no assurances that these steps will be sufficient to avoid any
adverse impact on the Fund.
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, as amended ("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 ("SEC"), (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
3
<PAGE>
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:
1. The Fund may not purchase or otherwise acquire any security or invest
in a repurchase agreement if, as a result, 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;
2. The Fund may not purchase the securities of any investment company
(as defined in the 1940 Act) 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;
3. The aggregate value of securities underlying put options on
securities written by the Fund, determined as of the date the put
options are written, will not exceed 25% of the Fund's net assets,
and the aggregate value of securities underlying call options on
securities written by the Fund, determined as of the date the call
options are written, will not exceed 25% of the Fund's net assets;
4. The Fund may purchase a put or call option on a security or a
security index, including any straddles or spreads, only if the value
of its premium, when aggregated with the premiums on all other such
instruments held by the Fund, does not exceed 5% of the Fund's total
assets;
5. To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a
Commodity Futures Trading Commission ("CFTC") regulated exchange, in
each case that is not for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to
establish these positions (excluding the amount by which options are
"in-the-money") may not exceed 5% of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund has entered into;
6. 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 contracts and other derivative instruments shall not be
deemed to constitute purchasing securities on margin; and
7. The Fund may not mortgage, pledge or hypothecate any assets in excess of
one-third of the Fund's total assets.
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 circumstances permitted by
the CFTC. There is no guarantee, however, that the Investment Manager will
engage in any of these transactions in the coming year. 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 4 and 5, 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 may 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.
4
<PAGE>
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 or liquid securities whose value is marked to the market daily 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. Securi ties, 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 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 pay ment
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 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
5
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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 permissible
liquid assets whose value is marked to the market daily 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 curren cies are exchange-traded, the
majority are traded on the OTC market. The Fund will not purchase or write such
options unless, in the Investment Mana ger'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 (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.
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, se
curities 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
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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 differ
ence, 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.
(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 secur ities 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
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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 permissible liquid assets 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 or liquid securities whose value is
marked to the market daily 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
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 securi ties 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 securi ties 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.
(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
8
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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 cur rencies 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 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.
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
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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 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 INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Bull & Bear Group, Inc.
("Investment Company Complex") are:
Bull & Bear Dollar Reserves
Bull & Bear Global Income Fund, Inc.
Bull & Bear Gold Investors Ltd.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. and Overseas Fund
Bull & Bear U.S. Government Securities Fund, Inc.
Midas Fund, Inc.
Rockwood Fund, Inc.
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.
THOMAS B. WINMILL* -- Chairman, Chief Executive Officer, Co-President, and
General Counsel. He is President of the Investment Manager and the
Distributor, and of their affiiates. He is a member of the New York State Bar
and the SEC Rules Committee of the Investment Company Institute. He
is a son of Bassett S. Winmill and brother of Mark C. Winmill. He is also a
Director of eight other investment companies in the Investment Company
Complex. He was born June 25, 1959.
ROBERT D. ANDERSON* -- Vice Chairman and Director. He is Vice Chairman and a
Director of two other investment companies in the Investment Company Complex and
of the Investment Manager and its affiliates. He is a former member of the
District #12, District Business Conduct and Investment Companies Committees of
the NASD. He was born December 7, 1929.
BRUCE B. HUBER, CLU, ChFC, MSFS -- Director. 3443 Highway 66, Neptune, NJ 07753.
He is Senior Consultant with The Berger Financial Group, LLC, specializing in
financial, estate and insurance matters. From March 1995 to December 1995, he
was President of Huber Hogan Knotts Consulting, Inc., financial consultants and
insurance planners. From 1988 to 1990, he was Chairman of Bruce Huber
Associates. He is also a Director of five other investment companies in the
Investment Company Complex. He was born February 7, 1930.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Hunt & Howe Inc., executive recruiting consultants.
He is also a Director of five other investment companies in the Investment
Company Complex. He was born December 14, 1930.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
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 five other investment companies in the
Investment Company Complex. He was born February 9, 1923.
The executive officers of the Fund, each of whom serves at the pleasure of the
Board of Directors, are as follows:
MARK C. WINMILL -- Co-President. He is President of Bull & Bear Securities,
Inc., an affiliate of the Investment Manager. 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 five other
investment companies in the Investment Company Complex. He was born
November 26, 1957.
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<PAGE>
THOMAS B. WINMILL -- Chairman, Chief Executive Officer, Co-President, and
General Counsel. (see biographical information above)
ROBERT D. ANDERSON -- Vice Chairman. (see biographical information above.)
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Manager and certain of its affiliates. From 1993 to 1995, he was
Associate Director -- Proprietary Trading at Barclays De Zoete Wedd Securities
Inc., and from 1992 to 1993 he was Director, Bond Arbitrage at WG Trading
Company. He was born March 1, 1955.
JOSEPH LEUNG, CPA -- Chief Accounting Officer, Chief Financial Officer and
Treasurer. He is Treasurer and Chief Accounting Officer of the Investment
Manager and its affiliates. From 1992 to 1995 he held various positions with
Coopers & Lybrand L.L.P., a public accounting firm. He is a member of the
American Institute of Certified Public Accountants. He was born September 15,
1965.
DEBORAH ANN SULLIVAN -- Chief Compliance Officer, Secretary and Vice President.
She is Chief Compliance Officer, Secretary and Vice President of the investment
companies in the Investment Company Complex, and the Investment Manager and its
affiliates. From 1993 through 1994 she was the Blue Sky Paralegal for SunAmerica
Asset Management Corporation and from 1992 through 1993 she was Compliance
Administrator and Blue Sky Administrator with Prudential Securities, Inc. and
Prudential Mutual Fund Management, Inc. She earned her Juris Doctor at Hofstra
University, School of Law. She was born June 13, 1969.
* Thomas B. 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.
COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME OF PERSON, Aggregate Pension or Retirement Estimated Annual Benefits Total Compensation From Registrant
POSITION Compensation Benefits Accrued as Upon Retirement and Investment Company Complex
From Registrant Part of Fund Expenses Paid to Directors
<S> <C> <C> <C> <C>
Bruce B. Huber, $3,000 None None $12,500 from 6
Director Investment Companies
James E. Hunt, $3,000 None None $12,500 from 6
Director Investment Companies
John B. Russell, $3,000 None None $12,500 from 6
Director Investment Companies
</TABLE>
Information in the above table is based on fees paid during the year ended
December 31, 1997.
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 April 1, 1998 officers and Directors of the Fund owned less than
1% of the outstanding shares of the Fund. As of April 1, 1998 no shareowner of
record owned more than 5% of the Fund's outstanding shares.
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 Investor Service Center, Inc., the Fund's Distributor and a
registered broker-dealer, Midas Management Corporation and Rockwood Advisers,
Inc., registered investment advisers, 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
Stock Market 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 Fund and its
investment company affiliates had net assets in excess of $300,000,000 as of
March 31, 1998.
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 Fund is not subject to any such state-imposed
limitations. 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, 1995, 1996, and 1997 the Fund paid to the
Investment Manager aggregate investment management fees of $456,593, $461,244,
and $403,809 respectively. No reimbursement was made to the Fund by the
Investment Manager for the fiscal years ended December 31, 1995, 1996, and 1997
pursuant to the expense guaranty described above.
11
<PAGE>
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 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, 1995, 1996, and 1997
was $24,263, $22,062, and $19,659, 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 Fund's Board of Directors 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 Fund's Board of Directors 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 various service
marks including "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.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of regular
trading in equity securities 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,
Martin Luther King Jr. 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 Stock Market 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 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 Fund will only issue shares upon payment of the purchase price by check
made drawn to the Fund's order in U.S. dollars on a U.S. bank, or by Federal
Reserve wire transfer. Third party checks, credit cards, and cash will not be
accepted. The Fund reserves the right to reject any order, to cancel any order
due to nonpayment, to accept initial orders by telephone or telegram, and to
waive the limit on subsequent orders by telephone, 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 Fund's transfer agent. If an order is canceled because
of non-payment or because the purchaser's check does not clear, the purchaser
will be responsible for any loss the Fund incurs. If the purchaser is already a
shareholder, the Fund can redeem shares from the purchaser's account to
reimburse the Fund for any loss. In addition, the purchaser may be prohibited or
restricted from placing future purchase orders in the Fund or any of the other
Funds in the Investment Company Complex. 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. The Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized
12
<PAGE>
broker or, if applicable, a broker's authorized designee, accepts the order. A
shareholder's order will be priced at the Fund's net asset value next computed
after such order is accepted by an authorized broker or the broker's authorized
designee.
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: ~~~~~~~~~~~~~~T~~=~~ (~ERV OVER P~) SUP {1 OVER n}~~-~~1
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.
The Fund's average annual total return for the ten, five and one year periods
ended December 31, 1997 was 11.26%, 7.73% and 5.25%, respectively.
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. Although the Fund imposes a 1% redemption fee on
the redemption of shares held for 30 days or less, all of the periods for which
performance is quoted are longer than 30 days, and therefore the 1% fee is not
reflected in the performance calculations. 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, 1997, are set forth below:
START OF PERIODS AVERAGE ANNUAL TOTAL ENDING VALUE ENDING VALUE
ENDING 12/31/97 RETURN RETURN OF A $1,000 OF A $10,000
INVESTMENT INVESTMENT
==============================================================================
January 1, 1997 5.25% 5.25% $1,052.52 $10,525.21
January 1, 1996 3.13% 6.36% $1,063.60 $10,636.03
January 1, 1995 14.32% 49.40% $1,494.03 $14,940.29
January 1, 1994 5.67% 24.69% $1,246.90 $12,469.02
January 1, 1993 7.73% 45.08% $1,450.82 $14,508.23
January 1, 1992 10.92% 86.25% $1,862.54 $18,625.44
January 1, 1991 14.74% 161.76% $2,617.58 $26,175.78
January 1, 1990 6.58% 66.50% $1,664.96 $16,649.60
January 1, 1989 10.06% 136.90% $2,368.98 $23,689.79
January 1, 1988 11.26% 190.74% $2,907.40 $29,073.97
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 ended
December 31, 1997 was (12.51%). 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, 1997 may vary substantially from those shown
above.
13
<PAGE>
The Investment Manager and certain of its affiliates serve as investment
managers to the Fund and other affiliated investment companies, which 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
14
<PAGE>
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 and other data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Bond Index (20 year), 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.
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.
IBC's Money Fund Report, a weekly publication of money market fund total net
assets, yield, and portfolio composition.
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 Business 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 World Index measures the performance of
stock markets in 16 nations, including Australia, Hong Kong, Germany, the United
Kingdom, Canada, and the United States.
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 3,000 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.
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, indices, and
portfolio holdings.
15
<PAGE>
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.
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 Index -- is a market-weighted index
that contains approximately 4,700 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.
Standard & Poor's 500 Composite Stock Price Index -- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index -- is an index 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.
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.
The Wall Street Journal, a nationally distributed newspaper which regularly
covers financial news.
The Wall Street Transcript, a periodical reporting on financial markets and
securities.
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 Standard & Poor's 500 Index.
Indices prepared by the research departments of such financial organizations
as Salomon Smith Barney Holdings Inc., Merrill Lynch, Pierce, Fenner & Smith,
Inc., Bear Stearns & Co., Inc., and Ibbotson Associates may be used, as well as
information provided by the Federal Reserve Board.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center, Inc. acts as
the principal Distributor of the Fund's shares. Under the Distribution
Agreement, the Distributor uses 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 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 other affiliated
investment companies at standard industry rates, which includes commissions. The
amount of Hanover Direct's commissions over its cost of providing Fund marketing
16
<PAGE>
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.
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, 1997, approximately $6,605 represented paid expenses incurred for
advertising, $190,586 for printing and mailing prospectuses and other
information to other than current shareholders, $197,662 for salaries of
marketing and sales personnel, $13,209 for payments to third parties who sold
shares of the Fund and provided certain services in connection therewith, and
$63,686 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.
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 other affiliated investment companies. 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 generally are with dealers acting as principals at net prices with
little or no brokerage costs. In certain circumstanc es, 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 other affiliated investment companies, 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 ("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
17
<PAGE>
beneficial to the Fund, and it may be that other affiliated investment companies
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. These services may include
"brokerage and research services" as defined in Section 28(e)(3) of the 1934
Act, which presently 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.
BBSI 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, 1995, 1996, and 1997, the Fund
paid total brokerage commissions of $883,910, $446,414, and $305,591
respectively. For the fiscal year ended December 31, 1997, $183,482 in brokerage
commissions was allocated to broker/dealers that provided research, analytical,
statistical, and other services to the Fund, including third party research,
market and comparative industry information, portfolio analysis services,
computerized market data and other services. No transactions were directed to
broker/dealers during such periods for selling shares of the Fund or any other
affiliated investment companies. During the Fund's fiscal years ended December
31, 1995, 1996, and 1997, the Fund paid $43,269, $39,674, and $122,109
respectively, in brokerage commissions to BBSI, which represented 4.90%, 8.89%,
and 39.96% respectively, of the total brokerage commissions paid by the Fund and
19.36%, 19.27%, and 33.77% 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 the
Investment Manager or its affiliates are made independently based on each Fund's
investment objectives and policies. The same investment decision, however, may
occasionally be made for two or more Funds. In such a case, the Investment
Manager may combine orders for two or more Funds for a particular security if it
appears that a combined order would reduce brokerage commissions and/or result
in a more favorable transaction price. Combined purchase or sale orders 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 quantity available of the security with
respect to the Fund, the Investment Manager believes that the larger volume of
combined orders can generally result in better execution and prices. The Fund is
not obligated to deal with any particular broker, dealer or group thereof.
Certain broker/dealers that the Fund or other affiliated investment companies 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.
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 Fund shares at the then
current net asset value in lieu of the cash payment and to thereafter issue such
shareholder's distributions in additional Fund shares.
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 that 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"), and (2) the Fund's
investments must satisfy certain diversification requirements. In
18
<PAGE>
any year during which the applicable provisions of the Code are satisfied, the
Fund will not be liable for Federal income tax on net income and gains 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 would 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.
A loss on the sale of Fund shares that were held for six months or less will
be treated as a long term (rather than a short term) capital loss to the extent
the seller received any capital gain distributions attributable to those shares.
Any dividend or other distribution will have the effect of reducing the net
asset value of the Fund's shares on the payment date by the amount thereof.
Furthermore, any such dividend or other distribution, although similar in effect
to a return of capital, will be subject to taxes. Dividends and other
distributions may also be subject to state and local taxes.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year 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 would 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
would treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income, and treat as paid
by the shareholder, the shareholder's proportionate share of those taxes, (2)
treat the 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 the
shareholder's own income from those sources, and (3) either deduct the taxes
deemed paid by the shareholder in computing the shareholder's taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against the 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 from 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 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",
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 qualified
electing fund's annual ordinary earnings and net capital gain (the excess of net
long term capital gain over net short term capital loss) even if they are not
distributed to the Fund; those amounts likely would have to be distributed to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
For the tax years beginning 1997, open-end RICs, such as the Fund, are
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 each such PFIC's
stock over the adjusted basis in that stock (including mark-to-market gain for
each prior year for which an election was in effect).
The Taxpayer Relief Act of 1997 included constructive sale provisions that
generally will apply if a Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short sale,
futures or forward contract or offsetting notional principal contract
(collectively, a "Contract") with respect to the same or substantially identical
property or (2) holds an appreciated financial position that is a Contract and
then acquires property that is the same as, or substantially identical to the
underlying property. In each instance, with certain exceptions, the Fund
generally will be taxed as if the appreciated financial position were sold at
its fair market value on the date the Fund enters into the financial position or
acquires the property, respectively. Transactions that are identified as hedging
or straddle transactions under other provisions of the Code can be subject to
the constructive sale provisions.
The foregoing discussion of Federal 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.
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<PAGE>
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, MO 64105
("Custodian") has been retained to act as Custodian of the Fund's investments
and may appoint one or more subcustodians. The Custodian also performs
accounting services for the Fund. 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., Box 419789, Kansas City, MO 64141-6789, acts as
the Fund's Transfer and Dividend Disbursing Agent. The Distributor provides
certain shareholder administration services to the Fund pursuant to a
Shareholder Services Agreement and is reimbursed by the Fund the actual costs
incurred with respect thereto. For services performed pursuant to the
Shareholder Services Agreement, the Fund reimbursed the Distributor for the
fiscal years ended December 31, 1995, 1996 and 1997 approximately $125,256,
$61,675, and $59,403 respectively.
AUDITORS
Tait, Weller & Baker, 8 Penn Center Plaza, Suite 800, Philadelphia, PA
19103-2108, are the Fund's independent accountants. The Fund's financial
statements are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended December 31, 1997,
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.
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<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.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edged". Interest payments are
protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than the
Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some
time in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or 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 An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest rated
obligations only in small degree. The obligor's capacity to
meet its financial commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories.
However, the obligor's capacity to meet its financial
commitments on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation.
BB An obligation rated BB is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than an
obligation rated BB, but the obligor currently has the capacity
to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair
the obligor's capacity or willingness to meet its financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the
obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but
payments on the obligation are being continued.
21
<PAGE>
BULL & BEAR SPECIAL EQUITIES FUND,
INC.
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements to be included in Part A of this
Registration Statement:
Financial Highlights
Financial Statements to be included in Part B of this
Registration Statement:
The financial statements contained in the Fund's Annual Report to
Shareholders for the fiscal year ended December 31, 1997 are
incorporated into Part B by reference, except that the letter to
shareholders and other information contained on pages one and two
of said Annual Report is not so incorporated by reference and is
not part of this Registration Statement.
(b) Exhibits
(1) Amended and Restated Articles of Incorporation filed
with the Securities and Exchange Commission herewith.
(2) Amended By-Laws filed with the Securities and Exchange
Commission herewith.
(3) Voting trust agreement -- none
(4) Specimen security filed with the Securities and Exchange
Commission herewith.
(5) Form of Investment Management Agreement of Bull & Bear Special
Equities Fund, Inc. filed with the Securities and Exchange
Commission herewith.
(6)(a) Form of Distribution Agreement of Bull & Bear Special Equities
Fund, Inc. filed with the Securities and Exchange Commission
herewith.
(6)(b) Amended Plan and Agreement pursuant to Rule 12b-1 with
respect to Bull & Bear Special Equities Fund Inc. filed with the
Securities and Exchange Commission herewith.
(7) Bonus, profit sharing or pension plans -- none
(8)(a) Form of Retirement Plan Custodial Services Agreement,
filed with the Securities and Exchange Commission herewith.
(8)(b) Form of Custody and Investment Accounting Agreement with
Investors Fiduciary Trust Company filed with the Securities
and Exchange Commission on April 29, 1997, accession
number 0000052234-97-000003.
(9)(a) Form of Transfer Agency Agreement filed with the Securities and
Exchange Commission herewith.
(9)(b) Form of Transfer Agency Assignment Agreement filed with the
Securities and Exchange Commission herewith.
(9)(c) Form of Shareholder
Services Agreement filed with the Securities and Exchange
Commission herewith.
(9)(d) Form of Credit Facilities Agreement for $15,000,000 uncommitted,
unsecured line of credit filed with the Securities
and Exchange Commission herewith.
(9)(e) Form of Credit Facilities Agreement for $28,000,000
<PAGE>
committed, unsecured leveraging line of credit filed with the
Securities and Exchange Commission herewith.
(9)(f) Form of Securities Lending Authorization Agreement filed with the
Securities and Exchange Commission herewith.
(9)(g) Form of Segregated Account Procedural and Safekeeping Agreement
filed with the Securities and Exchange Commission herewith.
(10)(a) Opinion of counsel filed with the Securities and Exchange
Commission herewith.
(11)(a) Accountants' consent with respect to Bull & Bear Special
Equities Fund, Inc. filed with the Securities and Exchange
Commission herewith.
(11)(b) Opinion of counsel with respect to eligibility for effectiveness
under paragraph (b) of Rule 485. Filed herewith.
(12) Financial statements omitted from Item 23 -- not applicable
(13) Agreement for providing initial capital filed with the
Securities and Exchange Commission herewith.
(14)(a) Form of Standardized Profit Sharing Adoption Agreement, filed
with the Securities and Exchange Commission herewith.
(14)(b) Form of Defined Contribution Basic Plan Document, filed
with the Securities and Exchange Commission herewith.
(14)(c) Form of Standardized Money Purchase Adoption Agreement, filed with
the Securities and Exchange Commission herewith.
(14)(d) Form of Simplified Profit Sharing Adoption Agreement,filed with the
Securities and Exchange Commission herewith.
(14)(e) Form of Simplified Money Purchase Adoption Agreement,
filed with the Securities and Exchange Commission herewith.
(14)(f) Form of Custodial Account and IRA Disclosure Statement,
filed with the Securities and Exchange Commission herewith.
(14)(g) Form of Investor
Service Center Section 403(b)(7) Custodial Account Agreement
Amended and Restated as of January 1, 1998 filed with the
Securities and Exchange Commission herewith.
(15)(a) Plan pursuant to Rule 12b-1 with respect to Bull & Bear Special
Equities Fund, Inc. filed with the Securities and Exchange
Commission herewith.
(15)(b) Amended Plan and Agreement pursuant to Rule 12b-1 with respect to
Bull & Bear Special Equities Fund, Inc. filed with the
Securities and Exchange Commission herewith.
(15)(c) Related Agreement to Plan of Distribution pursuant to Rule 12b-1
<PAGE>
between Investor Service Center, Inc. and Hanover Direct Advertising
Company, Inc. filed with the Securities and Exchange Commission
herewith.
(16) Schedule for computation of performance quotations filed
with the Securities and Exchange Commission herewith.
(17) Financial Data Schedule (filed herewith).
(18) Plan pursuant to Rule 18f-3 -- not applicable.
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 April 24, 1998)
Shares of Common Stock,
$0.01 par value
6,293
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 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. ("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
<PAGE>
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 the Registrant and
Investor 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 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 the Investment Manager, a
wholly-owned subsidiary of Bull & Bear Group, Inc., are also directors and
officers of other Funds managed by the Investment Manager ("Funds"). In
addition, such officers are officers and directors of Bull & Bear Group, Inc.
and its other subsidiaries Investor Service Center, Inc., the Funds' distributor
and a registered broker/dealer, Midas Management Corporation and Rockwood
Advisers, Inc., registered investment
<PAGE>
advisers, and Bull & Bear Securities, Inc., a discount brokerage firm. The
principalbusiness of the Investment Manager, Midas Management Corporation and
Rockwood Advisers, Inc. since their founding has been to serve as
investment managers to registered investment companies. The Investment
Manager also serves as investment manager of Bull & Bear Dollar Reserves, a
series of Bull & Bear Funds II, Inc.; Bull & Bear Global Income Fund, Inc.; Bull
& Bear U.S. Government Securities Fund, Inc.; Bull & Bear Municipal Income Fund,
Inc.; Bull & Bear Gold Investors Ltd. and Bull & Bear Special Equities Fund,Inc.
Midas Management Corporation serves as investment adviser to Midas Fund, Inc.
and Rockwood Advisers, Inc. serves as investment adviser to Rockwood Fund, Inc.
Item 29. Principal Underwriters
a) In addition to the Registrant, Investor Service Center, Inc. serves as
principal underwriter of Bull & Bear Gold Investors Ltd., Bull & Bear Funds II,
Inc., Bull & Bear Funds I, Inc., Midas Fund, Inc., and Rockwood Fund, 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
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.
Name and Principal Position and Offices with Position and Offices
Business Address Investor Service Center, Inc. with Registrant
- ------------------ ----------------------------- --------------------
Robert D. Anderson Vice Chairman and Director Vice Chairman
11 Hanover Square and Director
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Mark C. Winmill Director Co-President
11 Hanover Square
New York, NY 10005
Thomas B. Winmill Chief Executive Officer, Chairman, Chief Executive
11 Hanover Square Director, General Counsel and Officer, Co-President and
New York, NY 10005 President General Counsel
Deborah A. Sullivan Chief Compliance Officer, Chief Compliance Officer,
11 Hanover Square Secretary and Vice President Secretary and Vice President
New York, NY 10005
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
Joseph Leung Chief Accounting Officer Chief Accounting Officer, Chief
11 Hanover Square and Treasurer Financial Officer and Treasurer
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 Fiduciary
Trust Company, 801 Pennsylvania, Kansas City, MO 64105 (the offices of
Registrant's custodian) and at DST Systems, Inc., 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 Fiduciary Trust
Company and DST Systems, Inc. are kept at 11 Hanover Square, New York, NY 10005.
Item 31. Management Services -- none
Item 32. Undertakings -- The Registrant hereby undertakes to furnish
each person to whom a prospectus is delivered with a copy
of the Registrant's annual report to shareholders upon request and
without charge.
<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, thereto
duly authorized, in the City, County and State of New York on this 30th day of
April, 1998.
BULL & BEAR SPECIAL EQUITIES FUND, INC.
/s/ Thomas B. Winmill
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 April 30, 1998
Mark C. Winmill
Thomas B. Winmill Chairman, Chief Executive April 30, 1998
- -----------------
Thomas B. Winmill Officer, Co-President and
General Counsel
Joseph Leung Chief Accounting Officer, April 30, 1998
- ------------
Joseph Leung Chief Financial Officer
and Treasurer
Robert D. Anderson Director and Vice April 30, 1998
- ------------------
Robert D. Anderson Chairman
Bruce B. Huber Director April 30, 1998
- --------------
Bruce B. Huber
James E. Hunt Director April 30, 1998
- -------------
James E. Hunt
John B. Russell Director April 30, 1998
- ---------------
John B. Russell
<PAGE>
EXHIBIT INDEX
EXHIBIT
(1) Amended and Restated Articles of Incorporation
(2) Amended By-Laws
(4) Specimen security
(5) Form of Investment Management Agreement of Bull
& Bear Special Equities Fund, Inc..
(6)(a) Form of Distribution Agreement of Bull & Bear Special
Equities Fund, Inc.
(6)(b) Amended Plan and Agreement pursuant to Rule 12b-1 with respect
to Bull & Bear Special Equities Fund, Inc.
(8)(a) Form of Retirement Plan Custodial Services Agreement
(9)(a) Form of Transfer Agency Agreement
(9)(b) Form of Transfer Agency Assignment Agreement
(9)(c) Form of Shareholder Services Agreement
(9)(d) Form of Credit Facilities Agreement for $15,000,000 uncommitted,
unsecured line of credit
(9)(e) Form of Credit Facilities Agreement for $28,000,000 committed,
unsecured leveraging line of credit
(9)(f) Form of Securities Lending Authorization Agreement
(9)(g) Form of Segregated Account Procedural and Safekeeping Agreement
(10)(a) Opinion of counsel
(11)(a) Accountants' consent with respect to Bull & Bear Special Equities
Fund, Inc.
(11)(b) Opinion of counsel with respect to eligibility for effectiveness
under paragraph (b) of Rule 485
(13) Agreement for providing initial capital
(14)(a) Form ofStandardized Profit Sharing Adoption Agreement
(14)(b) Form of Defined Contribution Basic Plan Document
(14)(c) Form of Standardized Money Purchase Adoption Agreement
(14)(d) Form of Simplified Profit Sharing Adoption Agreement
(14)(e) Form of Simplified Money Purchase Adoption Agreement
(14)(f) Form of Custodial Account and IRA Disclosure Statement
(14)(g) Form of Investor Service Center Section 403(b)(7) Custodial
Account Agreement Amended and Restated as of January 1, 1998
(15)(a) Form of Distribution Agreement of Bull & Bear Special
Equities Fund, Inc.
(15)(b) Amended Plan and Agreement pursuant to Rule 12b-1 with respect to
Bull & Bear Special Equities Fund, Inc.
(15)(c) Related Agreement to Plan of Distribution pursuant to Rule
12b-1 between Investor Service Center, Inc. and Hanover Direct
Advertising Company, Inc.
(16) Schedule for computation of performance quotations
(17) Financial Data Schedule
ARTICLES OF AMENDMENT AND RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
BULL & BEAR SPECIAL EQUITIES FUND, INC.
BULL BEAR SPECIAL EQUITIES FUND, INC., a Maryland corporation, having
its principal office in Maryland in the City of Baltimore ("Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Corporation desires to amend and restate its charter as currently
in effect; such amendment and restatement to be effective on April 30, 1993.
SECOND: The Articles of Incorporation of the Corporation are hereby amended
and restated as follows:
<PAGE>
THIRD: The Board of Directors of the Corporation advised the foregoing amended
and restated Articles of Incorporation on March 11, 1993, and the stockholders
of the Corporation approved the foregoing Amended and Restated Articles of
Incorporation on April 29, 1993.
FOURTH: The provisions set forth in these Articles of Amendment and
Restatement are all the provisions of the charter currently in effect.
FIFTH: (a) The total number of shares of all classes of stock of the
Corporation heretofore authorized is fifty million shares, all of one class,
par value of one cent ($.Ol) per share and aggregate par value of $500,000.
(b) The total number of shares of all classes of stock of the
Corporation as increased is five hundred million shares, par value of one cent
($.Ol) per share and aggregate par value of $5,000,000.
(c) Under the Amended and Restated Articles of Incorporation, shares of
stock of the Corporation may be issued by the Board of Directors in such
separate and distinct series and classes of series as the Board of Directors may
from time to time create and establish.
IN WITNESS WHEREOF, Bull & Bear Special Equities Fund, Inc. has caused
these presents to be signed in its name and on its behalf by an Executive Vice
President of Bull & Bear Special Equities Fund, Inc. and attested to by its
Secretary on this 29th of April, 1993.
BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:
Thomas B. Winmill
Executive Vice President
Attest:
Fredda E.Ackerman
Secretary
<PAGE>
THE UNDERSIGNED, an Executive Vice President of Bull & Bear Special
Equities Fund, Inc., who executed on behalf of said Corporation the foregoing
Articles of Amendment and Restatement, of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said Corporation, the
foregoing Articles of Amendment and Restatement to be the corporate act of said
Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
Thomas B. Winmill
Executive Vice President
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BULL & BEAR SPECIAL EQUITIES FUND, INC.
FIRST:
(1) The name and address of each incorporator of the Corporation are as
follows:
Perez C. Ehrich
11 Pine Ridge Road
Greenwich, Connecticut 06830
John T. Landry, Jr.
44 Chittenden Avenue
Yonkers, New York 10707
(2) Each of said incorporators is over eighteen years
of age.
(3) Said incorporators are forming a corporation under the
general laws of the State of Maryland.
SECOND: The name of the Corporation is:
BULL & BEAR SPECIAL EQUITIES FUND, INC.
THIRD: The purposes for which the Corporation is formed and the business or
objects to be carried on and promoted by it are as follows:
(1) To invest and reinvest its funds, and to purchase or otherwise acquire, own,
hold, sell, assign, negotiate, transfer, exchange or otherwise dispose of,
stocks, shares, bonds, debentures, notes, mortgages or other obligations and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase or subscribe for the same or interests therein or in any
property or assets, issued by any persons, firms, associations, syndicates or
the Government of the United States or any state, territory or possession
thereof or any foreign government or any municipality or subdivision thereof
(all of which are hereinafter referred to as "securities"), as well as
commodities and contracts for commodities of any nature.
(2) To exercise as owner or holder of any securities or other property, all
rights, powers and privileges in respect thereof and to do any and all acts and
things for the preservation, protection and enhancement in value thereof.
(3) To issue and sell shares of its own capital stock in such amounts, for such
purposes and for such prices, now or hereafter permitted by the laws of the
State of Maryland, by its Articles of Incorporation and the then current By-Laws
of the Corporation, as its Board of Directors may determine.
<PAGE>
(4) To purchase, hold, or otherwise acquire (without the vote or consent of the
stockholders of the Corporation), dispose of, resell, transfer, reissue or
cancel shares of its capital stock in any manner and to the extent now or
hereafter permitted by the laws of the State of Maryland and by these Articles
of Incorporation and the By-Laws.
(5) To conduct its business in all its branches at one or more offices in the
State of Maryland and elsewhere in any part of the world without restriction or
limitation as to the extent except as expressly limited in these Articles of
Incorporation and in the By-Laws and to acquire, use, hold and dispose of, in
any manner and for any purpose now or hereafter permitted by the laws of the
said State, any real or personal property or any rights or interests therein in
said State or elsewhere subject to the laws of the state or country in which
located.
(6) To carry out all or any of the foregoing objects and purposes as principal
or agent and alone or with associates and to the extent now or hereafter
permitted by the laws of the State of Maryland, as a member of, or as the owner
or holder of any stock of, or shares or interest in, any firm, association,
corporation, trust or syndicate, and in connection therewith, to make and enter
into such deeds or contracts with any persons, firms, associations,
corporations, syndicates, governments or subdivisions thereof and to do such
acts and things and to exercise such powers as any natural person might do,
enter into or exercise, and to do everything necessary, proper, advisable or
convenient for accomplishment of any of the purposes or the attainment of any of
the objects or the performance of any of the powers herein set forth and to do
every other act and thing incidental thereto or connected therewith.
The foregoing clauses shall be construed as powers as well as objects
and purposes. The enumeration herein of specific purposes and powers are not to
be held to limit or restrict in any way the general purposes and powers of the
Corporation now or hereafter conferred by the laws of the State of Maryland nor
shall the matter specified in any clause, except where otherwise expressed, be
limited or restricted by reference to or inference from the terms of any other
clause of this or any other Article of these Articles of Incorporation, nor
shall the expression of one thing be deemed to exclude another though it be of
like nature; provided, however, that nothing contained in these Articles of
Incorporation shall be construed as giving the Corporation any rights, powers
and privileges not permitted it by the laws of the State of Maryland nor shall
it carry on any business or exercise any powers in any other state or territory
or country except to the extent that the same may be lawfully carried on or
exercised under the laws thereof.
FOURTH: The address of the principal office of the Corporation within the
State of Maryland is 11 East Chase Street, Baltimore, Maryland 21202.
FIFTH: The name and address of the resident agent of the Corporation within the
State of Maryland are The Prentice-Hall Corporation System, 11 East Chase
Street, Baltimore, Maryland 21202.
SIXTH: (1) The total number of shares of capital stock which the
Corporation has authority to issue is Five Hundred Million (500,000,000).
Each share of stock shall have a par value of One Cent ($.Ol) and the
<PAGE>
aggregate par value of the authorized shares is Five Million Dollars
($5,000,000). The shares may be issued by the Board of Directors in such
separate and distinct series ("Series") and classes of Series ("Classes") as the
Board of Directors shall from time to time create and establish. The Board of
Directors shall have full power and authority, in its sole discretion, to
2 -
<PAGE>
create and establish Series and Classes having such preferences, rights, voting
powers, terms of conversion, restrictions, limitations on dividends,
qualifications, and terms and conditions of redemption as shall be fixed and
determined from time to time by resolution or resolutions providing for the
issuance of such shares adopted by the Board of Directors. In the event of the
establishment of Classes, each Class of a Series shall represent interests in
the assets of that Series and have identical voting, dividend, liquidation and
other rights and the same terms and conditions as any other Class of that
Series, except as provided in these Articles of Incorporation and except that
expenses allocated to the Class of a Series may be borne solely by such Class as
shall be determined by the Directors and a Class of a Series may have exclusive
voting rights with respect to matters affecting only that Class. Expenses
related to the distribution of, and other identified expenses that should
properly be allocated to, the shares of a particular Class or Series of capital
stock may be charged to and borne solely by such Class or Series and the bearing
of expenses solely by a Class or Series of capital stock may be appropriately
reflected (in a manner determined by the Board of Directors) and cause
differences in the net asset value attributable to, and the dividend, redemption
and liquidation rights of, the shares of each Class or Series of capital stock.
In addition, the Board of Directors, upon the adoption of a resolution of a
majority of the directors, is hereby expressly granted authority to increase or
decrease the authorized number of shares of any Series or Class, but the
authorized number of shares of any Series or Class shall not be decreased by the
Board of Directors below the number of shares thereof then outstanding, and,
from time to time, to designate or redesignate the name of any Class or Series,
whether or not shares of such Class or Series are outstanding.
The Board of Directors of the Corporation is authorized from time to
time to classify or to reclassify, as the case may be, any shares of the
Corporation in separate Series or Classes. The shares of said Series or Classes
of stock shall have such preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by the Board of
Directors. The Corporation may hold as treasury shares, reissue for such
consideration and on such terms as the Board of Directors may determine, or
cancel, at their discretion from time to time, any shares reacquired by the
Corporation. No holder of any of the shares shall be entitled as of right to
subscribe for, purchase, or otherwise acquire any shares of the Corporation
which the Corporation proposes to issue or reissue.
The Corporation shall have authority to issue any additional shares
hereafter authorized and any shares redeemed or repurchased by the Corporation.
All shares of any Series or Class when properly issued in accordance with these
Articles of Incorporation shall be fully paid and nonassessable.
(2) The establishment of any Series or Class shall be effective upon the
adoption of a resolution by a majority of the Directors setting forth such
establishment and designation and the relative rights and preferences of the
shares of such Series or Class. At any time that there are no shares outstanding
of any particular Series or Class previously established and designated, the
Directors may by a majority vote abolish that Series or Class and the
establishment and designation thereof.
<PAGE>
(3) At all meetings of stockholders, each stockholder of the Corporation shall
be entitled to one vote for each share of stock standing in his or her name on
the books of the Corporation on the date fixed in accordance with the By-Laws
for determination of stockholders entitled to vote thereat; provided, however,
that when required by the Investment Company Act of 1940 or rules thereunder or
when the Board of Directors has determined that the matter affects only
the interest of one Series or Class, matters may be submitted to a vote of the
stockholders of a particular Series or Class, and each holder of shares thereof
shall be entitled to votes equal to the shares of the Series or Class standing
in his or her name on the books of the Corporation. The presence in person or by
proxy of the holders of one-third of the shares of the capital stock of the
Corporation outstanding and entitled to vote thereat shall constitute a quorum
at any meeting of the stockholders except that where any provision of law or of
these Articles of Incorporation permit or require that holders of any Series or
Class shall vote as a Series or Class, one-third of the aggregate number of
shares of that Series or Class outstanding and entitled to vote shall constitute
a quorum for the transaction of business by that Series or Class.
(4) Each holder of the capital stock of the Corporation shall be entitled to
require the Corporation, so long as it has assets legally available therefor, to
redeem any or all of the shares of such capital stock standing in the name of
such holder on the books of the Corporation at the redemption price of such
shares, upon request made by such stockholder to the transfer agent accompanied
by surrender of the stock certificate or certificates therefore, if any, duly
endorsed in proper form for transfer and accompanied by all necessary stock
transfer stamps. The time as of which the redemption price shall be determined,
and the time and manner of payment thereof may be fixed, from time to time, in
the manner prescribed by the Board of Directors, subject to such restrictions as
may be set forth in the By-Laws. The Board of Directors may postpone payment of
the redemption price and may suspend the right of the holders of shares to
require the Corporation to redeem shares during any period or at any time when
and to the extent permissible under the Investment Company Act of 1940. If the
Board of Directors, in its discretion, so determines, the Corporation may pay
the redemption price of such shares wholly in kind or partly in money and partly
in kind, and in making any payment wholly or partly in kind, the Corporation
shall have the authority to select and value particular investments and
otherwise decide the fair and practicable manner of making such payment.
(5) The Board of Directors may cause the Corporation to redeem at current net
asset value all shares owned or held by any one stockholder having an aggregate
current net asset value of less than five hundred dollars ($500). Such
redemptions shall be effected in accordance with such procedures as the Board of
Directors may adopt. Upon redemption of shares pursuant to this Section, the
Corporation shall promptly cause payment of the full redemption price to be made
to the holder of shares so redeemed.
(6) Except as set forth at the end of this Section, the redemption price of each
share of the capital stock of the Corporation, or each Series or Class, shall be
in an amount equal to the net asset value per share determined in accordance
with good accounting practice, by or under the authority of the Board of
Directors subject to such rules as may be set forth in the bylaws. Such
determination may be made on a Series-by-Series basis or made or adjusted on a
Class-by-Class basis. If the Board of Directors should deem it advisable, it may
authorize the Corporation to deduct and retain a redemption fee from the
redemption price computed as herein set forth under such conditions and in such
amount as the Board may prescribe, provided that such redemption fee shall not
be greater than five percent of the redemption price as so determined.
<PAGE>
(7) The Board of Directors may authorize purchases by the Corporation from
holders of the capital stock of the Corporation of any or all of the shares of
such capital stock standing in the name of any such holder on the books of the
Corporation at prices not exceeding the net asset value as defined in Article
SEVENTH hereof upon which the then current public offering
price is based or such net asset value at the time the offer of sale of such
shares is accepted by the Corporation.
(8) All shares of stock of the Corporation now or hereafter authorized and
outstanding shall be subject to liquidation at net asset value at the option of
the Corporation in accordance with such procedures as may be established by the
Board of Directors and the By-Laws.
(9) Dividends and distributions on shares with respect to each Series or Class
may be declared and paid with such frequency and in such form and amount as the
Board of Directors may from time to time determine. Dividends may be declared
daily or otherwise pursuant to a standing resolution or resolutions adopted only
once or with such frequency as the Board of Directors may determine.
All dividends and distributions on shares of a particular Series shall
be distributed pro rata to the holders of that Series in proportion to the
number of shares of that Series held by such holders at the date and time of
record established for the payment of such dividends or distributions, except
that such dividends and distributions shall appropriately reflect expenses
allocated to a particular Class of such Series.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends (including dividends designated in
whole or in part as capital gain distributions) amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation, or where
applicable each Series of the Corporation, to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended, or any successor or
comparable statute thereto, and regulations promulgated thereunder, and to avoid
liability of the Corporation, or each Series of the Corporation, or any Series
of the Corporation, for such tax.
Dividends and distributions may be paid in cash, property or shares, or
a combination thereof, as determined by the Board of Directors or pursuant to
any program that the Board of Directors may have in effect at the time. Any such
dividend or distribution paid in shares will be paid at the current net asset
value thereof as defined in Article SEVENTH.
SEVENTH: (1) The Board of Directors is hereby empowered to authorize the
issuance and sale from time to time of shares of the capital stock of the
Corporation as hereinafter provided, and no such shares, whether now or
hereafter authorized, shall be required to be first offered to the then existing
stockholders and no stockholder shall have any preemptive right to purchase or
subscribe to any unissued shares of the Corporation's capital stock or for any
additional shares whether now or hereafter authorized.
(2) Shares of the capital stock of the Corporation (whether theretofore unissued
shares or shares held in treasury) shall be sold for cash or securities or other
property as the Board of Directors may deem advisable in the manner and to the
extent now or hereafter permitted by the laws of the State of Maryland provided,
however, that the consideration per share (exclusive of any selling commission)
to be received by the Corporation upon the issuance or sale of any shares of its
capital stock shall not be less than the par value per share and shall not be
less than the net asset value per
<PAGE>
share of such capital stock determined as hereinafter provided, except that the
initial sale of shares of each Series or Class of stock may be made for such
consideration not less than the par value thereof as may be fixed by the Board
of Directors in its discretion.
(3) Net asset value, as used herein, shall be determined on such days and at
such times as determined by the Board of Directors. Such determination shall be
made in accordance with the Investment Company Act of 1940 and the applicable
rules and regulations promulgated thereunder and in conformity with generally
accepted accounting principles applied on a consistent basis. Such determination
may be made on a Series-by-Series basis or made or adjusted on a Class-by-Class
basis, as appropriate, and shall include any expenses allocated to a specific
Series or Class thereof, amounts receivable for shares which have been sold but
have not been issued, and liabilities of the Corporation (including in the
discretion of the Board of Directors, accrued expenses and reserves). The result
shall be the net asset value of the Corporation or Series or Class, as the case
may be. The net asset value divided by the number of shares of the respective
capital stock of the Corporation, or of the Series or Class, issued and
outstanding (including shares which have been sold, but have not been issued)
shall be the net asset value per share of the Corporation or Series or Class, as
the case may be adjusted to the next higher or the next lower cent or fraction
of a cent per share as the Board of Directors may from time to time determine.
EIGHTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the
directors and stockholders:
(1) The following voting requirements shall be satisfied in order for valid and
effective action to be taken on the matters indicated:
(a) Except as provided in Subsection (b) of this Section, and
notwithstanding any provision of law requiring any action to be taken or
authorized by the affirmative vote of the holders of a greater proportion than a
majority of the shares entitled to vote thereon, such action shall be effective
and valid if taken or authorized by the affirmative vote of the holders of a
majority of the total number of shares outstanding and entitled to vote thereon
pursuant to the provisions of these Articles of Incorporation.
(b) Investment policies which have been designated "fundamental
policies" by the Corporation in filings with the Securities and Exchange
Commission cannot be approved, modified, repealed or changed without the
approval of such percentage of outstanding shares as may from time to time be
permitted or required under the Investment Company Act of 1940.
(2) The Board of Directors shall have power, if authorized by the ByLaws, to
designate by resolution adopted by a majority of the whole Board of Directors,
one or more committees to consist of two or more of the directors of the
Corporation which, to the extent provided in said resolution or in the By-Laws
of the Corporation and permitted by the laws of the State of Maryland, shall
have and may exercise any or all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation and may have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it.
(3) The Board of Directors shall, subject to the laws of the State of Maryland
and subject to any limitations contained in the By-Laws, have the power to
determine from time to time whether and to what extent and at what times and
places and under what conditions and regulations the books,
<PAGE>
accounts and records of the Corporation or any of them shall be opened to the
inspection of the stockholders and no stockholder shall have any right to
inspect any account, book or record of the Corporation except as conferred by
the laws of the State of Maryland or the then current
By-Laws of the Corporation unless and until authorized to do so by resolution of
the Board of Directors or the stockholders.
(4) Subject to the provisions of the laws of the State of Maryland and the
By-Laws of the Corporation, the Board of Directors shall have power to hold
their meetings, to have an office or offices and to keep the books of the
Corporation outside of the State of Maryland, and the meetings of stockholders
may be held outside of the State of Maryland and at such place or places as may
from time to time be designated by the Board of Directors.
(5) All securities, and cash and other property owned by the Corporation from
time to time shall be deposited with and held by custodians or subcustodians
qualified to act as such in accordance with the requirements of the Investment
Company Act of 1940. In the event of the resignation of any such custodian or
the termination of the custodian agreement for any reason, the Board of
Directors shall use its best efforts to obtain a successor custodian, and any
custodian agreement shall contain provisions to the effect that if it is
terminated the cash or securities held or controlled by such custodian for the
Corporation shall be delivered directly to such a successor custodian if such a
successor custodian can be found willing and able to act upon reasonable and
customary terms. In the event that upon the termination of any such custodian
agreement, no such successor custodian can be found, the Board of Directors
shall submit to the stockholders the question of whether the Corporation shall
be liquidated or shall function without a custodian. The By-Laws of the
Corporation may contain further provisions with respect to the custody of the
securities, cash and securities other property of the Corporation not
inconsistent with the foregoing.
(6) Subject to the provisions of these Articles of Incorporation and the
provisions of the Investment Company Act of 1940, any director, officer or
employee, individually, or any partnership of which any director, officer or
employee may be a member, or any corporation or association of which any
director, officer or employee of this Corporation may be an officer, director,
trustee, employee or stockholder may be a party to or may be pecuniarily
interested in any contract or transaction of the Corporation, and in the absence
of fraud, no contract or other transaction shall be thereby affected or
invalidated, provided that the facts shall be disclosed or shall have been known
to the Board of Directors or a majority thereof and any director of the
Corporation who is so interested or who is also a director, officer, trustee,
employee or stockholder of such corporation or association or a member of such
partnership which is so interested may be counted in determining the existence
of a quorum at any meeting of the Directors of the Corporation which shall
authorize any such contract or transaction and may vote thereat on any such
contract or transaction with like force and effect as if he or she were not such
director, officer, trustee, employee or stockholder of such corporation,
association so interested or not a member of a partnership so interested, or so
interested individually.
(7) (a) To the maximum extent permitted by applicable law (including Maryland
law and the Investment Company Act of 1940) as currently in effect or as may
hereafter be amended, no director or officer of the Corporation shall be liable
to the Corporation or its stockholders for monetary damages.
<PAGE>
(b) To the maximum extent permitted by applicable law
(including Maryland law and the Investment Company Act of 1940) as currently in
effect or as may hereafter be amended, the Corporation shall indemnify and
advance expenses 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 Corporation as a director, officer, employee or
agent in similar capacities for other entities.
(c) The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent 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 any such capacity or arising out of his or her
status as such, whether or not the Corporation would have the power to indemnify
him or her against such liability.
(d) Any repeal or modification of this Article EIGHTH,
Section (7) by the stockholders of the Corporation, or adoption or modification
of any other provision of the Articles of Incorporation or ByLaws inconsistent
with this Section shall be prospective only, to the extent that such repeal or
modification would, if applied retrospectively, adversely affect any limitation
on the liability of any director or officer of the Corporation or
indemnification available to any person covered by these provisions with respect
to any act or omission which occurred prior to such repeal, modification or
adoption.
NINTH: The Board of Directors shall have power insofar as permitted by law to
make, alter, amend, and repeal the By-Laws of the Corporation. From time to time
any of the provisions of these Articles of Incorporation may be amended to alter
or repeal its provisions or to add other provisions as may be authorized by the
laws of the State of Maryland at the time in force. Such amendments shall be
effective and valid if authorized by the affirmative vote of the holders of a
majority of the total number of shares of the Corporation entitled to vote on
such amendment, or by such lesser voting requirement as may then be in effect
under the laws of the State of Maryland. All rights and powers conferred by
these Articles of Incorporation on stockholders, directors and officers are
granted subject to this reservation.
TENTH: The name "Bull & Bear" included in the name of the Corporation shall be
used pursuant to a royalty-free non-exclusive license from Bull & Bear Group,
Inc. or a subsidiary of Bull & Bear Group, Inc. The license may be withdrawn by
Bull & Bear Group, Inc. or its subsidiary in the event the Investment Manager of
the Corporation shall not be Bull & Bear Advisers, Inc. or some other
corporation controlling, controlled by or under common control with Bull & Bear
Group, Inc., in which case the Corporation shall have no further right to use
the name "Bull & Bear" in its corporate name or otherwise and the Corporation,
the holders of its capital stock and its officers and directors, shall promptly
take whatever action may be necessary to change its name accordingly.
ELEVENTH: (1) The number of directors of the Corporation, until such number
shall be increased or decreased pursuant to the By-Laws of the Corporation,
shall be six (6). The number of directors shall never be less than the number
prescribed by the General Corporation Law of the State of Maryland.
(2) The names of the persons who shall act as directors of the Corporation until
the first annual meeting of stockholders and until their respective successors
are elected and qualified are:
<PAGE>
Bassett S. Winimill
Robert D. Anderson
Bruce B. Huber
James E. Hunt
Oswald Ruggero
John B. Russell
IN WITNESS WHEREOF, the undersigned have adopted and signed these
Articles of Incorporation on this 10th day of January 1986 and each hereby
acknowledges the same to be his act and that to the best of his knowledge,
information and belief, all matters and facts stated herein are true in all
material respects and that he is making this statement under the penalties of
perjury.
/S/ Perez C. Ehrich
Perez C. Ehrich
/s/ John T. Landry, Jr.
John T. Landry, Jr.
Bull & Bear Special Equities Fund, Inc.
By-laws As Amended December 11, 1997
AMENDED BY-LAWS
OF
BULL & BEAR SPECIAL EQUITIES FUND, INC.
A MARYLAND CORPORATION
DECEMBER 11, 1997
<PAGE>
Bull & Bear Special Equities Fund, Inc.
By-laws As Amended December 11, 1997
AMENDED BY-LAWS
TABLE OF CONTENTS
PAGE
ARTICLE I - NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL............... 1
Section 1.01. Name................................................ 1
Section 1.02. Principal Offices................................... 1
Section 1.03. Seal................................................ 1
ARTICLE II - STOCKHOLDERS................................................... 1
Section 2.01. Annual Meetings..................................... 1
Section 2.02. Special Meetings.................................... 1
Section 2.03. Notice of Meetings.................................. 1
Section 2.04. Quorum and Adjournment of Meetings.................. 1
Section 2.05. Voting and Inspectors............................... 1
Section 2.06. Validity of Proxies................................. 2
Section 2.07. Stock Ledger and List of Stockholders............... 2
Section 2.08. Action Without Meeting.............................. 2
ARTICLE III - BOARD OF DIRECTORS............................................ 2
Section 3.01. General Powers...................................... 2
Section 3.02. Power to Issue and Sell Stock....................... 2
Section 3.03. Power to Declare Dividends.......................... 2
Section 3.04. Number and Term of Directors........................ 3
Section 3.05. Vacancies and Newly Created Directorships........... 3
Section 3.06. Removal............................................. 3
Section 3.07. Regular Meetings.................................... 3
Section 3.08. Special Meetings.................................... 3
Section 3.09. Waiver of Notice.................................... 3
Section 3.10. Quorum and Voting................................... 3
Section 3.11. Action Without a Meeting............................ 4
Section 3.12. Compensation of Directors........................... 4
ARTICLE IV - COMMITTEES..................................................... 4
Section 4.01. Organization........................................ 4
Section 4.02. Powers of the Executive Committee................... 4
Section 4.03. Powers of Other Committees of the Board of Directors 4
Section 4.04. Proceedings and Quorum.............................. 4
Section 4.05. Other Committees.................................... 4
ARTICLE V - OFFICERS........................................................ 4
Section 5.01. Officers............................................ 4
Section 5.02. Election, Tenure and Qualifications................. 4
Section 5.03. Vacancies and Newly Created Offices................. 4
Section 5.04. Removal and Resignation............................. 5
Section 5.05. Chairman of the Board............................... 5
Section 5.06. Vice Chairman of the Board.......................... 5
Section 5.07. President, Co-President............................. 5
Section 5.08. Vice President...................................... 5
Section 5.09. Treasurer and Assistant Treasurers.................. 5
Section 5.10. Secretary and Assistant Secretaries................. 5
Section 5.11. Subordinate Officers................................ 5
Section 5.12. Remuneration........................................ 5
Section 5.13. Surety Bonds........................................ 6
ARTICLE VI - EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES................. 6
Section 6.01. General............................................. 6
Section 6.02. Checks, Notes, Drafts, Etc.......................... 6
Section 6.03. Voting of Securities................................ 6
ARTICLE VII - CAPITAL STOCK................................................. 6
Section 7.01. Certificates of Stock............................... 6
Section 7.02. Transfer of Shares.................................. 6
Section 7.03. Transfer Agents and Registrars...................... 6
Section 7.04. Fixing of Record Date............................... 7
Section 7.05. Lost, Stolen or Destroyed Certificates.............. 7
ARTICLE VIII - CONFLICT OF INTEREST TRANSACTIONS............................ 7
Section 8.01. Validity of Contract or Transactions................ 7
Section 8.02. Dealings............................................ 7
i
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Bull & Bear Special Equities Fund, Inc.
By-laws As Amended December 11, 1997
ARTICLE IX - FISCAL YEAR AND ACCOUNTANT..................................... 7
Section 9.01. Fiscal Year......................................... 7
Section 9.02. Accountant.......................................... 7
ARTICLE X - CUSTODY OF SECURITIES........................................... 8
Section 10.01. Employment of a Custodian.......................... 8
Section 10.02. Termination of Custodian Agreement................. 8
Section 10.03. Provisions of Custodian Contract................... 8
Section 10.04. Other Arrangements................................. 8
ARTICLE XI - INDEMNIFICATION AND INSURANCE.................................. 8
Section 11.01. Indemnification of Officers, Directors,
Employees and Agents............................... 8
Section 11.02. Insurance of Officers, Directors,
Employees and Agents............................... 9
Section 11.03. Non-exclusivity.................................... 9
Section 11.04. Amendment.......................................... 9
ARTICLE XII - AMENDMENTS.................................................... 9
Section 12.01. General............................................ 9
Section 12.02. By Stockholders Only............................... 9
ii
<PAGE>
Bull & Bear Special Equities Fund, Inc.
By-laws As Amended December 11, 1997
AMENDED BY-LAWS
OF
BULL & BEAR SPECIAL EQUITIES FUND, INC.
(A MARYLAND CORPORATION)
ARTICLE I
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
Section 1.01. Name. The name of the Corporation is Bull & Bear Special
Equities Fund, Inc.
Section 1.02. Principal Offices. The principal office of the Corporation in the
State of Maryland shall be located in Baltimore, Maryland. The Corporation may,
in addition, establish and maintain such other offices and places of business as
the board of directors may, from time to time, determine.
Section 1.03. Seal. The corporate seal of the Corporation shall consist of two
(2) concentric circles, between which shall be the name of the Corporation, and
in the center shall be inscribed the year of its incorporation, and the words
"Corporate Seal." The form of the seal shall be subject to alteration by the
board of directors and the seal may be used by causing it or a facsimile to be
impressed or affixed or printed or otherwise reproduced. Any officer or director
of the Corporation shall have authority to affix the corporate seal of the
Corporation to any document requiring the same.
ARTICLE II
STOCKHOLDERS
Section 2.01. Annual Meetings. There shall be no stockholders' meetings for
the election of directors and the transaction of other proper business except as
required by law or as hereinafter provided.
Section 2.02. Special Meetings. Special meetings of stockholders may be called
at any time by the chairman of the board or the president or a co-president and
shall be held at such time and place as may be stated in the notice of the
meeting. The secretary shall call a special meeting of the stockholders on the
written request of stockholders entitled to cast at least a majority of all the
votes entitled to be cast at the meeting. Such request shall state the purpose
of such meeting and the matters proposed to be acted on thereat, and no other
business shall be transacted at any such special meeting. The secretary shall
inform such stockholders of the reasonably estimated costs of preparing and
mailing the notice of the meeting, and upon payment to the Corporation of such
costs, the secretary shall give not less than ten nor more than 90 days' notice
of the time, place and purpose of the meeting in the manner provided in Section
2.03 of this Article II.
Section 2.03. Notice of Meetings. The secretary shall cause notice of the place,
date and hour and, in the case of a special meeting or as otherwise required by
law, the purpose or purposes for which the meeting is called, to be served
personally or to be mailed, postage prepaid, not less than 10 nor more than 90
days before the date of the meeting, to each stockholder entitled to vote at
such meeting at his address as it appears on the records of the Corporation at
the time of such mailing. Notice shall be deemed to be given when deposited in
the United States mail addressed to the stockholders as aforesaid.
Notice of any stockholders' meeting need not be given to any stockholder who
shall sign a written waiver of such notice whether before or after the time of
such meeting, which waiver shall be filed with the records of such meeting, or
to any stockholder who is present at such meeting in person or by proxy. Notice
of adjournment of a stockholders' meeting to another time or place need not be
given if such time and place are announced at the meeting.
Irregularities in the notice of any meeting to, or the nonreceipt of any such
notice by, any of the stockholders shall not invalidate any action otherwise
properly taken by or at any such meeting.
Section 2.04. Quorum and Adjournment of Meetings. The presence at any
stockholders' meeting, in person or by proxy, of stockholders entitled to cast
one-third of all votes entitled to be cast thereat shall be necessary and
sufficient to constitute a quorum for the transaction of business, provided that
with respect to any matter to be voted upon separately by any Series (as defined
in the Articles of Incorporation) or class of shares, a quorum shall consist of
the holders of one-third of the shares of that Series or class outstanding and
entitled to vote on the matter. In the absence of a quorum, the stockholders
present in person or by proxy or, if no stockholder entitled to vote is present
in person or by proxy, any officer present entitled to preside or act as
secretary of such meeting may adjourn the meeting without determining the date
of the new meeting or from time to time without further notice to a date not
more than 120 days after the original record date. Any business that might have
been transacted at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
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Bull & Bear Special Equities Fund, Inc.
By-laws As Amended December 11, 1997
Section 2.05. Voting and Inspectors. At every stockholders' meeting, each
stockholder shall be entitled to one vote for each share and a fractional vote
for each fraction of a share of stock of the Corporation validly issued and
outstanding and standing in his name on the books of the Corporation on the
record date fixed in accordance with Section 7.04 hereof, either in person or by
proxy appointed by instrument in writing subscribed by such stockholder or his
duly authorized attorney, except that no shares held by the Corporation shall be
entitled to a vote; provided, however, that (a) as to any matter with respect to
which a separate vote of any series is required by the Investment Company Act of
1940, as amended, or by the Maryland General Corporation Law, such requirement
as to a separate vote by that series shall apply; (b) in the event that the
separate vote requirements referred to in (a) above apply with respect to one or
more series, then, subject to (c) below, the shares of all other such one or
more series shall vote as a single series; and (c) as to any matter which
affects the interest of only a particular series, only the holders of shares of
the one or more affected series shall be entitled to vote.
If no record date has been fixed, the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be the later of the close of business on the day on which notice of the meeting
is mailed or the 30th day before the meeting, or, if notice is waived by all
stockholders, at the close of business on the 11th day preceding the day on
which the meeting is held.
Except as otherwise specifically provided in the Articles of Incorporation or
these By-laws or as required by provisions of the Investment Company Act of
1940, as amended, all matters shall be decided by a vote of the majority of the
votes validly cast at a meeting at which a quorum is present. The vote upon any
question shall be by ballot whenever requested by any person entitled to vote,
but, unless such a request is made, voting may be conducted in any way approved
by the meeting.
At any meeting at which there is an election of directors, the chairman of the
meeting may appoint two inspectors of election who shall first subscribe an oath
or affirmation to execute faithfully the duties of inspectors at such election
with strict impartiality and according to the best of their ability, and shall,
after the election, make a certificate of the result of the vote taken. No
candidate for the office of director shall be appointed as an inspector.
Section 2.06. Validity of Proxies. The right to vote by proxy shall exist only
if the instrument authorizing such proxy to act shall have been signed by the
stockholder or by his duly authorized attorney. Unless a proxy provides
otherwise, it shall not be valid more than 11 months after its date. All proxies
shall be delivered to the secretary of the Corporation or to the person acting
as secretary of the meeting before being voted, who shall decide all questions
concerning qualification of voters, the validity of proxies, and the acceptance
or rejection of votes. If inspectors of election have been appointed by the
chairman of the meeting, such inspectors shall decide all such questions. A
proxy with respect to stock held in the name of two or more persons shall be
valid if executed by one of them unless at or prior to exercise of such proxy
the Corporation receives from any one of them a specific written notice to the
contrary and a copy of the instrument or order which so provides. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed valid
unless challenged at or prior to its exercise.
Section 2.07. Stock Ledger and List of Stockholders. It shall be the duty of the
secretary or assistant secretary of the Corporation to cause an original or
duplicate stock ledger containing the names and addresses of all the
stockholders and the number of shares held by them, respectively, to be
maintained at the office of the Corporation's transfer agent. Such stock ledger
may be in written form or any other form capable of being converted into written
form within a reasonable time for visual inspection. Any one or more persons,
each of whom has been a stockholder of record of the Corporation for more than
six months next preceding such request, who owns in the aggregate five percent
or more of the outstanding capital stock of the Corporation, may submit (unless
the Corporation at the time of the request maintains a duplicate stock ledger at
its principal office in Maryland) a written request to any officer of the
Corporation or its resident agent in Maryland for a list of the stockholders of
the Corporation. Within 20 days after such a request, there shall be prepared
and filed at the Corporation's principal office in Maryland a list containing
the names and addresses of all stockholders of the Corporation and the number of
shares of each class held by each stockholder, certified as correct by an
officer of the Corporation, by its stock transfer agent, or by its registrar.
Section 2.08. Action Without Meeting. Any action required or permitted to be
taken by stockholders at a meeting of stockholders may be taken without a
meeting if (a) all stockholders entitled to vote on the matter consent to the
action in writing, (b) all stockholders entitled to notice of the meeting but
not entitled to vote at it sign a written waiver of any right to dissent, and
(c) the consents and waivers are filed with the records of the meetings of
stockholders. Such consent shall be treated for all purposes as a vote at the
meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. General Powers. Except as otherwise provided by operation of law,
by the Articles of Incorporation, or by these By-laws, the property, business
and affairs of the Corporation shall be managed under the direction of and all
the powers of the Corporation shall be exercised by or under authority of its
board of directors.
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Bull & Bear Special Equities Fund, Inc.
By-laws As Amended December 11, 1997
Section 3.02. Power to Issue and Sell Stock. The board of directors may from
time to time issue and sell or cause to be issued and sold any of the
Corporation's authorized shares to such persons and for such consideration as
the board of directors shall deem advisable, subject to the provisions of the
Articles of Incorporation.
Section 3.03. Power to Declare Dividends. The board of directors, from time to
time as they may deem advisable, may declare and pay dividends in stock, cash or
other property of the Corporation, out of any source available for dividends, to
the stockholders according to their respective rights and interests in
accordance with the provisions of the Articles of Incorporation. The board of
directors may prescribe from time to time that dividends declared may be payable
at the election of any of the stockholders (exercisable before or after the
declaration of the dividend), either in cash or in shares of the Corporation,
provided that the sum of the cash dividend actually paid to any stockholder and
the asset value of the shares received (determined as of such time as the board
of directors shall have prescribed, pursuant to the Articles of Incorporation,
with respect to shares sold on the date of such election) shall not exceed the
full amount of cash to which the stockholder would be entitled if he elected to
receive only cash. The board of directors shall cause to be accompanied by a
written statement any dividend payment wholly or partly from any source other
than:
(a) the Corporation's accumulated undistributed net income (determined
in accordance with good accounting practice and the rules and
regulations of the Securities and Exchange Commission then in effect)
and not including profits or losses realized upon the sale of
securities or other properties; or
(b) the Corporation's net income so determined for the current or
preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Securities and
Exchange Commission may prescribe.
Section 3.04. Number and Term of Directors. Except for the initial board of
directors, the board of directors shall consist of not fewer than three nor more
than fifteen directors, as specified by a resolution of a majority of the entire
board of directors and at least one member of the board of directors shall be a
person who is not an "interested person" of the Corporation, as that term is
defined in the Investment Company Act of 1940, as amended. All other directors
may be interested persons of the Corporation if the requirements of Section
10(d) of the Investment Company Act of 1940, as amended, are met by the
Corporation and its investment manager. Each director shall hold office until
his successor is elected and qualified or until his earlier death, resignation
or removal.
All acts done at any meeting of the directors or by any person acting as a
director, so long as his successor shall not have been duly elected or
appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as a
director or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the Corporation.
Directors need not be stockholders of the Corporation.
Section 3.05. Vacancies and Newly Created Directorships. If any vacancies shall
occur in the board of directors by reason of death, resignation, removal or
otherwise, or if the authorized number of directors shall be increased, the
directors then in office shall continue to act, and such vacancies (if not
previously filled by the stockholders) may be filled by a majority of the
directors then in office, although less than a quorum, except that a newly
created directorship may be filled only by a majority vote of the entire board
of directors; provided, however, that immediately after filling such vacancy, at
least two-thirds (2/3) of the directors then holding office shall have been
elected to such office by the stockholders of the Corporation. In the event that
at any time, other than the time preceding the first annual stockholders'
meeting, less than a majority of the directors of the Corporation holding office
at that time were elected by the stockholders, a meeting of the stockholders
shall be held promptly and in any event within 60 days for the purpose of
electing directors to fill any existing vacancies in the board of directors,
unless the Securities and Exchange Commission shall by order extend such period.
Section 3.06. Removal. At any stockholders' meeting duly called, provided a
quorum is present, the stockholders may remove any director from office (either
with or without cause) by the affirmative vote of a majority of all votes
represented at the meeting, and at the same meeting a duly qualified successor
or successors may be elected to fill any resulting vacancies by a plurality of
the votes validly cast.
Section 3.07. Regular Meetings. The meeting of the board of directors for
choosing officers and transacting other proper business, and all other meetings,
shall be held at such time and place, within or outside the state of Maryland,
as the board may determine and as provided by resolution. Except as otherwise
provided in the Investment Company Act of 1940, as amended, notice of such
meetings need not be given, following the annual meeting of stockholders, if
any, provided that notice of any change in the time or place of such meetings
shall be sent promptly to each director not present at the meeting at which such
change was made, in the manner provided for notice of special meetings. Except
as otherwise provided under the Investment Company Act of 1940, as amended,
members of the board of directors or any committee designated thereby may
participate in a meeting of such board or committee by means of a conference
telephone or similar communications equipment that allows
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Bull & Bear Special Equities Fund, Inc.
By-laws As Amended December 11, 1997
all persons participating in the meeting to hear each other at the same time;
and participation by such means shall constitute presence in person at a
meeting.
Section 3.08. Special Meetings. Special meetings of the board of directors shall
be held whenever called by the chairman of the board or the president or a
co-president (or, in the absence or disability of the chairman of the board or
the president or a co-president, by any officer or director, as they so
designate) at the time and place (within or outside of the State of Maryland)
specified in the respective notice or waivers of notice of such meetings. At
least three days before the day on which a special meeting is to be held, notice
of special meetings, stating the time and place, shall be (a) mailed to each
director at his residence or regular place of business or (b) delivered to him
personally or transmitted to him by telegraph, telefax, telex, cable or
wireless.
Section 3.09. Waiver of Notice. No notice of any meeting need be given to any
director who is present at the meeting or who waives notice of such meeting in
writing (which waiver shall be filed with the records of such meeting), either
before or after the time of the meeting.
Section 3.10. Quorum and Voting. At all meetings of the board of directors, the
presence of one-half of the number of directors then in office shall constitute
a quorum for the transaction of business, provided that there shall be present
at least two directors. In the absence of a quorum, a majority of the directors
present may adjourn the meeting, from time to time, until a quorum shall be
present. The action of a majority of the directors present at a meeting at which
a quorum is present shall be the action of the board of directors, unless
concurrence of a greater proportion is required for such action by law, by the
Articles of Incorporation or by these By-laws.
Section 3.11. Action Without a Meeting. Except as otherwise provided in the
Investment Company Act of 1940, as amended, any action required or permitted to
be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting if a written consent to such action is signed by
all members of the board or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the board or
committee.
Section 3.12. Compensation of Directors. Directors may receive such
compensation for their services as may from time to time be determined by
resolution of the board of directors.
ARTICLE IV
COMMITTEES
Section 4.01. Organization. By resolution adopted by the board of directors, the
board may designate one or more committees of the board of directors, including
an Executive Committee, each consisting of at least two directors. Each member
of a committee shall be a director and shall hold committee membership at the
pleasure of the board. The chairman of the board, if any, shall be a member of
the Executive Committee. The board of directors shall have the power at any time
to change the members of such committees and to fill vacancies in the
committees.
Section 4.02. Powers of the Executive Committee. Unless otherwise provided by
resolution of the board of directors, when the board of directors is not in
session the Executive Committee shall have and may exercise all powers of the
board of directors in the management of the business and affairs of the
Corporation that may lawfully be exercised by an Executive Committee except the
power to declare a dividend or distribution on stock, authorize the issuance of
stock, recommend to stockholders any action requiring stockholders' approval,
amend these By-laws, approve any merger or share exchange which does not require
stockholder approval or approve or terminate any contract with an "investment
adviser" or "principal underwriter," as those terms are defined in the
Investment Company Act of 1940, as amended, or to take any other action required
by the Investment Company Act of 1940, as amended, to be taken by the board of
directors. Notwithstanding the above, such Executive Committee may make such
dividend calculations and payments as are consistent with applicable law,
including Maryland corporate law.
Section 4.03. Powers of Other Committees of the Board of Directors. To the
extent provided by resolution of the board, other committees of the board of
directors shall have and may exercise any of the powers that may lawfully be
granted to the Executive Committee.
Section 4.04. Proceedings and Quorum. In the absence of an appropriate
resolution of the board of directors, each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable, provided that a quorum shall not be less than two
directors. In the event any member of any committee is absent from any meeting,
the members thereof present at the meeting, whether or not they constitute a
quorum, may appoint a member of the board of directors to act in the place of
such absent member.
Section 4.05. Other Committees. The board of directors may appoint other
committees, each consisting of one or more persons, who need not be directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the board of directors, but shall not
exercise any power which may lawfully be exercised only by the board of
directors or a committee thereof.
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ARTICLE V
OFFICERS
Section 5.01. Officers. The officers of the Corporation shall be a president or
co-presidents, a secretary, and a treasurer, and may include one or more vice
presidents (including executive and senior vice presidents), assistant
secretaries or assistant treasurers, and such other officers as may be appointed
in accordance with the provisions of Section 5.11 hereof. The board of directors
may, but shall not be required to, elect a chairman and vice chairman of the
board.
Section 5.02. Election, Tenure and Qualifications. The officers of the
Corporation (except those appointed pursuant to Section 5.11 hereof) shall be
elected by the board of directors at its first meeting or such subsequent
meetings as shall be held prior to its first annual meeting, and thereafter at
regular board meetings, as required by applicable law. If any officers are not
elected at any annual meeting, such officers may be elected at any subsequent
meetings of the board. Except as otherwise provided in this Article V, each
officer elected by the board of directors shall hold office until his or her
successor shall have been elected and qualified. Any person may hold one or more
offices of the Corporation except that no one person may serve concurrently as
both the president or a co-president and vice president. A person who holds more
than one office in the Corporation may not act in more than one capacity to
execute, acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer. The chairman of the board
shall be chosen from among the directors of the Corporation and may hold such
office only so long as he continues to be a director. No other officer need be a
director.
Section 5.03. Vacancies and Newly Created Offices. If any vacancy shall occur in
any office by reason of death, resignation, removal, disqualification or other
cause, or if any new office shall be created, such vacancies or newly created
offices may be filled by the chairman of the board at any meeting or, in the
case of any office created pursuant to Section 5.11 hereof, by any officer upon
whom such power shall have been conferred by the board of directors.
Section 5.04. Removal and Resignation. At any meeting called for such purpose,
the Executive Committee may remove any officer from office (either with or
without cause) by the affirmative vote, given at the meeting, of a majority of
the members of the Committee. Any officer may resign from office at any time by
delivering a written resignation to the board of directors, the president or a
co-president, the secretary, or any assistant secretary. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
Section 5.05. Chairman of the Board. The chairman of the board, if there be such
an officer, shall be the senior officer of the Corporation, shall preside at all
stockholders' meetings and at all meetings of the board of directors and shall
be ex officio a member of all committees of the board of directors. He shall
have such other powers and perform such other duties as may be assigned to him
from time to time by the board of directors.
Section 5.06. Vice Chairman of the Board. The board of directors may from time
to time elect a vice chairman who shall have such powers and perform such duties
as from time to time may be assigned to him by the board of directors, chairman
of the board or the president or a co-president. At the request of, or in the
absence or in the event of the disability of the chairman of the board, the vice
chairman may perform all the duties of the chairman of the board or the
president or a co-president and, when so acting, shall have all the powers of
and be subject to all the restrictions upon such respective officers.
Section 5.07. President, Co-President. The president or co-presidents shall be
the chief executive officer or co-chief executive officers, as the case may be,
of the Corporation and, in the absence of the chairman of the board or vice
chairman or if no chairman of the board or vice chairman has been chosen, shall
preside at all stockholders' meetings and at all meetings of the board of
directors and shall in general exercise the powers and perform the duties of the
chairman of the board. Subject to the supervision of the board of directors, the
president or the co-presidents shall have general charge of the business,
affairs and property of the Corporation and general supervision over its
officers, employees and agents. Except as the board of directors may otherwise
order, the president or a co-president may sign in the name and on behalf of the
Corporation all deeds, bonds, contracts, or agreements. The president or a
co-president shall exercise such other powers and perform such other duties as
from time to time may be assigned by the board of directors.
Section 5.08. Vice President. The board of directors may from time to time elect
one or more vice presidents (including executive and senior vice presidents) who
shall have such powers and perform such duties as from time to time may be
assigned to them by the board of directors or the president or a co-president.
At the request of, or in the absence or in the event of the disability of, the
president or both co-presidents, the vice president (or, if there are two or
more vice presidents, then the senior of the vice presidents present and able to
act) may perform all the duties of the president or co-presidents and, when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president or co-presidents.
Section 5.09. Treasurer and Assistant Treasurers. The treasurer shall be the
chief accounting officer of the Corporation and shall have general charge of the
finances and books of account of the Corporation. The treasurer shall render to
the board of directors, whenever directed by the board, an account of the
financial condition of the Corporation and of all transactions as treasurer; and
as soon as possible after the close of
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each financial year he shall make and submit to the board of directors a like
report for such financial year. The treasurer shall cause to be prepared
annually a full and complete statement of the affairs of the Corporation,
including a balance sheet and a financial statement of operations for the
preceding fiscal year, which shall be submitted at the annual meeting of
stockholders (when, and if, such meeting is held) and filed within 20 days
thereafter at the principal office of the Corporation in the state of Maryland,
except that for any year when an annual meeting of stockholders is not held,
such statement of affairs shall be filed at the Corporation's principal office
within 120 days after the end of the fiscal year. The treasurer shall perform
all acts incidental to the office of treasurer, subject to the control of the
board of directors.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the board of directors may assign, and, in the absence of the
treasurer, may perform all the duties of the treasurer.
Section 5.10. Secretary and Assistant Secretaries. The secretary shall attend to
the giving and serving of all notices of the Corporation and shall record all
proceedings of the meetings of the stockholders and directors in books to be
kept for that purpose. The secretary shall keep in safe custody the seal of the
Corporation, and shall have responsibility for the records of the Corporation,
including the stock books and such other books and papers as the board of
directors may direct and such books, reports, certificates and other documents
required by law to be kept, all of which shall at all reasonable times be open
to inspection by any director. The secretary shall perform such other duties
which appertain to this office or as may be required by the board of directors.
Any assistant secretary may perform such duties of the secretary as the
secretary or the board of directors may assign, and, in the absence of the
secretary, may perform all the duties of the secretary.
Section 5.11. Subordinate Officers. The chairman of the board from time to time
may appoint such other officers or agents as he may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the board of directors may determine. The chairman of the
board from time to time may delegate to one or more officers or agents the power
to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties. Any officer or agent
appointed in accordance with the provisions of this Section 5.11 may be removed,
either with or without cause, by any officer upon whom such power of removal
shall have been conferred by the board of directors.
Section 5.12. Remuneration. The salaries or other compensation of the officers
of the Corporation shall be fixed from time to time by resolution of the board
of directors, except that the board of directors may by resolution delegate to
any person or group of persons the power to fix the salaries or other
compensation of any subordinate officers or agents appointed in accordance with
the provisions of Section 5.11 hereof.
Section 5.13. Surety Bonds. The board of directors may require any officer or
agent of the Corporation to execute a bond (including, without limitation, any
bond required by the Investment Company Act of 1940, as amended, and the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder) to the Corporation in such sum and with such surety or sureties as
the board of directors may determine, conditioned upon the faithful performance
of his or her duties to the Corporation, including responsibility for negligence
and for the accounting of any of the Corporation's property, funds or securities
that may come into his hands.
ARTICLE VI
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 6.01. General. Subject to the provisions of Sections 5.07, 6.02, and
7.03 hereof, all deeds, documents, transfers, contracts, agreements and other
instruments requiring execution by the Corporation shall be signed by the
president or a co-president, a vice president (including executive and senior
vice presidents), chairman or vice chairman and by the treasurer or secretary or
an assistant treasurer or an assistant secretary, or as the board of directors
may otherwise, from time to time, authorize. Any such authorization may be
general or confined to specific instances.
Section 6.02. Checks, Notes, Drafts, Etc. So long as the Corporation shall
employ a custodian to keep custody of the cash and securities of the
Corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by the custodian. Except as
otherwise authorized by the board of directors, all requisitions or orders for
the assignment of securities standing in the name of the custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed in
the name of the Corporation by any two of the following: the president or a
co-president, vice president (including executive and senior vice presidents),
treasurer or an assistant treasurer, provided that no one person may sign in the
capacity of two such officers. Promissory notes, checks or drafts payable to the
Corporation may be endorsed only to the order of the custodian or its nominee
and only by any two of the following: the treasurer, the president or a
co-president, a vice president (including executive and senior vice presidents)
or by such other person or persons as shall be authorized by the board of
directors, provided that no one person may sign in the capacity of two such
officers.
Section 6.03. Voting of Securities. Unless otherwise ordered by the board of
directors, the president or a co-president, or any vice president (including
executive and senior vice presidents) shall have full power and
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authority on behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any company in which the Corporation may hold stock. At any such
meeting such officer shall possess and may exercise (in person or by proxy) any
and all rights, powers and privileges incident to the ownership of such stock.
The board of directors may by resolution from time to time confer like powers
upon any other person or persons in accordance with the laws of the State of
Maryland.
ARTICLE VII
CAPITAL STOCK
Section 7.01. Certificates of Stock. The interest of each stockholder of the
Corporation may be, but shall not be required to be, evidenced by certificates
for shares of stock in such form not inconsistent with the Articles of
Incorporation as the board of directors may from time to time authorize. No
certificate shall be valid unless it is signed in the name of the Corporation by
a president or a co-president or a vice president and countersigned by the
secretary or an assistant secretary or the treasurer or an assistant treasurer
of the Corporation and sealed with the seal of the Corporation, or bears the
facsimile signatures of such officers and a facsimile of such seal. In case any
officer who shall have signed any such certificate, or whose facsimile signature
has been placed thereon, shall cease to be such an officer (because of death,
resignation or otherwise) before such certificate is issued, such certificate
may be issued and delivered by the Corporation with the same effect as if he
were such officer at the date of issue.
The number of each certificate issued, the name and address of the person owning
the shares represented thereby, the number of such shares and the date of
issuance shall be entered upon the stock ledger of the Corporation at the time
of issuance.
Every certificate exchanged, surrendered for redemption or otherwise returned to
the Corporation shall be marked "canceled" with the date of cancellation.
Section 7.02. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder of record thereof (in
person or by his duly authorized attorney or legal representative) (a) if a
certificate or certificates have been issued, upon surrender duly endorsed or
accompanied by proper instruments of assignment and transfer, with such proof of
the authenticity of the signature as the Corporation or its agents may
reasonably require, or (b) as otherwise prescribed by the board of directors.
Except as otherwise provided in the Articles of Incorporation, the shares of
stock of the Corporation may be freely transferred, subject to the charging of
customary transfer fees, and the board of directors may, from time to time,
adopt rules and regulations with reference to the method of transfer of the
shares of stock of the Corporation. The Corporation shall be entitled to treat
the holder of record of any share of stock as the absolute owner thereof for all
purposes, and accordingly shall not be bound to recognize any legal, equitable
or other claim or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law or the statutes of the State of Maryland.
Section 7.03. Transfer Agents and Registrars. The board of directors may from
time to time appoint or remove transfer agents or registrars of transfers for
shares of stock of the Corporation, and it may appoint the same person as both
transfer agent and registrar. Upon any such appointment being made all
certificates representing shares of capital stock thereafter issued shall be
countersigned by one of such transfer agents or by one of such registrars of
transfers or by both and shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one countersignature by
such person shall be required.
Section 7.04. Fixing of Record Date. The board of directors may fix in advance a
date as a record date for the determination of the stockholders entitled to
notice of or to vote at any stockholders' meeting or any adjournment thereof, or
to express consent to corporate action in writing without a meeting, or to
receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, provided that
(a) such record date shall be within 90 days prior to the date on which the
particular action requiring such determination will be taken, except that a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice to a date not more than 120
days after the original record date; (b) the transfer books shall not be closed
for a period longer than 20 days; and (c) in the case of a meeting of
stockholders, the record date shall be at least 10 days before the date of the
meeting.
Section 7.05. Lost, Stolen or Destroyed Certificates. Before issuing a new
certificate for stock of the Corporation alleged to have been lost, stolen or
destroyed, the board of directors or any officer authorized by the board may, in
its discretion, require the owner of the lost, stolen or destroyed certificate
(or his legal representative) to give the Corporation a bond or other indemnity,
in such form and in such amount as the board or any such officer may direct and
with such surety or sureties as may be satisfactory to the board or any such
officer, sufficient to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
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ARTICLE VIII
CONFLICT OF INTEREST TRANSACTIONS
Section 8.01. Validity of Contract or Transactions. In the event that any
officer or director of the Corporation shall have any interest, direct or
indirect, in any other firm, association or corporation as officer, employee,
director or stockholder, no transaction or contract made by the Corporation with
any such other firm, association or corporation shall be valid unless such
interest shall have been disclosed or made known to all of the directors or to a
majority of the directors and such transaction or contract shall have been
approved by a majority of a quorum of directors, which majority shall consist of
directors not having any such interest or a majority of the directors in office,
including directors having such an interest.
Section 8.02. Dealings. No officer, director or employee of the Corporation
shall deal for or on behalf of the Corporation with himself, as principal or
agent, or with any corporation or partnership in which he has a financial
interest, except that:
(a) Such prohibition shall not prevent officers, directors or employees
of the Corporation from having a financial interest in the Corporation,
or the sponsor, or a distributor of the shares of the Corporation, or
the investment manager or counsel of the Corporation;
(b) Such prohibition shall not prevent the purchase of securities for
the portfolio of the Corporation or the sale of securities owned by the
Corporation through a securities broker, one or more of whose partners,
officers or directors is an officer, director or employee of the
Corporation, provided such transactions are handled in the capacity of
broker, only, and provided they are performed in accordance with
applicable law;
(c) Such prohibition shall not prevent the employment of legal counsel,
registrar, transfer agent, dividend disbursing agent, or custodian or
trustee having a partner, officer or director who is an officer,
director or employee of the Corporation, provided only customary fees
are charged for services rendered for the benefit of the Corporation;
(d) Such prohibition shall not prevent the purchase for the portfolio
of the Corporation of securities issued by an issuer having an officer,
director or security holder who is an officer, director or employee of
the Corporation or of the manager or investment counsel of the
Corporation, unless at the time of such purchase one or more of such
officers, directors or employees owns beneficially more than one-half
of one per cent (1/2%) of the shares or securities, or both, of such
issuer and such officers, directors and employees owning more than
one-half of one per cent (1/2%) of such shares or securities together
own beneficially more than five per cent (5%) of such shares or
securities.
ARTICLE IX
FISCAL YEAR AND ACCOUNTANT
Section 9.01. Fiscal Year. The fiscal year of the Corporation shall, unless
otherwise ordered by the board of directors, be twelve calendar months ending on
the 31st day of December.
Section 9.02. Accountant. The Corporation shall employ an independent public
accountant or a firm of independent public accountants as its accountant to
examine the accounts of the Corporation and to sign and certify financial
statements filed by the Corporation. The accountant's certificates and reports
shall be addressed both to the board of directors and to the stockholders. The
employment of the accountant shall be conditioned upon the right of the
Corporation to terminate the employment forthwith without any penalty by vote of
a majority of the outstanding voting securities at any stockholders' meeting
called for that purpose.
A majority of the members of the board of directors who are not "interested
persons" (as defined in the Investment Company Act of 1940, as amended) of the
Corporation shall select the accountant at any meeting held within 90 days
before or after the beginning of the fiscal year of the Corporation or before
the annual stockholders' meeting (if any) in that year. The selection shall be
submitted for ratification or rejection at the next succeeding annual
stockholders' meeting, if any, when and if such meeting is held. If the
selection is rejected at that meeting, the accountant shall be selected by
majority vote of the Corporation's outstanding voting securities, either at the
meeting at which the rejection occurred or at a subsequent meeting of
stockholders called for the purpose of selecting an accountant.
Any vacancy occurring between annual meetings, if any, due to the death or
resignation of the accountant may be filled by the vote of a majority of the
members of the board of directors who are not interested persons.
ARTICLE X
CUSTODY OF SECURITIES
Section 10.01. Employment of a Custodian. Unless otherwise required by law or
the Articles of Incorporation, all securities and cash owned by the Corporation
from time to time shall be deposited with and held by a
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custodian or subcustodian qualified to act as such in accordance with the
requirements of the Investment Company Act of 1940, as amended.
Section 10.02. Termination of Custodian Agreement. Upon termination of the
agreement for services with the custodian or inability of the custodian to
continue to serve, the board of directors shall promptly appoint a successor
custodian, but in the event that no successor custodian can be found who has the
required qualifications and is willing to serve, the board of directors shall
call as promptly as possible a special meeting of the stockholders to determine
whether the Corporation shall function without a custodian or shall be
liquidated. If so directed by resolution of the board of directors or by vote of
the holders of a majority of the outstanding shares of stock of the Corporation,
the custodian shall deliver and pay over all property of the Corporation held by
it as specified in such vote.
Section 10.03. Provisions of Custodian Contract. The board of directors shall
cause to be delivered to the custodian all securities owned by the Corporation
or to which it may become entitled, and shall order the same to be delivered by
the custodian only in completion of a sale, exchange, transfer, pledge, or other
disposition thereof, all as the board of directors may generally or from time to
time require to approve or to a successor custodian; and the board of directors
shall cause all funds owned by the Corporation or to which it may become
entitled to be paid to the custodian, and shall order the same disbursed only
for investment against delivery of the securities acquired, or in payment of
expenses, including management compensation, and liabilities of the Corporation,
including distributions to shareholders, or to a successor custodian.
Section 10.04. Other Arrangements. The Corporation may make such other
arrangements for the custody of its assets (including deposit arrangements) as
may be required by any applicable law, rule or regulation.
ARTICLE XI
INDEMNIFICATION AND INSURANCE
Section 11.01. Indemnification of Officers, Directors, Employees and Agents. In
accordance with applicable law, including the Investment Company Act of 1940, as
amended, and Maryland Corporate law, the Corporation shall indemnify each person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact that he or
she is or was a director, officer, employee, or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee, partner, trustee or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against all reasonable expenses (including
attorneys' fees) actually incurred, and judgments, fines, penalties and amounts
paid in settlement in connection with such Proceeding to the maximum extent
permitted by law, now existing or hereafter adopted. Notwithstanding the
foregoing, the following provisions shall apply with respect to indemnification
of the Corporation's directors, officers, and investment manager (as defined in
the Investment Company Act of 1940, as amended):
(a) Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such person for any
liability arising by reason of such person's willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved
in the conduct of his or her office or under any contract or agreement
with the Corporation ("disabling conduct").
(b) The Corporation shall not indemnify any such person unless:
(1) the court or other body before which the Proceeding was
brought (a) dismisses the Proceeding for insufficiency of
evidence of any disabling conduct, or (b) reaches a final
decision on the merits that such person was not liable by
reason of disabling conduct; or
(2) absent such a decision, a reasonable determination is
made, based upon a review of the facts, by (a) the vote of a
majority of a quorum of the directors of the Corporation who
are neither interested persons of the Corporation as defined
in the Investment Company Act of 1940, as amended, nor parties
to the Proceeding, or (b) if such quorum is not obtainable, or
even if obtainable, if a majority of a quorum of directors
described above so directs, based upon a written opinion by
independent legal counsel, that such person was not liable by
reason of disabling conduct.
(c) Reasonable expenses (including attorneys' fees) incurred in
defending a Proceeding involving any such person will be paid by the
Corporation in advance of the final disposition thereof upon an
undertaking by such person to repay such expenses unless it is
ultimately determined that he or she is entitled to indemnification,
if:
(1) such person shall provide adequate security for his or
her undertaking;
(2) the Corporation shall be insured against losses arising by
reason of such advance; or
(3) a majority of a quorum of the directors of the Corporation
who are neither interested persons of the Corporation as
defined in the Investment Company Act of 1940, as amended, nor
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parties to the Proceeding, or independent legal counsel in a
written opinion, shall determine, based on a review of readily
available facts, that there is reason to believe that such
person will be found to be entitled to indemnification.
Section 11.02. Insurance of Officers, Directors, Employees and Agents. The
Corporation 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, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
partner, trustee or agent 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 position.
Section 11.03. Non-exclusivity. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article XI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these By-Laws, agreement, vote of stockholders or directors, or otherwise, both
as to action in his or her official capacity and as to action in another
capacity while holding such office.
Section 11.04. Amendment. No amendment, alteration or repeal of this Article or
the adoption, alteration or amendment of any other provisions to the Articles of
Incorporation or By-laws inconsistent with this Article shall adversely affect
any right or protection of any person under this Article with respect to any act
or failure to act which occurred prior to such amendment, alteration, repeal or
adoption.
ARTICLE XII
AMENDMENTS
Section 12.01. General. Except as provided in Section 12.02 of this Article XII
and subject to the provisions concerning stockholder voting in Article II
hereof, all By-laws of the Corporation, whether adopted by the board of
directors or the stockholders, shall be subject to amendment, alteration or
repeal, and new By-laws may be made by the affirmative vote of either: (a) the
holders of record of a majority of the outstanding shares of stock of the
Corporation entitled to vote, at any meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new By-law; or (b) a majority of directors, at any meeting the notice
or waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new By-law.
Section 12.02. By Stockholders Only. No amendment of any section of these
By-laws shall be made except by the stockholders of the Corporation if the
By-laws provide that such section may not be amended, altered or repealed except
by the stockholders. From and after the issuance of any shares of the capital
stock of the Corporation no amendment, alteration or repeal of this Article XII
shall be made except by the stockholders of the Corporation.
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BULL & BEAR SPECIAL EQUITIES FUND, INC.
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof of the
Corporation, and the qualifications, limitations, or restrictions of such
preferences and/or rights. The Corporation will also fumish without charge to
each stockholder who so requests a description of the authority of the
Corporation's board of directors to set the relative rights and preferences of
unissued series of the Corporation's capital stock. Such requests may be made to
the Corporation or the transfer agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -Custodian
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to
JT TEN - as joint tenants with Minors Act
right of survivorship
and not as tenants -----------------------
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received,___________________hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
<PAGE>
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL
ZIP CODE OF ASSIGNEE
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
_________________________________________Shares of the Stock
represented by the within Certificate, and do hereby irrevocably
constitute and appoint
- -----------------------------------------------------------------------
Attorney to transfer the said Stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated:_______________________________
-------------------------------
Signature
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
COMMON STOCK
PAR VALUE $.Ol Shares
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND THIS CERTIFICATE
IS TRANSFERABLE IN KANSAS CITY, MO OR IN NEW YORK, NY
CUSIP 120177100 SEE REVERSE FOR CERTAIN DEFINITIONS
<PAGE>
BULL & BEAR SPECIAL EQUITIES FUND, INC.
THIS CERTIFIES THAT
IS THE OWNER OF
FULL PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF Bull & Bear
Special Equities Fund, Inc., transferable on the books of the Corporation
by the holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be subject to all of the provisions of the Articles
of Incorporation and By-Laws of the Corporation, such as from time to time
amended, to all of which the holder by acceptance hereof assents. This
Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar. Witness the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
DATED
SECRETARY CO-PRESIDENT
COUNTERSIGNED AND REGISTERED
TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 29th day of April, 1993, by and between BULL & BEAR
SPECIAL EQUITIES FUND, INC., a Maryland corporation (the "Fund") and BULL & BEAR
ADVISERS, INC., a Delaware corporation (the "Investment Manager").
WITNESSETH:
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed between the parties hereto as follows:
1. The Fund hereby employs the Investment Manager to manage the investment and
reinvestment of the assets of the Fund, including the regular furnishing of
advice with respect to the Fund's portfolio transactions subject at all times to
the control and final direction of the Board of Directors of the Fund, for the
period and on the terms set forth in this Agreement. The Investment Manager
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth, for the compensation
herein provided. The Investment Manager shall for all purposes herein be deemed
to be an independent contractor and shall, unless otherwise expressly provided
or authorized, have no authority to act for or represent the Fund in any way, or
otherwise be deemed an agent of the Fund.
2. The Fund assumes and shall pay all the expenses required for the conduct of
its business including, but not limited to, salaries of administrative and
clerical personnel, brokerage commissions, taxes, insurance, fees of the
transfer agent, custodian, legal counsel and auditors, association fees, costs
of FILING, printing and mailing proxies, reports and notices to shareholders,
preparing, filing and printing the prospectus and statement of additional
information, payment of dividends, costs of stock certificates, costs of
shareholders meetings, fees of the independent directors, necessary office space
rental, all expenses relating to the registration or qualification of shares of
the Fund under applicable Blue Sky laws and reasonable fees and expenses of
counsel in connection with such registration and qualification and such
non-recurring expenses as may arise, including, without limitation, 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.
3. The Investment Manager may, but shall not be obligated to, pay or provide for
the payment of expenses which are primarily intended to result in the sale of
the Fund's shares or the servicing and maintenance of shareholder accounts,
including, without limitation, payments for: advertising, direct mail and
promotional expenses; compensation to and expenses, including overhead and
telephone and other communication expenses, of the Investment Manager and its
affiliates, 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
Investment Manager and its affiliates and allocated to efforts to distribute
shares of the Fund such as office rent and equipment, employee salaries,
employee bonuses and other overhead expenses. Such payments may be for the
Investment Manager's own account or may be made on behalf of the Fund pursuant
to a written
<PAGE>
agreement relating to any plan of distribution of the Fund pursuant to Rule
12b-I under the Investment Company Act of 1940, as from time to time amended
(the "1940 Act").
4. 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 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.
5. The services of the Investment Manager are not to be deemed exclusive, and
the Investment Manager shall be free to render similar services to others in
addition to the Fund so long as its services hereunder are not impaired thereby.
6. The Investment Manager shall create and maintain all necessary books and
records in accordance with all applicable laws, rules and regulations, including
but not limited to records required by Section 31(a) of the 1940 Act and the
rules thereunder, as the same may be amended from time to time, pertaining to
the investment management services performed by it hereunder and not otherwise
created and maintained by another party pursuant to a written contract with the
Fund. Where applicable, such records shall be maintained by the Investment
Manager for the periods and in the places required by Rule 3la-2 under the 1940
Act. The books and records pertaining to the Fund which are in the possession of
the Investment Manager shall be the property of the Fund. The Fund, or the
Fund's authorized representatives, shall have access to such books and records
at all times during the Investment Manager's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by the Investment Manager to the Fund or the Fund's authorized
representatives.
7. As compensation for its services, the Investment Manager will be paid by the
Fund a fee payable monthly and computed at the annual rate of 1% of the first
$10 million of average daily net assets of the Fund, 7/8 of 1 % of such net
assets over $ 10 million up to $30 million, 3/4 of 1% of such net assets over
$30 million up to $150 million, 5/8 of 1% of such net assets over $150 million
up to $500 million, and 1/2 of 1% of such net assets over $500 million. The
aggregate net assets for each day shall be computed by subtracting the
liabilities of the Fund from the value of its assets, such amount to be computed
as of the calculation of the net asset value per share on each business day.
8. The Investment Manager shall direct 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 and sales of
Fund shares and shares of the other Bull & Bear Funds. With respect to brokerage
and research services, the Investment Manager may consider in the selection of
broker/dealers brokerage or research 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. 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
shall seek the best value for the Fund on each trade that circumstances in the
market place permit, including the value inherent in on-going
2
<PAGE>
relationships with quality brokers. To the extent any such brokerage or research
services may be deemed to be additional compensation to the Investment Manager
from the Fund, it is authorized by this Agreement. The Investment Manager may
place Fund brokerage through an affiliate of the Investment Manager, provided
that: THE Fund not deal with such affiliate in any transaction in which such
affiliate acts as principal; the commissions, fees or other remuneration
received by such affiliate 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; and such brokerage be
undertaken in compliance with applicable law. The Investment Manager's fees
under this Agreement shall not be reduced by reason of any commissions, fees or
other remuneration received by such affiliate from the Fund.
9. The Investment Manager shall waive all or part of its fee or reimburse the
Fund monthly if and to the extent the aggregate operating expenses of the Fund
exceed the most restrictive limit imposed by any state in which shares of the
Fund are qualified for sale. In calculating the limit of operating expenses, all
expenses excludable under state regulation or otherwise shall be excluded. If
this Agreement is in effect for less than all of a fiscal year, any such limit
will be applied proportionately.
10. Subject to and in accordance with the Articles of Incorporation and By-laws
of the Fund and of the Investment Manager, it is understood that directors,
officers, agents and shareholders of the Fund are or may be interested in the
Fund as directors, officers, shareholders or otherwise, that the Investment
Manager is or may be interested in the Fund as a shareholder or otherwise and
that the effect and nature of any such interests shall be governed by law and by
the provisions, if any, of said Articles of Incorporation or By-laws.
11. This Agreement shall become effective upon the date hereinabove
written and, unless sooner terminated as provided herein, this Agreement shall
continue in effect for two years from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (a) by 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) by a vote of a majority of the Directors of the Fund who are
not parties to this Agreement, or interested persons of any such party. This
Agreement may be terminated without penalty at any time either by vote of the
Board of Directors of the Fund or by vote of the holders of a majority of the
outstanding voting securities of the Fund on 60 days' written notice to the
Investment Manager, or by the Investment Manager on 60 days' written notice to
the Fund. This Agreement shall immediately terminate in the event of its
assignment.
12. The Investment Manager shall 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 this Agreement relates, but
nothing herein contained 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 this Agreement.
13. As used in this Agreement, the terms "interested person," "assignment," and
"majority of the outstanding voting securities" shall have the meanings provided
therefor in the 1940 Act, and the rules and regulations thereunder.
3
<PAGE>
14. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written. If any provision of this Agreement shall be held or made
invalid by a court or regulatory agency decision, statute, rule or otherwise,
the remainder of THIS Agreement shall not be affected thereby.
15. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York, provided, however, that nothing herein shall be
construed in a manner inconsistent with the 1940 Act or any rule or regulation
promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
BULL & BEAR ADVISERS, INC.
By:
BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:
DISTRIBUTION AGREEMENT
AGREEMENT made as of September 17, 1993, between BULL & BEAR SPECIAL
EQUITIES FUND, INC. ("Corporation") , a corporation organized and existing under
the laws of the State of Maryland, and Bull & Bear Service Center , Inc.
("Distributor") , a corporation organized and existing under the laws of the
State of Delaware.
WHEREAS the Corporation is registered under the Investment Company Act
of 1940, as amended (1940 Act") , as an open-end management investment company
and
WHEREAS the Corporation desires to retain the Distributor as principal
distributor in connection with the offering and sale of the shares of common
stock ("Shares") and
WHEREAS the Distributor is willing to act as principal distributor for
each such Series on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Corporation hereby appoints the Distributor as its exclusive
agent to be the principal distributor to sell and arrange for the sale of the
Shares on the terms and for the period set forth in this Agreement. The
Distributor hereby accepts such appointment and agrees to act hereunder.
2. Services and Duties of the Distributor.
(a) The Distributor agrees to sell the Shares on a best efforts basis from time
to time during the term of this Agreement as agent for the Corporation and upon
the terms described in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
registration statement of the Corporation, and any supplements thereto, under
the Securities Act of 1933, as amended (1933 Act") and the 1940 Act.
<PAGE>
(b) Upon the date of this Agreement, the Distributor will hold itself available
to receive purchase orders, satisfactory to the Distributor for Shares and will
accept such orders on behalf of the Corporation as of the time of receipt of
such orders and promptly transmit such orders as are accepted to the
Corporation's transfer agent. Purchase orders shall be deemed effective at the
time and in the manner set forth in the Registration Statement.
(c) The Distributor in its discretion may enter into agreements to sell Shares
to such registered and qualified retail dealers, as it may select. In making
agreements with such dealers, the Distributor shall act only as principal and
not as agent for the Corporation.
(d) The offering price of the Shares of each Series shall be the net asset value
per Share as next determined by the Corporation following receipt of an order at
the Distributor's principal office. The Corporation shall promptly furnish the
Distributor with a statement of each computation of net asset value.
(e) The Distributor shall not be obligated to sell any certain number of Shares.
(f) The Distributor shall provide ongoing shareholder services, which include
responding to shareholder -inquiries, providing shareholders with information on
their investments in the Corporation and any other services now or hereafter
deemed to be appropriate subjects for the payments of "service fees" under
Section 26(d) of the National Association of Securities Dealers, Inc. ("NASD")
Rules of Fair Practice (collectively, "service activities").
(g) The Distributor shall have the right to use any lists of shareholders of the
Corporation or any other lists of investors that it obtains in connection with
its provision of services under this Agreement; provided, however, that the
Distributor shall not sell or knowingly provide such lists of shareholders to
any unaffiliated person unless reasonable payment is made to the Corporation.
3. Authorization to Enter into Dealer--Agreements and to Delegate Duties as
Distributor. The distributor may enter into a dealer agreement with respect to
sales of the Shares or the provision of service activities with any registered
and qualified dealer. In a separate contract or as part of any such dealer
agreement, the Distributor may also delegate to another registered and qualified
dealer ("sub-distributor") any or all of its duties specified in this Agreement,
provided that such separate contract or dealer agreement imposes on the sub-
2
<PAGE>
distributor bound thereby all applicable duties and conditions to which the
Distributor is subject under this Agreement, and further provided that such
separate contract meets all requirements of the 1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by the Distributor hereunder
are not to be deemed exclusive and the Distributor shall be free to furnish
similar services to others so long as its services under this Agreement are not
impaired thereby. Nothing in this Agreement shall limit or restrict the right of
any director, officer or employee of the Distributor, who may also be a
director, officer or employee of the Corporation, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar or a dissimilar
nature.
5. Compensation for Distribution and Service Activities.
(a) As compensation for its activities under this Agreement with respect to the
distribution of Shares, the Distributor shall receive from the Corporation a fee
at the rate and under the terms and conditions of the Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Plan") adopted by the Corporation ,
as such Plan is amended from time to time, and subject to any further
limitations on such fee as the Board may impose.
(b) As compensation for its service activities under this Agreement the
Distributor shall receive from the Corporation a fee at the rate and under the
terms and conditions of the Plan adopted by the Corporation, as such Plan is
amended from time to time, and subject to any further limitations on such fee as
the Board may impose.
(c) The Distributor may re allow any or all of the fees it is paid to such
dealers as the Distributor may from time to time determine.
6. Duties of the Corporation.
(a) The Corporation reserves the right at any time to withdraw offering Shares
of any or all Series by written notice to the Distributor at its principal
office.
(b) The Corporation shall determine in its sole discretion whether certificates
shall be issued with respect to the Shares. If the Corporation has determined
that certificates shall be issued, the Corporation will not cause certificates
representing Shares to be issued unless so requested by shareholders. If such
request is transmitted by the Distributor, the Corporation will
3
<PAGE>
cause certificates evidencing Shares to be issued in such names and
denominations as the Distributor shall from time to time direct.
(c) The Corporation shall keep the Distributor fully informed of its affairs and
shall make available to the Distributor copies of all information, financial
statements, and other papers that the Distributor may reasonably request for use
in connection with the distribution of Shares, including, without limitation,
certified copies of any financial statements prepared for the Corporation by its
independent public accountant and such reasonable number of copies of the most
current prospectus, statement of additional information, and annual and interim
reports of any Series as the Distributor may request, and the Corporation shall
fully cooperate in the efforts of the Distributor to sell and arrange for the
sale of the Shares and in the performance of the Distributor's duties under this
Agreement.
(d) The Corporation shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register
Shares under the 1933 Act to the end that there will be available for sale such
number of Shares as the Distributor may be expected to sell. The Corporation
agrees to file, from time to time, such amendments, reports, and other documents
as may be necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, nor any omission of a material fact
that would make the statements therein misleading.
(e) The Corporation shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Shares for sale under the securities
laws of such states or other jurisdictions as the Distributor and the
Corporation may approve, and, if necessary or appropriate in connection
therewith, to qualify and maintain the qualification of the Corporation as a
broker or dealer in such jurisdictions; provided that the Corporation shall not
be required to amend its Articles of Incorporation or By-Laws to comply with the
laws of any jurisdiction, to maintain an office in any jurisdiction, to change
the terms of the offering of the Shares in any jurisdiction from the terms set
forth in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Shares. The
Distributor shall furnish such information and other material relating to its
affairs and activities as maybe required by the Corporation in connection with
such qualifications.
7. Expenses of the Corporation. The Corporation shall bear all costs and
expenses of registering the Shares with the Securities and Exchange Commission
and state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements
4
<PAGE>
of its counsel and independent public accountant; (ii) the preparation, filing,
and printing of registration statements and/or prospectuses or statements of
additional information required under the federal securities laws; (iii) the
preparation and mailing of annual and interim reports, prospectuses, statements
of additional information, and proxy materials to shareholders; and (iv) the
qualifications of Shares for sale and of the Corporation as a broker or dealer
under the securities laws of such jurisdictions as shall be selected by the
Corporation and the Distributor pursuant to Paragraph 6 (e) hereof, and the
costs and expenses payable to each such jurisdiction for continuing
qualification therein.
8. Expenses of the Distributor. Distributor shall bear all costs and expenses of
(i) preparing, printing and distributing any materials not prepared by the
Corporation and other materials used by the Distributor in connection with the
sale of Shares under this Agreement, including the additional cost of printing
copies of prospectuses, statements of additional information, and annual and
interim shareholder reports other than copies thereof required for distribution
to existing shareholders or for filing with any Federal or state securities
authorities; (ii) any expenses of advertising incurred by the Distributor in
connection with such offering; (iii) the expenses of registration or
qualification of the Distributor as a broker or dealer under federal or state
laws and the expenses of continuing such registration or qualification; and (iv)
all compensation paid to the Distributor's employees and others for selling
Shares, and all expenses of the Distributor, its employees, and others who
engage in or support the sale of Shares as may be incurred in connection with
their sales efforts.
9. Indemnification.
(a) The Corporation agrees to indemnify, defend, and hold the Distributor, its
officers and directors, and any person who controls the Distributor within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands, or liabilities and any counsel
fees incurred in connection therewith) that the Distributor, its officers,
directors, or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities, or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Corporation for
use in the Registration Statement; provided, however, that this indemnity
agreement shall not inure to the
- 5 -
<PAGE>
benefit of any person who is also an officer or director of the Corporation or
who controls the Corporation within the meaning of Section 15 of the 1933 Act,
unless a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent ' that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect the
Distributor against any liability to the Corporation or to the shareholders of
any Series to which the Distributor would otherwise be subject 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 under this
Agreement. The Corporation shall not be liable to the Distributor under this
Agreement with respect to any claim made against the Distributor or any person
indemnified unless the Distributor or other such person shall have notified the
Corporation in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
claim shall have been served upon the Distributor or such other person (or after
the Distributor or the person shall have received notice of service on any
designated agent). However, failure to notify the Corporation of any claim shall
not relieve the Corporation from any liability that it may have to the
Distributor or any person against whom such action is brought otherwise than on
account of this Agreement. The Corporation shall be entitled to participate at
its own expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any claims subject to this Agreement. If the Corporation
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Corporation and satisfactory to indemnified defendants
in the suit whose approval shall not be unreasonably withheld. In the event that
the Corporation elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Corporation does not elect to assume the
defense of a suit, it will reimburse the indemnified defendants for the
reasonable fees and expenses of any counsel retained by the indemnified
defendants. The Corporation agrees to promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of any of its Shares.
(b) The Distributor shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Corporation in connection with the matters
to which this Agreement relates (including any loss arising out of the receipt
by the Distributor of inadequate consideration in connection with an order to
purchase Shares whether in the form of fraudulent check, draft, or wire; a check
returned for insufficient funds; or any other inadequate consideration
(hereinafter "Check Loss") ) , except a loss resulting from the willful
misfeasance, bad faith, or gross negligence on its part in the performance of
its duties or from
6
<PAGE>
reckless disregard by it of its obligations and duties under this Agreement;
provided, -however, that the Corporation shall not be liable for Check Loss
resulting from willful misfeasance, bad faith, or gross negligence on the part
of the Distributor.
(c) The Distributor agrees to indemnify, defend, and hold the Corporation, its
officers and directors, and any person who controls the Corporation within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities, and expenses (including the cost of
investigating or defending against such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) that the Corporation, its
directors or officers, or any such controlling person may incur under the 1933
Act or under common law or otherwise arising out of or based upon any alleged
untrue statement of a material fact contained in information furnished in
writing by the Distributor to the Corporation for use in the Registration
Statement, arising out of or based upon any alleged omission to state a material
fact in connection with such information required to be stated in the
Registration Statement necessary to make such information not misleading, or
arising out of any agreement between the Distributor and any retail dealer, or
arising out of any supplemental sales literature or advertising used by the
Distributor in connection with its duties under this Agreement. The Distributor
shall be entitled to participate, at its own expense, in the defense or, if it
so elects, to assume the defense of any suit brought to enforce the claim, but
if the Distributor elects to assume the defense, the defense shall be conducted
by counsel chosen by the Distributor and satisfactory to the indemnified
defendants whose approval shall not be unreasonably withheld. In the event that
the Distributor elects to assume the defense of any suit and retain counsel, the
defendants in the suit shall bear the fees and expenses of any additional
counsel retained by them. If the Distributor does not elect to assume the
defense of any suit, it will reimburse the indemnified defendants in the suit
for the reasonable fees and expenses of any counsel retained by them.
10. Services Provided to the Corporation by Employees of the Distributor. Any
person, even though also an officer, director, employee, or agent of the
Distributor who may be or become an officer, director, employee, or agent of the
Corporation, shall be deemed, when rendering services to the Corporation or
acting in any business of the Corporation, to be rendering such services to or
acting for solely the Corporation and not as an officer, director, employee, or
agent or one under the control or direction of the Distributor even though paid
by the Distributor.
11. Duration and Termination.
(a) This Agreement shall become effective upon the date hereabove written,
provided that, with respect to any Series, this
- 7 -
<PAGE>
Agreement shall not take effect unless such action has first been approved by
vote of a majority of the Board and by vote of a majority of those directors of
the Corporation who are not interested persons of the Corporation, and have no
direct or indirect financial interest in the operation of the Plan relating to
the Series or in any agreements related thereto (all such directors collectively
being referred to herein as the "Independent Directors"), cast in person at a
meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Agreement shall continue
in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall automatically continue for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of the Independent Directors, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or by vote of a majority of the outstanding voting securities
of the Corporation.
(c) Notwithstanding the foregoing, this Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Directors, or by vote of a majority of the outstanding voting
securities of the Corporation on sixty days, written notice to the Distributor
or by the Distributor at any time, without the payment of any penalty, on sixty
days' written notice to the Corporation. This Agreement will automatically
terminate in the event of its assignment.
12. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge,
or termination is sought. 13. Governing Law. This Agreement shall be construed
in accordance with the laws of the State of New York and the 1940 Act. To the
extent that the applicable laws of the State of New York conflict with the
applicable provisions of the 1940 Act, the latter shall control.
14. Notice. Any notice required or permitted to be given by either party to the
other shall be deemed sufficient upon receipt in writing at the other party's
principal offices.
<PAGE>
15. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule, or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors. As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested person," and
"assignment" shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first above
written.
ATTEST: BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:
ATTEST: BULL & BEAR SERVICE CENTER, INC.
BY:
BULL & BEAR SPECIAL EQUITIES FUND, INC.
AMENDED PLAN AND AGREEMENT OF DISTRIBUTION
AMENDED PLAN AND AGREEMENT made this 17th day of September, 1993, by
and between BULL & BEAR SPECIAL EQUITIES FUND, INC., a corporation organized
under the laws of the State of Maryland (the "Fund"), and BULL & BEAR SERVICE
CENTER, INC., a corporation organized under the laws of the State of Delaware
(the "Distributor").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, the Fund has entered into a Distribution Agreement with the
Distributor pursuant to which the Distributor has agreed to serve as the
principle distributor for the Fund; and
NOW, THEREFORE, the Fund hereby adopts this amended plan of
distribution (the 'Amended Plan and Agreement") in accordance with Rule 12b-1
under the Act:
1. As Distributor for the Fund, the Distributor agrees to assist the Fund in
selling its shares and to perform distribution and service activities as defined
herein. In rendering services pursuant to this Amended Plan and Agreement and
the Distribution Agreement, 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 broker 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.
2. A. The Fund is authorized to pay to the Distributor, as compensation for the
Distributor's distribution activities as defined in paragraph 14 hereof, a fee
at the rate of 0.75% on an annualized basis of the average daily net assets of
the Fund. Such distribution fee shall be calculated and accrued daily and paid
monthly or at such other intervals as the Board shall determine.
B. The Fund is further authorized to pay to the Distributor, as
compensation for the Distributor's service activities as defined in paragraph 14
hereof, a fee at the rate of 0.25% on an annualized basis of the average daily
net assets of the Fund. Such service fee shall be calculated and accrued daily
and paid monthly or at such other intervals as the Board shall determine.
C. The Fund may pay a distribution or service fee to the Distributor at
a lesser rate than the fees specified in paragraphs 2A and 2B, respectively, of
this Amended Plan and Agreement, in either case as mutually agreed to by the
Fund and the Distributor.
3. This Amended Plan and Agreement shall not take effect until it has been
approved by the vote of a majority of both (i) those directors of the Fund who
are not "interested persons" of the Fund (as defined in the Act) and have no
direct or indirect financial interest in the operation of this Amended Plan and
Agreement or any agreement
1
<PAGE>
related to it (the "Rule 12b-1 Plan Directors"), and (ii) all of the directors
then in office, cast in person at a meeting (or meetings) called for the purpose
of voting on this Amended Plan and Agreement and such related agreements.
4. This Amended Plan and Agreement shall continue in affect for one year from
its execution or adoption and thereafter for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Amended Plan and Agreement in paragraph 3.
5. The Distributor shall provide to the Board and the Board shall review, at
least quarterly, a written report of the amounts expended under this Amended
Plan and Agreement and the purposes for which such expenditures were made. A
reasonable allocation of overhead and other expenses of the Distributor related
to its distribution activities and service activities, including telephone and
other communication expenses, may be included in the information regarding
amounts expended for such activities.
6. This Amended Plan and Agreement may not be amended to increase materially the
amount of fees provided for in paragraphs 2A and 2B hereof unless such amendment
is approved by a vote of a majority of the outstanding voting securities of the
Fund, and no material amendment to this Amended Plan and Agreement shall be made
unless approved by the Board and the Plan Directors in the manner provided for
approval of this Amended Plan and Agreement in paragraph 3.
7. The amount of the distribution and service fees payable by the Fund to the
Distributor under paragraphs 2A and 2B hereof is not related directly to
expenses incurred by the Distributor on behalf of the Fund in serving as
Distributor, and paragraph 2 hereof does not obligate the Fund to reimburse the
Distributor for such expenses. The distribution and service fees set forth in
paragraphs 2A and 2B hereof will be paid by the Fund to the Distributor unless
and until this Amended Plan and Agreement is terminated or not renewed. If this
Amended Plan and Agreement is terminated or not renewed, any expenses incurred
by the Distributor an behalf of the Fund in excess of payments of the fees
specified in paragraphs 2A and 2B hereof which the Distributor has received or
accrued through the termination date are the sole responsibility and liability
of the Distributor, and are not obligations of the Fund.
8. Any other agreements related to this Amended Plan and Agreement shall not
take effect until approved in the manner provided for approval of this Amended
Plan and Agreement in paragraph 3.
9. The Distributor shall use its best efforts in rendering services to the Fund
hereunder, but in the absence of willful misfeasance, bad faith or gross
negligence in the performance of its duties or reckless disregard of its
obligations and duties hereunder, the Distributor shall not be liable to the
Fund or to any shareholder of the Fund f or any act or failure to act by the
Distributor or any affiliated person of the Distributor or f or any loss
sustained by the Fund or its shareholders.
10. Nothing contained in this Amended Plan and Agreement shall prevent the
Distributor or any affiliated person of the Distributor from performing
services similar to those to be performed hereunder for any other person, firm,
corporation or for its or their own accounts or for the accounts of others.
11. This Amended Plan and Agreement may be terminated at any time by vote of a
majority of the Plan Directors, or by vote of a majority of the outstanding
voting securities of the Fund. This Amended Plan and Agreement shall
automatically terminate in the event of its assignment.
12. While this Amended Plan and Agreement is 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.
2
<PAGE>
13. The Fund shall preserve copies of this Amended Plan and Agreement and any
other agreements related to this Amended Plan and Agreement and all reports made
pursuant to paragraph 5 hereof, for a period of not less than six years from the
date of this Amended Plan and Agreement, or the date of any such agreement or of
any such report, as the case may be, the first two years in an easily accessible
place.
14. For purposes of this Amended Plan and Agreement, "distribution activities"
shall mean any activities in connection with the Distributor's performance of
its services under this Amended Plan and Agreement and the Distribution
Agreement that are not deemed "service activities." "Service activities" shall
mean activities covered by the definition of "service fee" contained in Section
26(b) of the National Association of Securities Dealers, Inc.'s Rules of Fair
Practice, as amended.
15. As used in this Amended Plan and Agreement, the terms: "majority of the
outstanding voting securities," "interested person," and "assignment"
shall have the same meaning as those terms have in the Act.
16. This Amended Plan and Agreement shall be construed in accordance with the
laws of the State of New York and the Act. To the extent the applicable law of
the State of New York, or any at the provisions herein, conflict with the
applicable provisions of the Act, the latter shall control.
IN WITNESS WHEREOF, this Amended Plan and Agreement is executed on the
day and year set forth above in the City and State of New York.
BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:
BULL & BEAR SERVICE CENTER, INC.
By:
FORM OF
RETIREMENT PLAN CUSTODIAL SERVICES AGREEMENT
THIS AGREEMENT is made and entered into as of the 26th day of June, 1997, by and
between INVESTOR SERVICE CENTER, INC., a Delaware corporation ("Company"), and
INVESTORS FIDUCIARY TRUST COMPANY, a Missouri trust company ("IFTC").
WHEREAS, Company desires to name a custodial trustee without discretionary trust
powers and/or a custodian (in either or both capacities a "Custodian") for
individual retirement accounts, simplified employee pension plans, 403(b)(7)
custodial accounts, savings incentive match plans for employees of small
employers and defined contribution retirement plans (whether or not "qualified"
under the Internal Revenue Code of 1986, as amended ("Code"), and whether or not
subject to the Employee Retirement Income Security Act of 1974 ("ERISA")) (all
such accounts and plans are herein referred to collectively as "Plans") which
Company sponsors, or may hereafter sponsor, for participants to invest solely in
shares of the registered investment companies for which Company provides
distribution and shareholder services (the "Funds"); and
WHEREAS, IFTC is willing to serve as Custodian with respect to Plans approved by
IFTC, but only on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties agree as follows:
1. IFTC shall serve as Custodian for Plans sponsored by the Company which IFTC
approves as hereinafter provided. Company and IFTC agree to evidence their
agreement for IFTC to act as such with respect to each Plan approved by IFTC by
executing a Retirement Plan Custodial Services Confirmation substantially in the
form attached hereto as Exhibit A ("Confirmation"), and each party agrees to
execute such further documents evidencing such agreement as may be reasonably
requested by either party from time to time. As to each Plan, the "Effective
Date" for purposes hereof shall be the date specified as such in the
Confirmation for such Plan. IFTC certifies that it is qualified to act as
Custodian for the Plans under the requirements of the Code.
2. No Plan shall provide for IFTC to serve as Custodian for any assets
whatsoever other than shares of the Funds. In no event shall any Plan provide
for IFTC (i) to have or exercise any discretionary authority or discretionary
control whatsoever respecting management of the Plan or any authority or control
respecting management or disposition of any assets of the Plan; (ii) to render
or have authority or responsibility to render investment advice with respect to
any moneys or other property of any Plan; or (iii) to have or exercise any
discretionary authority or discretionary responsibility in the administration of
any Plan. No Plan shall provide for IFTC to be, and in no event shall IFTC be
deemed to be, a "fiduciary" as defined in ERISA.
3. IFTC shall serve as Custodian with respect to shares of each Fund only during
such period of time as such Fund maintains its shareholder accounts and records
on the computerized mutual fund recordkeeping system of DST Systems, Inc. (the
"System"). IFTC shall at all times have full access to and use of all accounts
and records relating to accounts on which IFTC is named custodian or trustee and
which are maintained on the System for purposes of performing its duties and
obligations as such custodian or trustee. In addition, IFTC, its auditors and
accountants, and to the extent required by law its regulatory authorities, shall
have full access at all times to all such accounts and records for purposes of
audit, examination, and testing and verifying compliance with the terms of the
Plans and any other applicable governing documents, all applicable requirements
of law and all applicable accounting
<PAGE>
standards. Company hereby irrevocably authorizes and instructs DST Systems, Inc.
to provide such access to IFTC and to permit IFTC to make use of such accounts
and records upon demand. The Company irrevocably acknowledges and agrees that
IFTC may appoint agents and subcontractors with respect to servicing such
accounts. The provisions of this paragraph shall continue after the termination
of System and other services provided by DST Systems, Inc. to the Funds for so
long as such access to and use of such accounts and records may be reasonably
required by IFTC. Further, Company shall deliver to IFTC a Consent and
Authorization from each Fund substantially in the form attached hereto as
Exhibit B. IFTC's agreement to serve as Custodian hereunder shall not be
effective as to any Fund until IFTC has received such Consent and Authorization
executed by such Fund.
4. Company shall submit to IFTC for approval all Plans for which Company wishes
for IFTC to serve as Custodian, including any and all related application forms,
adoption agreements, transfer request forms, disclosure statements, Plan
loan-related documents, beneficiary designation forms and any other Plan-related
documents ("Plan Documents"), and any and all amendments, modifications and
supplements thereto which Company may propose to use from time to time. IFTC
shall not become the Custodian of any Plan unless and until it has approved the
applicable Plan Documents in writing as evidenced by its execution of the
Confirmation referencing the same, and IFTC shall not be deemed to have accepted
and agreed to any subsequent amendment, modification or supplement to any Plan
Document unless and until it has approved the same in writing. IFTC's review and
approval of all Plan Documents and any and all amendments, modifications and
supplements thereto is solely for IFTC's benefit, and Company shall bear full
responsibility for the form and content thereof and compliance with all
applicable laws, rules and regulations, as amended from time to time. Company
shall be responsible for acquiring, at Company's sole expense, Internal Revenue
Service determination letters ("IRS Letters") with respect to all Plans for
which such determination letters are required by the Code and shall promptly
provide IFTC copies thereof.
5. Company shall be solely responsible for all costs and expenses (i) of
preparing, printing and distributing all Plan Documents and amendments,
modifications and supplements thereto, including but not limited to costs and
expenses necessary in order to comply with new or amended laws, rules and
regulations, or (ii) related to or arising from any merger, reorganization,
dissolution, termination or other organizational change involving any Plan, any
Fund or Company.
6. With respect to all existing and future Plans (if any) in existence with
enrolled participants prior to the Effective Date with respect thereto
(including but not limited to Plans associated with any investment companies
hereafter acquired):
i. Company, at its sole expense, shall in a timely manner obtain the removal or
resignation of any prior trustee or custodian, modify and amend Plan Documents
as necessary to name IFTC as Custodian and give all notices, obtain all
approvals and take such other steps as may be required in connection therewith
under the Plan Documents and applicable laws, rules and regulations.
ii. Except as provided in the next paragraph, Company, at its sole expense,
shall cause to be prepared, mailed, distributed and filed all tax reports,
information returns and other documents required by the Code with respect to
Plan accounts ("Returns"), and shall cause to be withheld and paid all taxes
relating to such accounts, with respect to the portion of the calendar year
during which the Effective Date occurs which is prior thereto.
<PAGE>
iii. Provided that IFTC consents to do so in writing, IFTC shall cause to be
prepared, mailed, distributed and filed all Returns for the calendar year in
which the Effective Date occurs; provided, however, that Company shall provide
or cause to be provided to IFTC all necessary information with respect to the
portion of such year prior to the Effective Date. IFTC shall be entitled to rely
on the accuracy and completeness of such information with no duty to investigate
or verify the same, and Company shall indemnify and hold harmless IFTC from and
against, any and all losses, liabilities, claims, demands, actions, suits and
expenses (including reasonable attorneys fees and penalties and other sums
assessed by any federal, state or local governmental agency including the
Internal Revenue Service and the United States Department of Labor ("Government
Authority")) arising out of or resulting from any error, omission, inaccuracy or
other deficiency therein. Company, at its sole expense, shall cause to be
withheld and paid all taxes relating to such accounts with respect to the
portion of the calendar year during which the Effective Date occurs which is
prior thereto.
iv. If and to the extent necessary to permit performance of all duties and
obligations of the Custodian, Company, at its sole expense, shall transfer or
cause to be transferred onto the System to the maximum extent possible, and
shall otherwise deliver or cause to be delivered to the transfer agent or other
agent(s) which will perform shareholder account recordkeeping and servicing
functions with respect to Plan accounts after the Effective Date, all relevant
records previously maintained with respect to the accounts of participants in
such Plans.
v. IFTC shall have no responsibility for, and Company shall, except to the
extent (if any) prohibited by ERISA, indemnify and hold harmless IFTC from and
against, any and all losses, liabilities, claims, demands, actions, suits and
expenses (including reasonable attorneys fees and penalties and other sums
assessed by any Government Authority) arising out of or resulting from (a) any
acts, omissions or errors of any previous trustee or custodian, including but
not limited to its failure to file or mail any Returns, withhold or pay any
taxes, or file any schedules or other required information, (b) any error,
omission, inaccuracy or other deficiency in the Plan participant account records
or other relevant records created and maintained prior to the Effective Date, or
(c) costs and expenses of enforcing Company's obligations and agreements
hereunder.
7. As compensation for its services as Custodian as provided for in this
Agreement, the Company agrees that IFTC shall be paid the fees set forth in
Exhibit C attached hereto, as the same may be amended from time to time by
mutual agreement of the parties.
8. Subject to any longer notice periods required by the Plan Documents, Company
may remove IFTC, and IFTC may resign, as Custodian of any or all the Plans by
providing sixty (60) days written notice to the other party. In the event of
such removal or resignation, Company, at its sole expense, shall in a timely
manner appoint a successor trustee or custodian, modify and amend Plan Documents
as necessary to delete all references to IFTC, and give all notices, obtain all
approvals and take such other steps as may be required in connection therewith
under the Plan Documents and applicable laws, rules and regulations.
9. Except to the extent (if any) prohibited by ERISA, and except to the extent
resulting from the negligence or willful misconduct of IFTC, Company shall
indemnify and hold harmless IFTC from and against any and all losses,
liabilities, claims, demands, actions, suits and expenses whatsoever (including
reasonable attorneys fees, penalties and other sums assessed by any Government
Authority, and all costs and expenses of enforcing Company's
<PAGE>
obligations and agreements hereunder) arising out of, resulting from or in
connection with (i) the Plans and Plan Documents, (ii) the appointment of and
service by IFTC as Custodian therefor, (iii) any acts, omissions or errors of
any successor trustee or custodian (including but not limited to its failure to
file or mail any Returns, reports, schedules or other required documentation, or
withhold or pay any taxes) or of any Plan administrator, co-trustee or other
fiduciary, (iv) any instructions given by or on behalf of the Fund, or any
policies, procedures or practices adopted or followed by any Fund, the Company
or the Funds' transfer or other shareholder servicing agent(s) (other than
IFTC), with respect to shareholder account recordkeeping and servicing which
impacts Plan accounts, or (v) the failure of Company to perform any of its
obligations hereunder.
10. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of the State of
Missouri, without reference to the conflicts of laws principles thereof.
11. All terms and provisions of this Agreement shall be binding upon, inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned by either
party without the prior written consent of the other.
12. The provisions for indemnification extended hereunder are intended to and
shall continue after and survive the expiration, termination or cancellation of
this Agreement. All rights and remedies of each party hereunder shall be
cumulative of all other rights and remedies which may be available to such
party.
13. No provisions of the Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by each party
hereto.
14. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
15. If any provision of this Agreement shall be determined to be invalid or
unenforceable, the remaining provisions of this Agreement shall not be affected
thereby, and every provision of this Agreement shall remain in full force and
effect and shall remain enforceable to the fullest extent permitted by
applicable law.
16. Neither the execution nor performance of this Agreement shall be deemed to
create a partnership or joint venture by and between Company and IFTC.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the day and year first above written by their respective duly authorized
officers.
INVESTORS FIDUCIARY TRUST COMPANY
By:
Name:
Title:
INVESTOR SERVICE CENTER, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
RETIREMENT PLAN CUSTODIAL SERVICES CONFIRMATION
This confirms that INVESTOR SERVICE CENTER, INC. ("Company") has designated, and
hereby designates, INVESTORS FIDUCIARY TRUST COMPANY, a Missouri trust company
with offices at 127 West Tenth Street, Kansas City, Missouri 64105 ("IFTC"), as
custodial trustee without discretionary trust powers and custodian under the
individual retirement account/simplified employee pension/403(b)(7) custodial
account/savings incentive match plans for employees of small employers/defined
contribution retirement plan(s) ("Plans") sponsored by Company, which are
created and governed by Plan documents as presently in effect and as may be
amended from time to time:
Investor Service Center, Inc. IRA Information Kit
Investor Service Center 403(b)(7) Account
Bull & Bear Qualified Retirement Plan (Basic Plan Document 03)
Bull & Bear Qualified Retirement Plan Supplemental Trust/Custody Agreement
IFTC has accepted, and hereby accepts, such appointment and certifies that it is
qualified to act as such custodial trustee without discretionary trust powers
and custodian under the applicable provisions of the Internal Revenue Code of
1986, as amended.
This agreement is made under and subject to the terms of that certain Retirement
Plan Custodial Services Agreement by and between Company and IFTC dated as of
June 26th, 1997 (the "Agreement"), which is hereby incorporated herein by
reference.
The Effective Date of this agreement for purposes of the Agreement shall be June
26, 1997.
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By:
Name:
Title:
INVESTOR SERVICE CENTER, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT B
CONSENT AND AUTHORIZATION
In consideration of Investors Fiduciary Trust Company ("IFTC") serving as
custodian and/or custodial trustee for the Accounts (as hereinafter defined),
the undersigned registered investment company(ies) agree(s) that IFTC shall at
all times have full access to and use of all accounts and records relating to
Accounts which are maintained on the computerized mutual fund shareholder
recordkeeping system of DST Systems, Inc. (the "System") for purposes of
performing its duties and obligations as such custodian and/or custodial
trustee. In addition, IFTC, its auditors and accountants, and to the extent
required by law its regulatory authorities, shall have full access at all times
to all such accounts and records for purposes of audit, examination, and testing
and verifying compliance with all applicable requirements of law, all applicable
accounting standards, and the terms of the retirement plan documents, trust and
custody agreements and other applicable governing documents relating to the
Accounts.
DST Systems, Inc. is hereby authorized and instructed to provide such access
to IFTC and to permit IFTC to make use of such accounts and records upon
demand. The undersigned acknowledge(s) and agree(s) that DST Systems, Inc.
may serve as agent and sub-contractor of IFTC with respect to the Accounts.
The provisions of this Consent and Authorization shall continue after the
termination of System and other services provided by DST Systems, Inc. to the
undersigned for so long as such access to and use of such accounts and records
may be reasonably required by IFTC.
The term "Accounts" shall mean all individual retirement accounts, simplified
employee pension plan accounts, 403(b)(7) custodial accounts, Keogh accounts,
defined contribution retirement plan accounts and other accounts of any type for
which IFTC may from time to time be named as custodian or trustee which contain
shares issued by the undersigned investment company(ies).
This Consent and Authorization is irrevocable in every respect, shall be binding
upon the undersigned and its (their) successors and assigns and shall inure to
the benefit of IFTC and DST Systems, Inc. and their respective successors and
assigns.
BULL & BEAR FUNDS I, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT B
CONSENT AND AUTHORIZATION
In consideration of Investors Fiduciary Trust Company ("IFTC") serving as
custodian and/or custodial trustee for the Accounts (as hereinafter defined),
the undersigned registered investment company(ies) agree(s) that IFTC shall at
all times have full access to and use of all accounts and records relating to
Accounts which are maintained on the computerized mutual fund shareholder
recordkeeping system of DST Systems, Inc. (the "System") for purposes of
performing its duties and obligations as such custodian and/or custodial
trustee. In addition, IFTC, its auditors and accountants, and to the extent
required by law its regulatory authorities, shall have full access at all times
to all such accounts and records for purposes of audit, examination, and testing
and verifying compliance with all applicable requirements of law, all applicable
accounting standards, and the terms of the retirement plan documents, trust and
custody agreements and other applicable governing documents relating to the
Accounts.
DST Systems, Inc. is hereby authorized and instructed to provide such access
to IFTC and to permit IFTC to make use of such accounts and records upon
demand. The undersigned acknowledge(s) and agree(s) that DST Systems, Inc.
may serve as agent and sub-contractor of IFTC with respect to the Accounts.
The provisions of this Consent and Authorization shall continue after the
termination of System and other services provided by DST Systems, Inc. to the
undersigned for so long as such access to and use of such accounts and records
may be reasonably required by IFTC.
The term "Accounts" shall mean all individual retirement accounts, simplified
employee pension plan accounts, 403(b)(7) custodial accounts, Keogh accounts,
defined contribution retirement plan accounts and other accounts of any type for
which IFTC may from time to time be named as custodian or trustee which contain
shares issued by the undersigned investment company(ies).
This Consent and Authorization is irrevocable in every respect, shall be binding
upon the undersigned and its (their) successors and assigns and shall inure to
the benefit of IFTC and DST Systems, Inc. and their respective successors and
assigns.
BULL & BEAR FUNDS II, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT B
CONSENT AND AUTHORIZATION
In consideration of Investors Fiduciary Trust Company ("IFTC") serving as
custodian and/or custodial trustee for the Accounts (as hereinafter defined),
the undersigned registered investment company(ies) agree(s) that IFTC shall at
all times have full access to and use of all accounts and records relating to
Accounts which are maintained on the computerized mutual fund shareholder
recordkeeping system of DST Systems, Inc. (the "System") for purposes of
performing its duties and obligations as such custodian and/or custodial
trustee. In addition, IFTC, its auditors and accountants, and to the extent
required by law its regulatory authorities, shall have full access at all times
to all such accounts and records for purposes of audit, examination, and testing
and verifying compliance with all applicable requirements of law, all applicable
accounting standards, and the terms of the retirement plan documents, trust and
custody agreements and other applicable governing documents relating to the
Accounts.
DST Systems, Inc. is hereby authorized and instructed to provide such access
to IFTC and to permit IFTC to make use of such accounts and records upon
demand. The undersigned acknowledge(s) and agree(s) that DST Systems, Inc.
may serve as agent and sub-contractor of IFTC with respect to the Accounts.
The provisions of this Consent and Authorization shall continue after the
termination of System and other services provided by DST Systems, Inc. to the
undersigned for so long as such access to and use of such accounts and records
may be reasonably required by IFTC.
The term "Accounts" shall mean all individual retirement accounts, simplified
employee pension plan accounts, 403(b)(7) custodial accounts, Keogh accounts,
defined contribution retirement plan accounts and other accounts of any type for
which IFTC may from time to time be named as custodian or trustee which contain
shares issued by the undersigned investment company(ies).
This Consent and Authorization is irrevocable in every respect, shall be binding
upon the undersigned and its (their) successors and assigns and shall inure to
the benefit of IFTC and DST Systems, Inc. and their respective successors and
assigns.
BULL & BEAR GLOBAL INCOME FUND, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT B
CONSENT AND AUTHORIZATION
In consideration of Investors Fiduciary Trust Company ("IFTC") serving as
custodian and/or custodial trustee for the Accounts (as hereinafter defined),
the undersigned registered investment company(ies) agree(s) that IFTC shall at
all times have full access to and use of all accounts and records relating to
Accounts which are maintained on the computerized mutual fund shareholder
recordkeeping system of DST Systems, Inc. (the "System") for purposes of
performing its duties and obligations as such custodian and/or custodial
trustee. In addition, IFTC, its auditors and accountants, and to the extent
required by law its regulatory authorities, shall have full access at all times
to all such accounts and records for purposes of audit, examination, and testing
and verifying compliance with all applicable requirements of law, all applicable
accounting standards, and the terms of the retirement plan documents, trust and
custody agreements and other applicable governing documents relating to the
Accounts.
DST Systems, Inc. is hereby authorized and instructed to provide such access
to IFTC and to permit IFTC to make use of such accounts and records upon
demand. The undersigned acknowledge(s) and agree(s) that DST Systems, Inc.
may serve as agent and sub-contractor of IFTC with respect to the Accounts.
The provisions of this Consent and Authorization shall continue after the
termination of System and other services provided by DST Systems, Inc. to the
undersigned for so long as such access to and use of such accounts and records
may be reasonably required by IFTC.
The term "Accounts" shall mean all individual retirement accounts, simplified
employee pension plan accounts, 403(b)(7) custodial accounts, Keogh accounts,
defined contribution retirement plan accounts and other accounts of any type for
which IFTC may from time to time be named as custodian or trustee which contain
shares issued by the undersigned investment company(ies).
This Consent and Authorization is irrevocable in every respect, shall be binding
upon the undersigned and its (their) successors and assigns and shall inure to
the benefit of IFTC and DST Systems, Inc. and their respective successors and
assigns.
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT B
CONSENT AND AUTHORIZATION
In consideration of Investors Fiduciary Trust Company ("IFTC") serving as
custodian and/or custodial trustee for the Accounts (as hereinafter defined),
the undersigned registered investment company(ies) agree(s) that IFTC shall at
all times have full access to and use of all accounts and records relating to
Accounts which are maintained on the computerized mutual fund shareholder
recordkeeping system of DST Systems, Inc. (the "System") for purposes of
performing its duties and obligations as such custodian and/or custodial
trustee. In addition, IFTC, its auditors and accountants, and to the extent
required by law its regulatory authorities, shall have full access at all times
to all such accounts and records for purposes of audit, examination, and testing
and verifying compliance with all applicable requirements of law, all applicable
accounting standards, and the terms of the retirement plan documents, trust and
custody agreements and other applicable governing documents relating to the
Accounts.
DST Systems, Inc. is hereby authorized and instructed to provide such access
to IFTC and to permit IFTC to make use of such accounts and records upon
demand. The undersigned acknowledge(s) and agree(s) that DST Systems, Inc.
may serve as agent and sub-contractor of IFTC with respect to the Accounts.
The provisions of this Consent and Authorization shall continue after the
termination of System and other services provided by DST Systems, Inc. to the
undersigned for so long as such access to and use of such accounts and records
may be reasonably required by IFTC.
The term "Accounts" shall mean all individual retirement accounts, simplified
employee pension plan accounts, 403(b)(7) custodial accounts, Keogh accounts,
defined contribution retirement plan accounts and other accounts of any type for
which IFTC may from time to time be named as custodian or trustee which contain
shares issued by the undersigned investment company(ies).
This Consent and Authorization is irrevocable in every respect, shall be binding
upon the undersigned and its (their) successors and assigns and shall inure to
the benefit of IFTC and DST Systems, Inc. and their respective successors and
assigns.
BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT B
CONSENT AND AUTHORIZATION
In consideration of Investors Fiduciary Trust Company ("IFTC") serving as
custodian and/or custodial trustee for the Accounts (as hereinafter defined),
the undersigned registered investment company(ies) agree(s) that IFTC shall at
all times have full access to and use of all accounts and records relating to
Accounts which are maintained on the computerized mutual fund shareholder
recordkeeping system of DST Systems, Inc. (the "System") for purposes of
performing its duties and obligations as such custodian and/or custodial
trustee. In addition, IFTC, its auditors and accountants, and to the extent
required by law its regulatory authorities, shall have full access at all times
to all such accounts and records for purposes of audit, examination, and testing
and verifying compliance with all applicable requirements of law, all applicable
accounting standards, and the terms of the retirement plan documents, trust and
custody agreements and other applicable governing documents relating to the
Accounts.
DST Systems, Inc. is hereby authorized and instructed to provide such access
to IFTC and to permit IFTC to make use of such accounts and records upon
demand. The undersigned acknowledge(s) and agree(s) that DST Systems, Inc.
may serve as agent and sub-contractor of IFTC with respect to the Accounts.
The provisions of this Consent and Authorization shall continue after the
termination of System and other services provided by DST Systems, Inc. to the
undersigned for so long as such access to and use of such accounts and records
may be reasonably required by IFTC.
The term "Accounts" shall mean all individual retirement accounts, simplified
employee pension plan accounts, 403(b)(7) custodial accounts, Keogh accounts,
defined contribution retirement plan accounts and other accounts of any type for
which IFTC may from time to time be named as custodian or trustee which contain
shares issued by the undersigned investment company(ies).
This Consent and Authorization is irrevocable in every respect, shall be binding
upon the undersigned and its (their) successors and assigns and shall inure to
the benefit of IFTC and DST Systems, Inc. and their respective successors and
assigns.
BULL & BEAR GOLD INVESTORS LTD.
By:
Name:
Title:
<PAGE>
EXHIBIT B
CONSENT AND AUTHORIZATION
In consideration of Investors Fiduciary Trust Company ("IFTC") serving as
custodian and/or custodial trustee for the Accounts (as hereinafter defined),
the undersigned registered investment company(ies) agree(s) that IFTC shall at
all times have full access to and use of all accounts and records relating to
Accounts which are maintained on the computerized mutual fund shareholder
recordkeeping system of DST Systems, Inc. (the "System") for purposes of
performing its duties and obligations as such custodian and/or custodial
trustee. In addition, IFTC, its auditors and accountants, and to the extent
required by law its regulatory authorities, shall have full access at all times
to all such accounts and records for purposes of audit, examination, and testing
and verifying compliance with all applicable requirements of law, all applicable
accounting standards, and the terms of the retirement plan documents, trust and
custody agreements and other applicable governing documents relating to the
Accounts.
DST Systems, Inc. is hereby authorized and instructed to provide such access
to IFTC and to permit IFTC to make use of such accounts and records upon
demand. The undersigned acknowledge(s) and agree(s) that DST Systems, Inc.
may serve as agent and sub-contractor of IFTC with respect to the Accounts.
The provisions of this Consent and Authorization shall continue after the
termination of System and other services provided by DST Systems, Inc. to the
undersigned for so long as such access to and use of such accounts and records
may be reasonably required by IFTC.
The term "Accounts" shall mean all individual retirement accounts, simplified
employee pension plan accounts, 403(b)(7) custodial accounts, Keogh accounts,
defined contribution retirement plan accounts and other accounts of any type for
which IFTC may from time to time be named as custodian or trustee which contain
shares issued by the undersigned investment company(ies).
This Consent and Authorization is irrevocable in every respect, shall be binding
upon the undersigned and its (their) successors and assigns and shall inure to
the benefit of IFTC and DST Systems, Inc. and their respective successors and
assigns.
BULL & BEAR MUNICIPAL INCOME FUND, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT B
CONSENT AND AUTHORIZATION
In consideration of Investors Fiduciary Trust Company ("IFTC") serving as
custodian and/or custodial trustee for the Accounts (as hereinafter defined),
the undersigned registered investment company(ies) agree(s) that IFTC shall at
all times have full access to and use of all accounts and records relating to
Accounts which are maintained on the computerized mutual fund shareholder
recordkeeping system of DST Systems, Inc. (the "System") for purposes of
performing its duties and obligations as such custodian and/or custodial
trustee. In addition, IFTC, its auditors and accountants, and to the extent
required by law its regulatory authorities, shall have full access at all times
to all such accounts and records for purposes of audit, examination, and testing
and verifying compliance with all applicable requirements of law, all applicable
accounting standards, and the terms of the retirement plan documents, trust and
custody agreements and other applicable governing documents relating to the
Accounts.
DST Systems, Inc. is hereby authorized and instructed to provide such access
to IFTC and to permit IFTC to make use of such accounts and records upon
demand. The undersigned acknowledge(s) and agree(s) that DST Systems, Inc.
may serve as agent and sub-contractor of IFTC with respect to the Accounts.
The provisions of this Consent and Authorization shall continue after the
termination of System and other services provided by DST Systems, Inc. to the
undersigned for so long as such access to and use of such accounts and records
may be reasonably required by IFTC.
The term "Accounts" shall mean all individual retirement accounts, simplified
employee pension plan accounts, 403(b)(7) custodial accounts, Keogh accounts,
defined contribution retirement plan accounts and other accounts of any type for
which IFTC may from time to time be named as custodian or trustee which contain
shares issued by the undersigned investment company(ies).
This Consent and Authorization is irrevocable in every respect, shall be binding
upon the undersigned and its (their) successors and assigns and shall inure to
the benefit of IFTC and DST Systems, Inc. and their respective successors and
assigns.
MIDAS FUND, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT B
CONSENT AND AUTHORIZATION
In consideration of Investors Fiduciary Trust Company ("IFTC") serving as
custodian and/or custodial trustee for the Accounts (as hereinafter defined),
the undersigned registered investment company(ies) agree(s) that IFTC shall at
all times have full access to and use of all accounts and records relating to
Accounts which are maintained on the computerized mutual fund shareholder
recordkeeping system of DST Systems, Inc. (the "System") for purposes of
performing its duties and obligations as such custodian and/or custodial
trustee. In addition, IFTC, its auditors and accountants, and to the extent
required by law its regulatory authorities, shall have full access at all times
to all such accounts and records for purposes of audit, examination, and testing
and verifying compliance with all applicable requirements of law, all applicable
accounting standards, and the terms of the retirement plan documents, trust and
custody agreements and other applicable governing documents relating to the
Accounts.
DST Systems, Inc. is hereby authorized and instructed to provide such access
to IFTC and to permit IFTC to make use of such accounts and records upon
demand. The undersigned acknowledge(s) and agree(s) that DST Systems, Inc.
may serve as agent and sub-contractor of IFTC with respect to the Accounts.
The provisions of this Consent and Authorization shall continue after the
termination of System and other services provided by DST Systems, Inc. to the
undersigned for so long as such access to and use of such accounts and records
may be reasonably required by IFTC.
The term "Accounts" shall mean all individual retirement accounts, simplified
employee pension plan accounts, 403(b)(7) custodial accounts, Keogh accounts,
defined contribution retirement plan accounts and other accounts of any type for
which IFTC may from time to time be named as custodian or trustee which contain
shares issued by the undersigned investment company(ies).
This Consent and Authorization is irrevocable in every respect, shall be binding
upon the undersigned and its (their) successors and assigns and shall inure to
the benefit of IFTC and DST Systems, Inc. and their respective successors and
assigns.
ROCKWOOD FUND, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT C
ANNUAL FEE SCHEDULE
IRAs (including SEP-IRAs): $1.00 per IRA Plan
403(b)(7) Accounts: $1.00 per 403(b) Plan
Employer Defined Contribution Retirement Plans: $10.00 per Participant in the
Employer Plan
TRANSFER AGENCY AGREEMENT
This Agreement made as of the 30th of August 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 Directors of the Fund.
3. "Certificate" shall mean any notice, instruction, or other instrument in
writing, authorized or required by this
1
<PAGE>
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 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,
station and other similar items, telephone and telegraph
2
<PAGE>
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 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 successors or assign(s).
ARTICLE II
3
<PAGE>
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 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
4
<PAGE>
of Shares in the f orm approved by the Board of Directors of the Fund (and in a
f ormat compatible with the Transf er Agent t a 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 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 ef f ective or, if exempt, the specific grounds therefor.)
ARTICLE III
AUTHORIZATION AND ISSUANCe OF SHARES
1. The Fund shall deliver to the Transfer Agent the f ollowing documents on or
bef ore the ef f ective 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
5
<PAGE>
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 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 Registration Statement has become effective, or, if
exempt, the specific grounds therefor).
ARTICLB IV
6
<PAGE>
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 (ie., if
subject to registration, that the Shares have been registered and that the
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 f orm 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
7
<PAGE>
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 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
8
<PAGE>
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 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 twentyfour 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
9
<PAGE>
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 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.
10
<PAGE>
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
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 f or 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 i(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 l(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 Agreement the
Transfer Agent shall not be responsible for the
11
<PAGE>
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.
ll.(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 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
12
<PAGE>
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 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,
13
<PAGE>
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
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
14
<PAGE>
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.
(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
15
<PAGE>
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 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
16
<PAGE>
negligence, in accordance with a Certificate or resolution 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 to shareholders, except and only to the extent, required by
applicable law.
ARTICLE VII
17
<PAGE>
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 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.
18
<PAGE>
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 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
19
<PAGE>
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 f rom the Fund or such
person. It shall also be protected in processing Share certificates which bear
the proper 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 f or 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 3la-2 and 3la-3 under
the Investment Company Act of 1940, as amended. The Transfer Agent acknowledges
that such records are the property of the Fund. The
20
<PAGE>
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 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
21
<PAGE>
agreement.
6 (a) The Fund shall indemnify and exonerate, save and hold harmless the
Transfer Agent 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 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
transf er 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 may be
asserted against the Transfer Agent by any person by reason
22
<PAGE>
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 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
23
<PAGE>
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 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.
24
<PAGE>
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 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
25
<PAGE>
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 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
certif icate 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
26
<PAGE>
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 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
27
<PAGE>
any stock dividend; or
(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 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
28
<PAGE>
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 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)
29
<PAGE>
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.
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
30
<PAGE>
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 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, NO, 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
31
<PAGE>
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 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
32
<PAGE>
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 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, the contracts of insurance shall take precedence, and no provision
33
<PAGE>
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,
34
<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)
35
SUPERVISED SERVICE COMPANY INC.
Boston Chicago Kansas City
April 4, 1995
VIA AIRBORNE EXPRESS
Bull & Bear Special Equities Funds, 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 FUNDS, 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: By:
Robert W. Ciarlelli 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
Title
Date
SHAREHOLDER SERVICES AGREEMENT
AGREEMENT made as of June 11, 1992 between Bull Bear Special Equities
Fund, Inc., a Maryland corporation ("Fund"), and Bull Bear Service Center, Inc.
("BBSC), a Delaware corporation.
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (1940 Act"); and
WHEREAS, the Fund desires to retain BBSC to provide certain shareholder
services for the Fund
WHEREAS, as a convenience to the Fund and its shareholders BBSC is
willing to furnish such services at cost and without a view to profit thereby;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints BBSC as agent to perform the services
for the period and on the terms set forth in this Agreement. BBSC accepts such
appointment and agrees to furnish the services herein set forth, in return for
the reimbursement specified in paragraph 3 of this Agreement. BBSC agrees to
comply with all relevant provisions of the 1940 Act and the Securities Exchange
Act of 1934, as amended (1934 Act"), and applicable rules and regulations
thereunder in performing such services.
2. Services and Duties of BBSC. BBSC shall be responsible for the following
services relating to shareholders of the Fund ("Shareholders") : (a) assisting
the transfer agent in receiving and responding to written and telephone
Shareholder inquiries concerning their accounts; (b) processing Shareholder
telephone requests for transfers, purchases, redemptions, changes of address and
similar matters; (c) assisting as necessary in proxy solicitation; (d) providing
a service center for coordinating, researching and answering general inquiries,
as well as those required by legal process, regarding Shareholder account data;
and (e) administering and correcting Fund records as authorized by the Board of
Directors of the Fund.
3. Reimbursement. For the performance of its obligations hereunder, the Fund
will reimburse BBSC the actual costs incurred with respect thereto, including,
without limitation, the following costs and all other expenses related to the
performance of BBSC's obligations hereunder:
- 1 -
<PAGE>
(a) benefits, payroll taxes, and search costs of BBSC personnel;
(b) telephone; (c) rent; (d) equipment, including telephone PBX,
answering machine, call distributor, conversation recording machine and
maintenance thereon; (e) blue sky registration and filing for BBSC and its
registered representatives; (f) travel and meals; (g) mail, postage, and
overnight delivery services; (h) allocated E&O and fidelity bond insurance;
(i) publications, memberships, and subscriptions; (j) office supplies; (k)
printing; (1) Shareholder service related training courses; and (m) corporate
audit and franchise taxes. Such costs and expenses shall be allocated among
the Fund and the other Bull & Bear Funds based on the relative number of open
Shareholder accounts and other factors deemed appropriate by the Board of
Directors of the Fund.
4. Cooperation with Accountants. BBSC shall cooperate with the Fund's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the necessary
information is made available to such accountants for the expression of their
unqualified opinion, including but not limited to the opinion included in the
Fund's semi-annual reports on Form N-SAR.
5. Equipment Failures. In the event of failures beyond BBSC's control, BBSC
shall take reasonable steps to minimize service interruptions but shall have no
liability with respect thereto.
6. Responsibility of BBSC. BBSC shall be under no duty to take any action on
behalf of the Fund except as specifically set forth herein or as may be
specifically agreed to by BBSC in writing. In the performance of its duties
hereunder, BBSC shall be obligated to exercise care and diligence, but shall not
be liable for any act or omission which does not constitute willful misfeasance,
bad faith or gross negligence on the part of BBSC or reckless disregard by BBSC
of its duties under this Agreement. Without limiting the generality of the
foregoing or of any other provision of this Agreement, in connection with its
duties under this Agreement, BBSC shall not be liable for delays or errors
occurring by reason of circumstances beyond BBSC's control, including acts of
civil or military authorities, national emergencies, labor difficulties, fire,
mechanical breakdown, flood or catastrophe, acts of God, insurrection, war,
riots or failure of the mails, transportation, communication or power supply.
7. Indemnification. The Fund agrees to indemnify and hold harmless BBSC and
its agents from all taxes, charges, expenses, assessments, claims and
liabilities including (without limitation) liabilities arising under the
Securities Act of 1933, as amended, the 1934 Act and any state and foreign
securities and blue sky laws and regulations, all as or to be amended from time
2
<PAGE>
to time, and expenses, including (without limitation) attorneys' fees and
disbursements arising directly or indirectly from any action or matter which
BBSC takes or does or omits to take or do.
8. Duration and Termination. This Agreement shall continue until terminated by
the Fund or by BBSC.
9. Amendments. This Agreement or any part thereof may be changed or waived only
by an instrument in writing signed by the party against which enforcement of
such change or waiver is sought.
10. Miscellaneous. This Agreement embodies the entire contract and understanding
between the parties hereto. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions thereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding and shall inure to the benefit
of the parties hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first above written.
ATTEST: BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:
Fredda E. Ackerman Mark C. Winmill
Secretary Co-President
ATTEST: BULL & BEAR SERVICE CENTER, INC.
By:
Fredda E. Ackerman Thomas B. Winmill
Secretary Co-President
3 -
FORM OF AGREEMENT
July 1, 1997
William J. Maynard, Vice President
The Bull & Bear Funds
11 Hanover Square
New York, New York 10005
Dear Mr. Maynard:
This is to advise you that, based on the information you have furnished to us
and our discussions to date, State Street Bank and Trust Company (the "Bank")
has established a $15 million uncommitted, unsecured line of credit (the
"Uncommitted Line of Credit") for the funds (or to the extent a series thereof
is the borrower, such series) listed in Appendix I (collectively the "Borrowers"
and each, a "Borrower"), effective July 1, 1997 (the "Effective Date"). When the
Borrower is a series of a fund listed in Appendix I, the term "Borrower" shall
refer only to such series.
Our willingness to provide the proposed financing is contingent upon and subject
to the terms and conditions in this letter (the "Agreement"). This facility
carries no legal obligation on the part of the Bank to lend any amount of money
to any Borrower at any point in time, and the Borrowers will not be paying a
commitment fee for this facility.
The proceeds of advances made under the Uncommitted Line of Credit (a "Loan" and
collectively, the "Loans") may be used as follows:
1. To temporarily finance the purchase or sale of securities for prompt
delivery, if the Loan is to be repaid promptly in the ordinary course of
business upon completion of the purchase or sale transaction;
2. To finance the redemption of a Borrower's shares; or
3. To enable the Borrower to meet emergency expenses not reasonably
foreseeable on the Effective Date of this Agreement, but only if the
Borrower submits a written statement executed by a duly authorized officer
of the Borrower to the effect that the advance is necessitated by a change
in circumstances involving extreme hardship, not reasonably foreseeable on
the Effective Date of this Agreement.
In any event, a Loan must be repaid in full within 60 days from the date of an
advance.
<PAGE>
The following are attached as exhibits:
1. A Loan request in the form attached hereto as Exhibit I (the "Loan
Advance/Paydown Request Form") stating the principal amount of the requested
Loan and warranting, at the time of borrowing, (i) compliance by such
Borrower with the Investment Company Act of 1940, as amended (the "1940
Act") and the Prospectus and Statement of Additional Information of the
Borrower, and (ii) use of the Loan in accordance with this Agreement;
2. A Promissory Note in the form attached hereto as Exhibit II;
3. An Officer's Certificate in the form attached hereto as Exhibit III;
4. An opinion of counsel to the Borrowers in a form satisfactory to the
Bank, attached hereto as Exhibit IV; and
5. An Instruction and Confirmation Certificate in the form attached hereto as
Exhibit V addressed to Investors Fiduciary Trust Company ("IFTC") in its
capacity as custodian.
At the time the Agreement is executed, the Bank shall have received an executed
Promissory Note, an executed Officer's Certificate, an opinion of counsel in a
form satisfactory to the Bank, and an executed Instruction and Confirmation
Certificate.
All Loans made under the Uncommitted Line of Credit will be evidenced by a
Promissory Note in the form attached hereto as Exhibit II. The outstanding
amount of the Loan(s) set forth on the Bank's books and records shall be
conclusive evidence of the principal amount thereof owing and unpaid to the
Bank, absent manifest error. The failure to record, or any error in so
recording, any such amount on the Bank's books and records, or any other record
maintained by the Bank, shall not limit or otherwise affect the obligation of
each Borrower hereunder or under the Promissory Note to make payments of
principal of and interest on the Promissory Note when due.
At the time each Loan is made, a Borrower and the Bank shall agree as to the
principal amount of each Loan, the interest rate applicable to each Loan prior
to maturity, and the term thereof, provided that no Loan shall have a maturity
date more than 60 days from the date such Loan is made. Loans made under the
Uncommitted Line of Credit will be available at the Overnight Federal Funds rate
as in effect from time to time, plus a spread to be determined at the time of
borrowing. Interest on the unpaid principal amount of each Loan shall be payable
at Maturity on the same day as the principal amount of such Loan is paid or, if
the Loan is paid prior to Maturity, on the 15th business day of the following
month at the rate determined at the time of borrowing. Interest shall be
calculated on the basis of actual days elapsed for a 360-day year. Requests for
advances or decreases under the Uncommitted Line of Credit will be made on the
Loan Advance/Paydown Request Form, attached as Exhibit I to this Agreement and
delivered to the Bank at the time of the request. At the time each Loan is made,
the Bank shall mail to the applicable Borrower a written confirmation of the
amount of such Loan and the interest rate initially applicable thereto.
The Bank will honor requests for Loans under the Uncommitted Line of Credit for
a 364-day period commencing on the Effective Date.
<PAGE>
Temporary or emergency borrowings in the aggregate will be limited to an amount
not greater than 20% of the value of the applicable Borrower's total net assets
(the "Leverage Covenant"), at the time the borrowing is made, or a lesser amount
to the extent provided in the Borrower's Prospectus and Statement of Additional
Information or the 1940 Act registration statement, as the case may be. The
Leverage Covenant is calculated as follows: ((total assets less total
liabilities) plus aggregate bank borrowings)/aggregate bank borrowings.
If at any time a Borrower is in violation of the Leverage Covenant, that
Borrower is required within three (3) business days to repay Loans in an amount
sufficient to achieve compliance with the Leverage Covenant.
Each Borrower hereby promises to pay the principal and interest of each Loan
made to it and related fees on the day when due to the Bank at its address
stated above. Each Borrower hereby authorizes the Bank, if and to the extent a
payment is owed by that Borrower, to charge against the Borrower's deposit
account with the Bank any amount so due on the 15th business day of the
following month.
Each Borrower agrees that it shall not borrow from any other bank, issue
preferred stock or create, incur or assume or suffer to exist any lien
(statutory or otherwise), security interest, priority, conditional sale, pledge,
charge or other encumbrance or similar rights of others or any agreement to give
any of the foregoing liens, upon or with respect to any of its properties, owned
or acquired during such period, except as a result of its investment activities
as described in its then current Prospectus and Statement of Additional
Information or Registration Statement under the 1940 Act, and indebtedness in
favor of the Borrower's custodian consisting of extensions of credit from the
custodian in the ordinary course of business to cover securities trades or liens
in favor of the Borrower's custodian granted pursuant to the custody
agreement(s) in force.
Each Borrower agrees to furnish to the Bank (1) a statement of assets and
liabilities as of the end of each semi-annual period; (2) audited annual
statements; (3) the portfolio of investments as of the end of each semi-annual
period; and (4) proxy materials, reports to the shareholders and such other
information as the Bank shall reasonably request from time to time. Such audited
annual statements and semi-annual statements shall present fairly in all
material respects the financial position of the Borrower and conform with
generally accepted accounting principles.
Each Borrower agrees that it will not change its investment objective or
fundamental investment policies, as set forth in the Borrower's most recent
Statement of Additional Information or most recent Prospectus, without the
consent of the Bank. Each Borrower agrees that it will be a default hereunder if
the investment adviser set forth opposite the Borrower's name on Appendix I
ceases to be its investment adviser, or the Borrower changes its Custodian
without the consent of the Bank, which consent will not be unreasonably
withheld.
Notwithstanding any provision to the contrary contained herein, each Loan made
to a Borrower shall be made only with respect to that Borrower and shall be
repaid solely from the assets of that Borrower, or a series of that Borrower as
the case may be, and the Bank shall have no right of recourse or offset, or any
other right whatsoever, against the assets of any other series of the Borrower
or any other Borrower with respect to such Loan or any default in respect
thereof. A default by any Borrower shall not, by itself, constitute a default by
any other Borrower hereunder. A default by a Borrower under the Uncommitted Line
of Credit shall constitute a default by that Borrower and only that Borrower
under the Leveraging Line of Credit. Similarly, a default by a Borrower under
the Leveraging Line of Credit
<PAGE>
shall also constitute a default by that Borrower and only that Borrower under
the Uncommitted Line of Credit.
As an inducement to the Bank to extend the Uncommitted Line of Credit, and at
any time Loans are outstanding to a Borrower or at any time a Loan Request is
made by that Borrower, that Borrower represents and warrants to the Bank as to
itself and not as to any other Borrower that:
1. The Borrower is, or is a series of a corporation, duly organized, validly
existing and in good standing under the laws of the state of its
organization and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as
now conducted;
2. Neither the Bank nor any affiliate of the Bank individually or in the
aggregate owns, controls or holds with the power to vote, 5% or more of the
outstanding shares of the Borrower or any affiliate of the Borrower, and
neither the Borrower nor any affiliate of the Borrower, directly or
indirectly, individually or in the aggregate, owns, controls or holds with
the power to vote, 5% or more of the outstanding voting securities of the
Bank or any affiliate of the Bank known to the Borrower;
3. Neither the Borrower nor any affiliate of the Borrower, directly or
indirectly, individually or in the aggregate, controls or, to the best
knowledge of the Borrower after due inquiry, is controlled by or under
common control of the Bank or any affiliate of the Bank known to the
Borrower. Furthermore, no officer, director, trustee or employee of the
Borrower or any affiliate of the Borrower is an affiliated person of the
Bank or of any affiliate of the Bank known to the Borrower;
4. The Borrower has no subsidiaries;
5. The Borrower is not a member of an ERISA group and has no liability in
respect of any benefit arrangement, plan or multi-employer plan subject to
ERISA;
6. The Borrower qualifies as a "regulated investment company" within the
meaning of the Internal Revenue Code, and as such, because it intends to
timely distribute all its income (including capital gains) to its
shareholders, its income will not be subject to tax at the trust level under
the Internal Revenue Code. The Borrower has filed all United States Federal
income tax returns and all other material tax returns which are required to
be filed by it and has paid all taxes due pursuant to such returns or
pursuant to any assessment received by the Borrower. The charges, accruals
and reserves on the Books of the Borrower in respect of taxes or other
governmental charges are, in the opinion of the Borrower, adequate;
7. All information heretofore furnished by the Borrower to the Bank for
purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all such information hereafter furnished by the
Borrower to the Bank will be, true and accurate in all material respects on
the date as of which such information is stated or certified. The Borrower
has disclosed to the Bank in writing any and all facts which, to the best of
the Borrower's knowledge after due inquiry, materially and adversely affect
or may affect (to the extent the Borrower can now reasonably foresee), the
business, operations or financial condition of the Borrower or the ability
of the Borrower to perform its obligations under this Agreement or the Note;
<PAGE>
8. The execution, delivery and performance of all of the agreements and
instruments in connection with the Uncommitted Line of Credit are within the
Borrower's power and authority and have been authorized by all necessary
proceedings and will not contravene any provision of the Borrower's
organizational documents, by laws, then-current Prospectus and Statement of
Additional Information (or 1940 Act registration statement, as the case may
be) or any agreement or undertaking binding upon the Borrower;
9. There is no litigation, proceeding or investigation pending, or to the
knowledge of the Borrower, threatened against the Borrower, which would have
a material adverse effect on the Borrower's ability to carry out its
obligations hereunder or under the Note;
10. The Borrower has statutory authority to enter into this Agreement and
any loan requests hereunder will not result in an aggregate of all loans
outstanding which exceed the limits permitted under the Borrower's
then-current Prospectus and Statement of Additional Information (or 1940
Act registration statement, as the case may be), the 1940 Act, or any
applicable rule, regulation, statute or Leverage Covenant, as defined
herein;
11. The Borrower is a registered management investment company under the
1940 Act and the shares of common stock of each Borrower have been
registered under the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, and applicable state securities or
so-called "Blue Sky" laws; and
12. The Borrower is in compliance in all material respects with applicable
law, including the 1940 Act and Federal Reserve Regulation U.
Upon the occurrence of any of the following events, a Borrower shall be deemed
to be in default under this Agreement:
1. Failure of a Borrower to make payment when due of any Loan; or available
cash in the deposit account is insufficient to repay any Loan due the Bank
by the Borrower;
2. Breach or failure to perform by the Borrower of any terms or conditions
as set forth in this Agreement, or any obligation of the Borrower to the
Bank;
3. If any representation, statement or warranty made or furnished in any
manner to the Bank by the Borrower in connection with this Agreement or the
Loan was false in any material respect when made or furnished;
4. A material adverse change in the business, assets, financial condition or
prospects for that particular Borrower (but no such adverse change shall be
deemed to have occurred as a result of a decline in net assets resulting
from redemptions by shareholders or investors or as a result of a decline in
the value of the securities held by the Borrower), as reasonably determined
by the Bank, has occurred;
5. A material adverse change, as reasonably determined by the Bank shall
have occurred in the facts or information disclosed to the Bank or otherwise
relied on by the Bank in considering requests hereunder;
<PAGE>
6. If, by reason of any default by the Borrower, any obligation of the
Borrower to any other person or entity for money borrowed or on account of
any bond, note or debenture is accelerated prior to maturity;
7. Upon termination of existence, insolvency, business failure, appointment
of a receiver of any part of the property of the Borrower, assignment for
the benefit of creditors by, the calling of a meeting of creditors, or the
commencement of any voluntary or involuntary proceeding under any bankruptcy
or insolvency laws by or against the Borrower or any co-maker, accommodation
maker, surety, or guarantor of the Borrower, or entry of any final judgment
or order against them for the payment of money in excess of $500,000 shall
be rendered against the Borrower and such judgment or order shall remain
unsatisfied, undischarged, or unstayed for a period of 10 days; or
8. Upon the issuance of or notice of any tax levy, attachment, by trustee
process or otherwise, levy of execution or other process issued against the
Borrower.
Upon the occurrence of any of the events specified in the preceding section
hereof, or at any time thereafter, the Bank may, at its option, terminate this
Agreement and declare any Loans made to such Borrower under the Uncommitted Line
of Credit to be immediately due and payable. The Bank shall thereafter have
available to it all other rights and remedies hereunder, or under any other
agreement or paper executed by the Borrower, or available to the Bank under
applicable law. Furthermore, the Borrower authorizes IFTC in its capacity as
Custodian to the Borrower, in accordance with the Instruction and Confirmation
Certificate affixed hereto as Exhibit V, to dispose of the Borrower's assets as
selected by the Borrower's investment adviser to the extent necessary to repay
all amounts due to the Bank.
Any Borrower may terminate the Uncommitted Line of Credit by giving five (5)
days irrevocable prior written notice to the Bank and repaying in full all
amounts then outstanding to it under the Uncommitted Line of Credit or the Note.
The Bank agrees that prior to assigning to any other lender (but not the Federal
Reserve Bank) any of its rights and obligations under the Uncommitted Line of
Credit or the Note, or granting to any other lender any participation in any of
such rights and obligations, the Bank will obtain the Borrowers' prior written
consent, which consent shall not unreasonably be withheld.
Copies of all notices and confirmations hereunder and under the Note shall be
sent to the Bank at its address above, Attention: Edward A. Siegel, Assistant
Vice President, and to a Borrower at its address on the signature page hereto,
to the attention of the person signing on behalf of that Borrower, or to such
other address or person for notice as the parties shall have last furnished in
writing to the person giving the notice.
Any such notice or demand shall be deemed to have been duly given or made and to
have become effective (i) if delivered by hand, overnight courier or facsimile
to a responsible officer of the party to which it is directed, at the time of
receipt thereof by such officer or the sending of such facsimile and (ii) if
sent by registered or certified first-class mail, postage prepaid, on the third
business day following the mailing thereof.
<PAGE>
This Agreement shall take effect as a sealed instrument and shall be governed by
the laws (other than the conflict of law rules) of the Commonwealth of
Massachusetts. The Agreement and the Note constitute the entire understanding
between the Borrowers and the Bank on this subject and supersede all prior
discussions. If the foregoing satisfactorily sets forth the terms and conditions
of the Uncommitted Line of Credit, please execute and return the enclosed copy
of this Agreement together with the enclosed documents and the opinion of your
outside counsel concerning this transaction.
Sincerely,
STATE STREET BANK AND TRUST COMPANY
By: ____________________________
Name:
Title:
ACCEPTED:
Bull & Bear Funds I, Inc. on behalf of:
Bull & Bear U.S. and Overseas Fund
Bull & Bear Funds II, Inc. on behalf of:
Bull & Bear Dollar Reserves
Rockwood Fund, Inc.
Midas Fund, Inc.
Bull & Bear Gold Investors Ltd.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Global Income Fund, Inc.
By: __________________________
Name:
Title:
Address:
11 Hanover Square
New York, New York 10005
<PAGE>
APPENDIX I
BORROWER Investment Adviser
Bull & Bear Funds I, Inc. on behalf of:
Bull & Bear U.S. and Overseas Fund Bull & Bear Advisers, Inc.
Bull & Bear Funds II, Inc. on behalf of:
Bull & Bear Dollar Reserves Bull & Bear Advisers, Inc.
Rockwood Fund, Inc. Aspen Securities and Advisory, Inc.
Midas Fund, Inc. Midas Management Corporation
Bull & Bear Gold Investors Ltd. Midas Management Corporation
Bull & Bear Special Equities Fund, Inc. Bull & Bear Advisers, Inc.
Bull & Bear U.S. Government Securities Fund, Inc. Bull & Bear Advisers, Inc.
Bull & Bear Municipal Income Fund, Inc. Bull & Bear Advisers, Inc.
Bull & Bear Global Income Fund, Inc. Bull & Bear Advisers, Inc.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT I
LOAN ADVANCE/PAYDOWN
REQUEST FORM
DATE:
----------------------------------------------------------------------
TO: STATE STREET BANK AND TRUST COMPANY
--------------------------------------------------
ATTN: Chuck Reid/Ned Siegel
facsimile: (617) 537-2663
--------------------------------------------------
FROM: [insert borrower]
-------------------------------------------------
ON BEHALF OF: [insert fund name, if a series]
--------------------------------------------------
SUBJECT:
In connection with the Agreement dated July 1, 1997 with State Street Bank and
Trust Company, please increase or reduce the outstanding balance as indicated
below. The Loan should be recorded on the books of the Borrower to the Bank and
interest payable to the Bank should be recorded at the agreed upon rate.
Increase/ Cumulative Balance Outstanding Total Assets
(Decrease)
Date the Loan by
$ $ $
- --------------- ----------- ------------ -----------------
Further, the Borrower hereby represents and warrants that:
Proceeds from the advance shall be limited to conform with the
usage specified in the Agreement, and
The Borrower is in compliance with all the terms and conditions in
the Agreement.
By:
Name:
Title:
Date:
---------------------------------------------------
<PAGE>
EXHIBIT II
PROMISSORY NOTE
$15,000,000 July 1, 1997
Boston, Massachusetts
For value received, each of the undersigned, (each herein called
"Borrower"), severally and not jointly hereby promise(s) to pay to the order of
State Street Bank and Trust Company (herein called "Bank") at the principal
office of Bank at 225 Franklin Street, Boston, Massachusetts 02110, or such
other place as the holder hereof shall designate
$15 MILLION DOLLARS
or, if less, the aggregate principal amount of all loans made by the Bank to the
applicable Borrower pursuant to the Agreement dated July 1, 1997 as such
agreement may be amended, extended or replaced, as evidenced on the books and
records of the Bank, together with interest on each loan at the rate or rates
per annum set forth in the Agreement.
Interest on the unpaid balance of each loan shall be payable monthly in
arrears, at the rate per annum set forth in the Agreement. Interest shall be
calculated on the basis of actual days elapsed and a 360-day year. Overdue
payments of principal (whether at stated maturity, by acceleration or otherwise)
shall bear interest, payable on demand, at a fluctuating interest rate per
annum equal to 2% (two percent), above the Prime Rate in effect from time to
time. "Prime Rate" shall mean the rate of
interest announced by the Bank in Boston, Massachusetts from time to time as its
"Prime Rate".
All loans hereunder and all payments on account of principal and interest
hereof shall be recorded on the books and records of the Bank. The entries on
the books and records of the Bank (including any appearing on this Note) shall
be prima facie evidence of amounts outstanding hereunder, absent manifest error.
The obligations of each Borrower under this Note are several and not joint.
The principal amount of the Uncommitted Line of Credit made for use by a
particular Borrower and interest thereon shall be paid or repaid solely from the
assets of such Borrower (or series thereof, if the borrowing is made on behalf
of a series of the Borrower), and the Bank shall have no right of recourse or
offset, or any other right whatsoever, against the assets of any other series of
the Borrower or any other Borrower. A default by any particular Borrower shall
not, by itself, constitute a default by any other Borrower hereunder.
Each Borrower hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement hereof and consents that this Note may be
extended from time to time and that no extension or other indulgence and no
substitution, release or surrender of collateral shall discharge or otherwise
affect the liability of the Borrower. No delay or omission on the part of the
Bank in exercising any right hereunder shall
operate as a waiver of such right or of any other right hereunder, and a waiver
of any such right on any one occasion shall not be construed as a bar to or
waiver of any such right on any future occasion. "Holder" means the payee or
any endorsee of this Note who is in possession of it.
This Note shall take effect as a sealed instrument and shall be governed by
the laws (other than the conflict of law rules) of The Commonwealth of
Massachusetts.
Bull & Bear Funds I, Inc. on behalf of:
Bull & Bear U.S. and Overseas Fund
Bull & Bear Funds II, Inc. on behalf of:
Bull & Bear Dollar Reserves
Rockwood Fund, Inc.
Midas Fund, Inc.
Bull & Bear Gold Investors Ltd.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Global Income Fund, Inc.
By: _______________________
Name:
Title:
Date:
<PAGE>
EXHIBIT III
OFFICER'S CERTIFICATE
I, _______________________ , do hereby certify that I am the duly elected
Secretary of ____________________________________________ , a Maryland
corporation (the "Corporation"), and that as such officer, I am authorized to
execute and deliver this Certificate on behalf of the Trust. In that capacity I
do hereby further certify as follows:
1. Attached hereto as Exhibit A is full, true and correct copy of the
Certificate of Incorporation of the Corporation, and said Certificate of
Incorporation remains in full force and effect on the date hereof;
---------
2. Attached hereto as Exhibit B is a full, true and correct copy of the By-Laws
of the Corporation, and said By-Laws remain in full force and effect as of the
date hereof;
---------
3. Attached hereto as Exhibit C are true, correct and complete copies of the
votes adopted by the Board of the Corporation on, 199_ , authorizing the
Borrower to borrow from time to time in accordance with the terms described in
this Agreement, which resolutions are in full force and effect and have not been
amended, modified, revoked or rescinded as of the date hereof;
--------
4. Attached hereto as Exhibit D are full, true and correct copies of the current
prospectus and statement of additional information for the Corporation;
5. Attached hereto as Exhibit E and F are full, true and correct copies of the
Annual Report to Shareholders dated, 199_ , and Semi-Annual Report to
Shareholders dated , 199_ , and
--------------------
6. The following are the duly elected, qualified and acting officers of the
Corporation, holding the offices set forth below their respective names, and the
signature of each such officer (where set forth hereon) is such officer's true
and genuine signature:
------------------------------
------------------------------
------------------------------
IN WITNESS WHEREOF, I have hereunto set forth my hand this ____ day of
__________, 199__
Name:___________________________
The undersigned being the _____________________ of the Corporation, DOES HEREBY
CERTIFY THAT _________________________ is duly elected, qualified and acting
Secretary of the Corporation and that the signature set forth above is his/her
true and genuine signature.
IN WITNESS WHEREOF, I have hereunto set forth my hand this _____ day of
__________, 199__.
<PAGE>
EXHIBIT IV
LEGAL OPINION OF COUNSEL
<PAGE>
EXHIBIT V
INSTRUCTION AND CONFIRMATION CERTIFICATE
BORROWER'S LETTERHEAD
July 1, 1997
TO: Investors Fiduciary Trust Company
127 West Tenth Street
Kansas City, MO 64105
RE: 1. Bull & Bear Funds I, Inc. on behalf of:
Bull & Bear U.S. and Overseas Fund
2. Bull & Bear Funds II, Inc. on behalf of:
Bull & Bear Dollar Reserves
3. Rockwood Fund, Inc.
4. Midas Fund, Inc.
5. Bull & Bear Gold Investors Ltd.
6. Bull & Bear Special Equities Fund, Inc.
7. Bull & Bear U.S. Government Securities Fund, Inc.
8. Bull & Bear Municipal Income Fund, Inc.
9. Bull & Bear Global Income Fund, Inc.
Ladies and Gentlemen:
This letter serves as confirmation that the mutual funds listed in Appendix I
(each, a "Borrower") are authorized under the Uncommitted Line of Credit to
borrow in the aggregate up to $15 million from State Street Bank and Trust
Company, as lender (the "Bank").
Pursuant to the terms contained in the Agreement dated July 1, 1997, each Loan
made to a Borrower (or series thereof, as applicable) shall be made only with
respect to a specific Borrower and shall be repaid solely from the assets of
that Borrower (or series thereof, if the Borrower is borrowing on behalf of a
particular series), and the Bank shall have no right of recourse or offset, or
any other right whatsoever, against the assets of any other Borrower with
respect to such Loan or any default in respec thereof.
Investors Fiduciary Trust Company ("IFTC"), in its capacity as custodian of the
Borrower (the "Custodian"), under the Custodian Contract (s) between the
Borrower and IFTC, dated ______________ , 19___ , is hereby authorized and
directed by the Borrower to dispose of the Borrower's assets as selected by the
Borrower's investment advise r to the extent necessary to repay all amounts due
to the Bank to the extent that the Loans have not been paid when due or if a
default occurs as defined in the Agreement dated July 1, 1997.
The Custodian is hereby directed to act on any written instructions you receive
from the Bank with respect to the disposal of the Borrower's assets to
accomplish the foregoing. These instructions may not be amended or terminated
without the prior written consent of the Bank.
IN WITNESS WHEREOF, the undersigned has duly caused these instructions to be
executed on this _____ day of ________, 199__.
Bull & Bear Funds I, Inc. on behalf of:
Bull & Bear U.S. and Overseas Fund
Bull & Bear Funds II, Inc. on behalf of:
Bull & Bear Dollar Reserves
Rockwood Fund, Inc.
Midas Fund, Inc.
Bull & Bear Gold Investors Ltd.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Global Income Fund, Inc.
By: ___________________________
Name:
Title:
IFTC, by signing below, acknowledges receipt of, and hereby agrees to accept
instructions in accordance with the foregoing confirmation.
INVESTORS FIDUCIARY TRUST COMPANY
By: ____________________________
Name:
Title:
<PAGE>
EXECUTION COPY OF PROMISSORY NOTE
<PAGE>
PROMISSORY NOTE
$15,000,000 July 1, 1997
Boston, Massachusetts
For value received, each of the undersigned, (each herein called
"Borrower"), severally and not jointly hereby promise(s) to pay to the order of
State Street Bank and Trust Company (herein called "Bank") at the principal
office of Bank at 225 Franklin Street, Boston, Massachusetts 02110, or such
other place as the holder hereof shall designate
$15 MILLION DOLLARS
or, if less, the aggregate principal amount of all loans made by the Bank to the
applicable Borrower pursuant to the Agreement dated July 1, 1997 as such
agreement may be amended, extended or replaced, as evidenced on the books and
records of the Bank, together with interest on each loan at the rate or rates
per annum set forth in the Agreement.
Interest on the unpaid balance of each loan shall be payable monthly in
arrears, at the rate per annum set forth in the Agreement. Interest shall be
calculated on the basis of actual days elapsed and a 360-day year. Overdue
payments of principal (whether at stated maturity, by acceleration or otherwise)
shall bear interest, payable on demand, at a fluctuating interest rate per
annum equal to 2% (two percent), above the Prime Rate in effect from time to
time. "Prime Rate" shall mean the rate of
interest announced by the Bank in Boston, Massachusetts from time to time as its
"Prime Rate".
All loans hereunder and all payments on account of principal and interest
hereof shall be recorded on the books and records of the Bank. The entries on
the books and records of the Bank (including any appearing on this Note) shall
be prima facie evidence of amounts outstanding hereunder, absent manifest error.
The obligations of each Borrower under this Note are several and not joint.
The principal amount of the Uncommitted Line of Credit made for use by a
particular Borrower and interest thereon shall be paid or repaid solely from the
assets of such Borrower (or series thereof, if the borrowing is made on behalf
of a series of the Borrower), and the Bank shall have no right of recourse or
offset, or any other right whatsoever, against the assets of any other series of
the Borrower or any other Borrower. A default by any particular Borrower shall
not, by itself, constitute a default by any other Borrower hereunder.
Each Borrower hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement hereof and consents that this Note may be
extended from time to time and that no extension or other indulgence and no
substitution, release or surrender of collateral shall discharge or otherwise
affect the liability of the Borrower. No delay or omission on the part of the
Bank in exercising any right hereunder shall
operate as a waiver of such right or of any other right hereunder, and a waiver
of any such right on any one occasion shall not be construed as a bar to or
waiver of any such right on any future occasion. "Holder" means the payee or
any endorsee of this Note who is in possession of it.
This Note shall take effect as a sealed instrument and shall be governed by
the laws (other than the conflict of law rules) of The Commonwealth of
Massachusetts.
Bull & Bear Funds I, Inc. on behalf of:
Bull & Bear U.S. and Overseas Fund
Bull & Bear Funds II, Inc. on behalf of:
Bull & Bear Dollar Reserves
Rockwood Fund, Inc.
Midas Fund, Inc.
Bull & Bear Gold Investors Ltd.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Global Income Fund, Inc.
By: _______________________
Name:
Title:
Date:
<PAGE>
EXECUTION COPY OF OFFICER'S CERTIFICATE
<PAGE>
OFFICER'S CERTIFICATE
I, _______________________ , do hereby certify that I am the duly elected
Secretary of ____________________________________________ , a Maryland
corporation (the "Corporation"), and that as such officer, I am authorized to
execute and deliver this Certificate on behalf of the Trust. In that capacity I
do hereby further certify as follows:
1. Attached hereto as Exhibit A is full, true and correct copy of the
Certificate of Incorporation of the Corporation, and said Certificate of
Incorporation remains in full force and effect on the date hereof;
---------
2. Attached hereto as Exhibit B is a full, true and correct copy of the By-Law
of the Corporation, and said By-Laws remain in full force and effect as of the
date hereof;
---------
3. Attached hereto as Exhibit C are true, correct and complete copies of the
votes adopted by the Board of the Corporation on , 199_ , authorizing the
Borrower to borrow from time to time in accordance with the terms described in
this Agreement, which resolutions are in full force and effect and have not been
amended, modified, revoked or rescinded as of the date hereof;
----------------------
4. Attached hereto as Exhibit D are full, true and correct copies of the current
prospectus and statement of additional information for the Corporation;
5. Attached hereto as Exhibit E and F are full, true and correct copies of the
Annual Report to Shareholders dated, 199_ , and Semi-Annual Report to
Shareholders dated , 199_ , and
--------------
6. The following are the duly elected, qualified and acting officers of the
Corporation, holding the offices set forth below their respective names, and the
signature of each such officer (where set forth hereon) is such officer's true
and genuine signature:
------------------------------
------------------------------
------------------------------
IN WITNESS WHEREOF, I have hereunto set forth my hand this ____ day of
__________, 199__
Name:___________________________
The undersigned being the _____________________ of the Corporation, DOES HEREBY
CERTIFY THAT _________________________ is duly elected, qualified and acting
Secretary of the Corporation and that the signature set forth above is his/her
true and genuine signature.
IN WITNESS WHEREOF, I have hereunto set forth my hand this _____ day of
__________, 199__.
<PAGE>
EXECUTION COPY OF INSTRUCTION AND CONFIRMATION CERTIFICATE
(MUST BE ON BORROWER'S LETTERHEAD)
FORM OF AGREEMENT
July 1, 1997
William J. Maynard, Vice President
The Bull & Bear Funds
11 Hanover Square
New York, New York 10005
Dear Mr. Maynard:
This is to advise you that, based on the information you have furnished to us
and our discussions to date, State Street Bank and Trust Company (the "Bank")
has established a $28 million committed, unsecured leveraging line of credit
(the "Leveraging Line of Credit") for the funds (or to the extent a series
thereof is the borrower, such series) listed in Appendix I (collectively the
"Borrowers" and each, a "Borrower"), effective July 1, 1997 (the "Effective
Date"). When the Borrower is a series of a fund listed in Appendix I, the term
"Borrower" shall refer only to such series.
Our willingness to provide the proposed financing is contingent upon and subject
to the terms and conditions in this letter (the "Agreement").
The proceeds of advances made under the Leveraging Line of Credit (a "Loan" and
collectively, the "Loans") may be used as follows:
1. To enable a Borrower to leverage its portfolio;
2. To temporarily finance the purchase or sale of securities for prompt
delivery, if the Loan is to be repaid promptly in the ordinary course of
business upon completion of the purchase or sale transaction; or
3. To finance the redemption of a Borrower's shares and to meet emergency
expenses not reasonably foreseeable on the Effective Date of this Agreement,
but only if the Borrower submits a written statement executed by a duly
authorized officer of the Borrower to the effect that the advance is
necessitated by a change in circumstances involving extreme hardship, not
reasonably foreseeable on the Effective Date of this Agreement.
The following are attached as exhibits:
1. A Loan request in the form attached hereto as Exhibit I (the "Loan
Advance/Paydown Request Form") stating the principal amount of the requested
Loan and warranting, at the time of borrowing, (i) compliance by such
Borrower with the Investment Company Act of 1940, as amended (the
<PAGE>
"1940 Act") and the Prospectus and Statement of Additional Information of
the Borrower, and (ii) use of the Loan in accordance with this Agreement; 2.
A Promissory Note in the form attached hereto as Exhibit II;
3. An Officer's Certificate in the form attached hereto as Exhibit III;
4. An opinion of counsel to the Borrowers in a form satisfactory to the
Bank, attached hereto as Exhibit IV; and
5. An Instruction and Confirmation Certificate in the form attached hereto
as Exhibit V addressed to Investors Fiduciary Trust Company ("IFTC") in its
capacity as custodian.
At the time the Agreement is executed, the Bank shall have received an executed
Promissory Note, an executed Officer's Certificate, an opinion of counsel in a
form satisfactory to the Bank, and an executed Instruction and Confirmation
Certificate.
All Loans under the Leveraging Line of Credit will be evidenced by a Promissory
Note in the form attached hereto as Exhibit II. The outstanding amount of the
Loan(s) set forth on the Bank's books and records shall be conclusive evidence
of the principal amount thereof owing and unpaid to the Bank, absent manifest
error. The failure to record, or any error in so recording, any such amount on
the Bank's books and records, or any other record maintained by the Bank, shall
not limit or otherwise affect the obligation of each Borrower hereunder or under
the Promissory Note to make payments of principal of and interest on the
Promissory Note when due.
Loans under the Leveraging Line of Credit will be available at a Borrower's
option of (i) Overnight Federal Funds or (ii) LIBOR (30, 60, 90 days) in effect
from time to time, plus 0.75% per annum. At the time each Loan is made, the Bank
shall mail to the applicable Borrower a written confirmation of the amount of
such Loan and the interest rate initially applicable thereto. Interest on the
unpaid principal amount of each Loan shall be payable at Maturity on the same
day as the principal amount of such Loan is paid or, if the Loan is paid prior
to Maturity, on the 15th business day of the following month at the rate
determined at the time of borrowing. Interest shall be calculated on the basis
of actual days elapsed for a 360-day year. Requests for advances or decreases
under the Leveraging Line of Credit will be made on the Loan Advance/Paydown
Request Form, attached as Exhibit I to this Agreement and delivered to the Bank
at the time of the request.
The Bank will honor requests for Loans under the Leveraging Line of Credit for a
364-day period commencing on the Effective Date.
As compensation for holding available this lending commitment, each Borrower
agrees to pay its pro-rata share of a 10 basis points per annum fee (0.10%) on
the unused portion of the commitment. The commitment fee will be calculated on a
360 days basis for actual days elapsed. The fee will be payable quarterly in
arrears with the first payment commencing on October 15, 1997 (for the period
from the Effective Date through the quarter ending September 30, 1997 and every
90 days thereafter during the term of the Leverage Line.
Borrowings in the aggregate will be limited to an amount not greater than 20% of
the value of the applicable Borrower's total net assets (the "Leverage
Covenant"), at the time the borrowing is made, or a lesser amount to the extent
provided in the Borrower's Prospectus and Statement of Additional Information or
the 1940 Act registration statement, as the case may be. The Leverage Covenant
is calculated as follows: ((total assets less total liabilities) plus aggregate
bank borrowings)/aggregate bank borrowings. If at any time a Borrower is in
violation of the Leverage Covenant, that Borrower is
<PAGE>
required within three (3) business days to repay Loans in an amount sufficient
to achieve compliance with the Leverage Covenant.
Each Borrower hereby promises to pay the principal and interest of each Loan
made to it and related fees on the day when due to the Bank at its address
stated above. Each Borrower hereby authorizes the Bank, if and to the extent a
payment is owed by that Borrower, to charge against the Borrower's deposit
account with the Bank any amount so due on the 15th business day of the
following month.
Each Borrower agrees that it shall not borrow from any other bank, issue
preferred stock or create, incur or assume or suffer to exist any lien
(statutory or otherwise), security interest, priority, conditional sale, pledge,
charge or other encumbrance or similar rights of others or any agreement to give
any of the foregoing liens, upon or with respect to any of its properties, owned
or acquired during such period, except as a result of its investment activities
as described in its then current Prospectus and Statement of Additional
Information or Registration Statement under the 1940 Act, and indebtedness in
favor of the Borrower's custodian consisting of extensions of credit from the
custodian in the ordinary course of business to cover securities trades or liens
in favor of the Borrower's custodian granted pursuant to the custody
agreement(s) in force.
Each Borrower agrees to furnish to the Bank (1) a statement of assets and
liabilities as of the end of each semi-annual period; (2) audited annual
statements; (3) the portfolio of investments as of the end of each semi-annual
period; and (4) proxy materials, reports to the shareholders and such other
information as the Bank shall reasonably request from time to time. Such audited
annual statements and semi-annual statements shall present fairly in all
material respects the financial position of the Borrower and conform with
generally accepted accounting principles.
Each Borrower agrees that it will not change its investment objective or
fundamental investment policies, as set forth in the Borrower's most recent
Statement of Additional Information or most recent Prospectus, without the
consent of the Bank. Each Borrower agrees that it will be a default hereunder if
the investment adviser set forth opposite the Borrower's name on Appendix I
ceases to be its investment adviser, or the Borrower changes its Custodian
without the consent of the Bank, which consent will not be unreasonably
withheld.
Notwithstanding any provision to the contrary contained herein, each Loan made
to a Borrower shall be made only with respect to that Borrower and shall be
repaid solely from the assets of that Borrower, or a series of that Borrower as
the case may be, and the Bank shall have no right of recourse or offset, or any
other right whatsoever, against the assets of any other series of the Borrower
or any other Borrower with respect to such Loan or any default in respect
thereof. A default by any Borrower shall not, by itself, constitute a default by
any other Borrower hereunder. A default by a Borrower under the Leveraging Line
of Credit shall constitute a default by that Borrower and only that Borrower
under the Uncommitted Line of Credit. Similarly, a default by a Borrower under
the Uncommitted Line of Credit shall also constitute a default by that Borrower
and only that Borrower under the Leveraging Line of Credit.
As an inducement to the Bank to extend the Leveraging Line of Credit, and at any
time Loans are outstanding to a Borrower or at any time a Loan Request is made
by that Borrower, that Borrower represents and warrants to the Bank as to itself
and not as to any other Borrower that:
1. The Borrower is, or is a series of a corporation, duly organized, validly
existing and in good standing under the laws of the state of its
organization and has all corporate powers and all
<PAGE>
governmental licenses, authorizations, consents and approvals required to
carry on its business as
now conducted;
2. Neither the Bank nor any affiliate of the Bank individually or in the
aggregate owns, controls or holds with the power to vote, 5% or more of the
outstanding shares of the Borrower or any affiliate of the Borrower, and
neither the Borrower nor any affiliate of the Borrower, directly or
indirectly, individually or in the aggregate, owns, controls or holds with
the power to vote, 5% or more of the outstanding voting securities of the
Bank or any affiliate of the Bank known to the Borrower;
3. Neither the Borrower nor any affiliate of the Borrower, directly or
indirectly, individually or in the aggregate, controls or, to the best
knowledge of the Borrower after due inquiry, is controlled by or under
common control of the Bank or any affiliate of the Bank known to the
Borrower. Furthermore, no officer, director, trustee or employee of the
Borrower or any affiliate of the Borrower is an affiliated person of the
Bank or of any affiliate of the Bank known to the Borrower;
4. The Borrower has no subsidiaries;
5. The Borrower is not a member of an ERISA group and has no liability in
respect of any benefit arrangement, plan or multi-employer plan subject to
ERISA;
6. The Borrower qualifies as a "regulated investment company" within the
meaning of the Internal Revenue Code, and as such, because it intends to
timely distribute all its income (including capital gains) to its
shareholders, its income will not be subject to tax at the trust level under
the Internal Revenue Code. The Borrower has filed all United States Federal
income tax returns and all other material tax returns which are required to
be filed by it and has paid all taxes due pursuant to such returns or
pursuant to any assessment received by the Borrower. The charges, accruals
and reserves on the Books of the Borrower in respect of taxes or other
governmental charges are, in the opinion of the Borrower, adequate;
7. All information heretofore furnished by the Borrower to the Bank for
purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all such information hereafter furnished by the
Borrower to the Bank will be, true and accurate in all material respects on
the date as of which such information is stated or certified. The Borrower
has disclosed to the Bank in writing any and all facts which, to the best of
the Borrower's knowledge after due inquiry, materially and adversely affect
or may affect (to the extent the Borrower can now reasonably foresee), the
business, operations or financial condition of the Borrower or the ability
of the Borrower to perform its obligations under this Agreement or the Note;
8. The execution, delivery and performance of all of the agreements and
instruments in connection with the Leveraging Line of Credit are within the
Borrower's power and authority and have been authorized by all necessary
proceedings and will not contravene any provision of the Borrower's
organizational documents, by laws, then-current Prospectus and Statement of
Additional Information (or 1940 Act registration statement, as the case may
be) or any agreement or undertaking binding upon the Borrower;
9. There is no litigation, proceeding or investigation pending, or to the
knowledge of the Borrower, threatened against the Borrower, which would have
a material adverse effect on the Borrower's ability to carry out its
obligations hereunder or under the Note;
<PAGE>
10. The Borrower has statutory authority to enter into this Agreement and
any loan requests hereunder will not result in an aggregate of all loans
outstanding which exceed the limits permitted under the Borrower's
then-current Prospectus and Statement of Additional Information (or 1940
Act registration statement, as the case may be), the 1940 Act, or any
applicable rule, regulation, statute or Leverage Covenant, as defined
herein;
11. The Borrower is a registered management investment company under the
1940 Act and the shares of common stock of each Borrower have been
registered under the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, and applicable state securities or
so-called "Blue Sky" laws; and
12. The Borrower is in compliance in all material respects with applicable
law, including the 1940 Act and Federal Reserve Regulation U.
Upon the occurrence of any of the following events, a Borrower shall be deemed
to be in default under this Agreement:
1. Failure of a Borrower to make payment when due of any Loan; or available
cash in the deposit account is insufficient to repay any Loan due the Bank
by the Borrower;
2. Breach or failure to perform by the Borrower of any terms or conditions
as set forth in this Agreement, or any obligation of the Borrower to the
Bank;
3. If any representation, statement or warranty made or furnished in any
manner to the Bank by the Borrower in connection with this Agreement or the
Loan was false in any material respect when made or furnished;
4. A material adverse change in the business, assets, financial condition or
prospects for that particular Borrower (but no such adverse change shall be
deemed to have occurred as a result of a decline in net assets resulting
from redemptions by shareholders or investors or as a result of a decline in
the value of the securities held by the Borrower), as reasonably determined
by the Bank, has occurred;
5. A material adverse change, as reasonably determined by the Bank shall
have occurred in the facts or information disclosed to the Bank or otherwise
relied on by the Bank in considering requests hereunder;
6. If, by reason of any default by the Borrower, any obligation of the
Borrower to any other person or entity for money borrowed or on account of
any bond, note or debenture is accelerated prior to maturity;
7. Upon termination of existence, insolvency, business failure, appointment
of a receiver of any part of the property of the Borrower, assignment for
the benefit of creditors by, the calling of a meeting of creditors, or the
commencement of any voluntary or involuntary proceeding under any bankruptcy
or insolvency laws by or against the Borrower or any co-maker, accommodation
maker, surety, or guarantor of the Borrower, or entry of any final judgment
or order against them for the payment of money in excess of $500,000 shall
be rendered against the Borrower and such judgment or order shall remain
unsatisfied, undischarged, or unstayed for a period of 10 days; or
<PAGE>
8. Upon the issuance of or notice of any tax levy, attachment, by trustee
process or otherwise, levy of execution or other process issued against the
Borrower.
Upon the occurrence of any of the events specified in the preceding section
hereof, or at any time thereafter, the Bank may, at its option, terminate this
Agreement and declare any Loans made to such Borrower under the Leveraging Line
of Credit to be immediately due and payable. The Bank shall thereafter have
available to it all other rights and remedies hereunder, or under any other
agreement or paper executed by the Borrower, or available to the Bank under
applicable law. Furthermore, the Borrower authorizes IFTC in its capacity as
Custodian to the Borrower, in accordance with the Instruction and Confirmation
Certificate affixed hereto as Exhibit V, to dispose of the Borrower's assets as
selected by the Borrower's investment adviser to the extent necessary to repay
all amounts due to the Bank.
Any Borrower may terminate the Leveraging Line of Credit by giving five (5) days
irrevocable prior written notice to the Bank and repaying in full all amounts
then outstanding to it under the Leveraging Line of Credit or the Note.
The Bank agrees that prior to assigning to any other lender (but not the Federal
Reserve Bank) any of its rights and obligations under the Leveraging Line of
Credit or the Note, or granting to any other lender any participation in any of
such rights and obligations, the Bank will obtain the Borrowers' prior written
consent, which consent shall not unreasonably be withheld.
Copies of all notices and confirmations hereunder and under the Note shall be
sent to the Bank at its address above, Attention: Edward A. Siegel, Assistant
Vice President, and to a Borrower at its address on the signature page hereto,
to the attention of the person signing on behalf of that Borrower, or to such
other address or person for notice as the parties shall have last furnished in
writing to the person giving the notice.
Any such notice or demand shall be deemed to have been duly given or made and to
have become effective (i) if delivered by hand, overnight courier or facsimile
to a responsible officer of the party to which it is directed, at the time of
receipt thereof by such officer or the sending of such facsimile and (ii) if
sent by registered or certified first-class mail, postage prepaid, on the third
business day following the mailing thereof.
<PAGE>
This Agreement shall take effect as a sealed instrument and shall be governed by
the laws (other than the conflict of law rules) of the Commonwealth of
Massachusetts. The Agreement and the Note constitute the entire understanding
between the Borrowers and the Bank on this subject and supersede all prior
discussions. If the foregoing satisfactorily sets forth the terms and conditions
of the Leveraging Line of Credit, please execute and return the enclosed copy of
this Agreement together with the enclosed documents and the opinion of your
outside counsel concerning this transaction.
Sincerely,
STATE STREET BANK AND TRUST COMPANY
By: ____________________________
Name:
Title:
ACCEPTED:
Bull & Bear Gold Investors Ltd.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Global Income Fund, Inc.
Midas Fund, Inc.
By: __________________________
Name:
Title:
Address:
11 Hanover Square
New York, New York 10005
<PAGE>
APPENDIX I
BORROWERS:
BORROWER Investment Adviser
Bull & Bear Gold Investors Ltd. Midas Management Corporation
Bull & Bear Special Equities Fund, Inc. Bull & Bear Advisers, Inc.
Bull & Bear U.S. Government Securities Fund, Inc. Bull & Bear Advisers, Inc.
Bull & Bear Municipal Income Fund, Inc. Bull & Bear Advisers, Inc.
Bull & Bear Global Income Fund, Inc. Bull & Bear Advisers, Inc.
Midas Fund, Inc. Midas Management Corporation
- ---------------------------
<PAGE>
EXHIBIT I
LOAN ADVANCE/PAYDOWN
REQUEST FORM
DATE:
-----------------------------------------------------------------
TO: STATE STREET BANK AND TRUST COMPANY
-------------------------------------------------------------------
ATTN: Chuck Reid/Ned Siegel
facsimile: (617) 537-2663
----------------------------------------
FROM: [insert borrower]
-----------------------------------------
ON BEHALF OF: [insert fund name, if a series]
-----------------------------------------------
SUBJECT:
In connection with the Agreement dated July 1, 1997 with State Street Bank and
Trust Company, please increase or reduce the outstanding balance as indicated
below. The Loan should be recorded on the books of the Borrower to the Bank and
interest payable to the Bank should be recorded at the agreed upon rate.
Increase/ Cumulative Balance Outstanding Total Assets
(Decrease)
Date the Loan by
$ $ $
- ------------- --------- ----------- -------------
Further, the Borrower hereby represents and warrants that:
Proceeds from the advance shall be limited to conform with the
usage specified in the Agreement, and
The Borrower is in compliance with all the terms and conditions in
the Agreement.
By:
Name:
Title:
Date:
---------------------------------------------------
<PAGE>
EXHIBIT II
PROMISSORY NOTE
$28,000,000 July 1, 1997
Boston, Massachusetts
For value received, each of the undersigned, (each herein called
"Borrower"), severally and not jointly hereby promise(s) to pay to the order of
State Street Bank and Trust Company (herein called "Bank") at the principal
office of Bank at 225 Franklin Street, Boston, Massachusetts 02110, or such
other place as the holder hereof shall designate
$28 MILLION DOLLARS
or, if less, the aggregate principal amount of all loans made by the Bank to the
applicable Borrower pursuant to the Agreement dated July 1, 1997 as such
agreement may be amended, extended or replaced, as evidenced on the books and
records of the Bank, together with interest on each loan at the rate or rates
per annum set forth in the Agreement.
Interest on the unpaid balance of each loan shall be payable monthly in
arrears, at the rate per annum set forth in the Agreement. Interest shall be
calculated on the basis of actual days elapsed and a 360-day year. Overdue
payments of principal (whether at stated maturity, by acceleration or otherwise)
shall bear interest, payable on demand, at a fluctuating interest rate per
annum equal to 2% (two percent), above the Prime Rate in effect from time to
time. "Prime Rate" shall mean the rate of
interest announced by the Bank in Boston, Massachusetts from time to time as its
"Prime Rate".
All loans hereunder and all payments on account of principal and interest
hereof shall be recorded on the books and records of the Bank. The entries on
the books and records of the Bank (including any appearing on this Note) shall
be prima facie evidence of amounts outstanding hereunder, absent manifest error.
The obligations of each Borrower under this Note are several and not joint.
The principal amount of the Leveraging Line of Credit made for use by a
particular Borrower and interest thereon shall be paid or repaid solely from the
assets of such Borrower, and the Bank shall have no right of recourse or
offset, or any other right whatsoever, against the assets of any other Borrower.
A default by any particular Borrower shall not, by itself, constitute a
default by any other Borrower hereunder.
Each Borrower hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement hereof and consents that this Note may be
extended from time to time and that no extension or other indulgence and no
substitution, release or surrender of collateral shall discharge or otherwise
affect the liability of the Borrower. No delay or omission on the part of the
Bank in exercising any right hereunder shall
operate as a waiver of such right or of any other right hereunder, and a waiver
of any such right on any one occasion shall not be construed as a bar to or
waiver of any such right on any future occasion. "Holder" means the payee or
any endorsee of this Note who is in possession of it.
This Note shall take effect as a sealed instrument and shall be governed by
the laws (other than the conflict of law rules) of The Commonwealth of
Massachusetts.
Bull & Bear Gold Investors Ltd.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Global Income Fund, Inc.
Midas Fund, Inc.
By: _______________________
Name:
Title:
Date:
<PAGE>
EXHIBIT III
OFFICER'S CERTIFICATE
I, _______________________ , do hereby certify that I am the duly elected
Secretary of ____________________________________________ , a Maryland
corporation (the "Corporation"), and that as such officer, I am authorized to
execute and deliver this Certificate on behalf of the Trust. In that capacity I
do hereby further certify as follows:
1. Attached hereto as Exhibit A is full, true and correct copy of the C
ertificate of Incorporation of the Corporation, and said Certificate of
Incorporation remains in full force and effect on the date hereof;
---------
2. Attached hereto as Exhibit B is a full, true and correct copy of the By-Laws
of the Corporation, and said By-Laws remain in full force and effect as of the
date hereof;
---------
3. Attached hereto as Exhibit C are true, correct and complete copies of the
votes adopted by the Board of the Corporation on, 199_ , authorizing the
Borrower to borrow from time to time in accordance with the terms described in
this Agreement, which resolutions are in full force and effect and have not been
amended, modified, revoked or rescinded as of the date hereof;
-----------------------
4. Attached hereto as Exhibit D are full, true and correct copies of the current
prospectus and statement of additional information for the Corporation;
5. Attached hereto as Exhibit E and F are full, true and correct copies of the
Annual Report to Shareholders dated, 199_ , and Semi-Annual Report to
Shareholders dated, 199_ , and
---------
6. The following are the duly elected, qualified and acting officers of the C
orporation, holding the offices set forth below their respective names, and the
signature of each such officer (where set forth hereon) is such officer's true
and genuine signature:
------------------------------
------------------------------
------------------------------
IN WITNESS WHEREOF, I have hereunto set forth my hand this ____ day of
__________, 199__
Name:___________________________
The undersigned being the _____________________ of the Corporation, DOES HEREBY
CERTIFY THAT _________________________ is duly elected, qualified and acting
Secretary of the Corporation and that the signature set forth above is his/her
true and genuine signature.
IN WITNESS WHEREOF, I have hereunto set forth my hand this _____ day of
__________, 199__.
EXHIBIT IV
LEGAL OPINION OF COUNSEL
<PAGE>
EXHIBIT V
INSTRUCTION AND CONFIRMATION CERTIFICATE
BORROWER'S LETTERHEAD
July 1, 1997
TO: Investors Fiduciary Trust Company
127 West Tenth Street
Kansas City, MO 64105
RE: Bull & Bear Gold Investors Ltd.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Global Income Fund, Inc.
Midas Fund, Inc.
Ladies and Gentlemen:
This letter serves as confirmation that the mutual funds listed in Appendix I
(each, a "Borrower") are authorized under the Leveraging Line of Credit to
borrow in the aggregate up to $28 million from State Street Bank and Trust
Company, as lender (the "Bank").
Pursuant to the terms contained in an Agreement dated July 1, 1997 each Loan
made to the Borrower shall be made only with respect to a specific Borrower and
shall be repaid solely from the assets of that Borrower, and the Bank shall have
no right of recourse or offset, or any other right whatsoever, against the
assets of any other Borrower with respect to such Loan or any default in respect
thereof.
Investors Fiduciary Trust Company ("IFTC"), in its capacity as custodian of the
Borrower (the "Custodian"), under the Custodian Contract (s) between the
Borrower and IFTC, dated __________________________ , 19___ , is hereby
authorized and directed by the Borrower to dispose of the Borrower's assets as
selected by the Borrower's investment adviser to the extent necessary to repay
all amounts due to the Bank to the extent that the Loans have not been paid when
due or if a default occurs as defined in the Agreement dated July 1, 1997.
The Custodian is hereby directed to act on any written instructions you receive
from the Bank with respect to the disposal of the Borrower's assets to
accomplish the foregoing. These instructions may not be amended or terminated
without the prior written consent of the Bank.
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly caused these instructions to be
executed on this _____ day of ________, 19___.
Bull & Bear Gold Investors Ltd.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Global Income Fund, Inc.
Midas Fund, Inc.
By: ___________________________
Name:
Title:
IFTC, by signing below, acknowledges receipt of, and hereby agrees to accept
instructions in accordance with the foregoing confirmation.
INVESTORS FIDUCIARY TRUST COMPANY
By: ____________________________
Name:
Title:
<PAGE>
EXECUTION COPY OF PROMISSORY NOTE
<PAGE>
PROMISSORY NOTE
$28,000,000 July 1, 1997
Boston, Massachusetts
For value received, each of the undersigned, (each herein called
"Borrower"), severally and not jointly hereby promise(s) to pay to the order of
State Street Bank and Trust Company (herein called "Bank") at the principal
office of Bank at 225 Franklin Street, Boston, Massachusetts 02110, or such
other place as the holder hereof shall designate
$28 MILLION DOLLARS
or, if less, the aggregate principal amount of all loans made by the Bank to the
applicable Borrower pursuant to the Agreement dated July 1, 1997, as such
agreement may be amended, extended or replaced, as evidenced on the books and
records of the Bank, together with interest on each loan at the rate or rates
per annum set forth in the Agreement.
Interest on the unpaid balance of each loan shall be payable monthly in
arrears, at the rate per annum set forth in the Agreement. Interest shall be
calculated on the basis of actual days elapsed and a 360-day year. Overdue
payments of principal (whether at stated maturity, by acceleration or otherwise)
shall bear interest, payable on demand, at a fluctuating interest rate per
annum equal to 2% (two percent), above the Prime Rate in effect from time to
time. "Prime Rate" shall mean the rate of
interest announced by the Bank in Boston, Massachusetts from time to time as its
"Prime Rate".
All loans hereunder and all payments on account of principal and interest
hereof shall be recorded on the books and records of the Bank. The entries on
the books and records of the Bank (including any appearing on this Note) shall
be prima facie evidence of amounts outstanding hereunder, absent manifest error.
The obligations of each Borrower under this Note are several and not joint.
The principal amount of the Leveraging Line of Credit made for use by a
particular Borrower and interest thereon shall be paid or repaid solely from the
assets of such Borrower, and the Bank shall have no right of recourse or offset
, or any other right whatsoever, against the assets of any other Borrower.
A default by any particular Borrower shall not, by itself, constitute a default
by any other Borrower hereunder.
Each Borrower hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement hereof and consents that this Note may be
extended from time to time and that no extension or other indulgence and no
substitution, release or surrender of collateral shall discharge or otherwise
affect the liability of the Borrower. No delay or omission on the part of the
Bank in exercising any right hereunder shall
operate as a waiver of such right or of any other right hereunder, and a waiver
of any such right on any one occasion shall not be construed as a bar to or
waiver of any such right on any future occasion. "Holder" means the payee or
any endorsee of this Note who is in possession of it.
This Note shall take effect as a sealed instrument and shall be governed by
the laws (other than the conflict of law rules) of The Commonwealth of
Massachusetts.
Bull & Bear Gold Investors Ltd.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Global Income Fund, Inc.
Midas Fund, Inc.
By: _______________________
Name:
Title:
Date:
<PAGE>
EXECUTION COPY OF OFFICER'S CERTIFICATE
<PAGE>
OFFICER'S CERTIFICATE
I, _______________________ , do hereby certify that I am the duly elected
Secretary of ____________________________________________ , a Maryland
corporation (the "Corporation"), and that as such officer, I am authorized to
execute and deliver this Certificate on behalf of the Trust. In that capacity I
do hereby further certify as follows:
1. Attached hereto as Exhibit A is full, true and correct copy of the
Certificate of Incorporation of the Corporation, and said Certificate of
Incorporation remains in full force and effect on the date hereof;
---------
2. Attached hereto as Exhibit B is a full, true and correct copy of the By-Law
of the Corporation, and said By-Laws remain in full force and effect as of the
date hereof;
---------
3. Attached hereto as Exhibit C are true, correct and complete copies of the
votes adopted by the Board of the Corporation on, 199_ , authorizing the
Borrower to borrow from time to time in accordance with the terms described in
this Agreement, which resolutions are in full force and effect and have not been
amended, modified, revoked or rescinded as of the date hereof;
4. Attached hereto as Exhibit D are full, true and correct copies of the current
prospectus and statement of additional information for the Corporation;
5. Attached hereto as Exhibit E and F are full, true and correct copies of the
Annual Report to Shareholders dated, 199_ , and Semi-Annual Report to
Shareholders dated, 199_ , and
--------------
6. The following are the duly elected, qualified and acting officers of the
Corporation, holding the offices set forth below their respective names, and the
signature of each such officer (where set forth hereon) is such officer's true
and genuine signature:
------------------------------
------------------------------
------------------------------
IN WITNESS WHEREOF, I have hereunto set forth my hand this ____ day of
__________, 199__
Name:___________________________
The undersigned being the _____________________ of the Corporation, DOES HEREBY
CERTIFY THAT _________________________ is duly elected, qualified and acting
Secretary of the Corporation and that the signature set forth above is his/her
true and genuine signature.
IN WITNESS WHEREOF, I have hereunto set forth my hand this _____ day of
__________, 199__.
<PAGE>
EXECUTION COPY OF INSTRUCTION AND CONFIRMATION CERTIFICATE
(MUST BE ON BORROWER'S LETTERHEAD)
<PAGE>
REGULATION U ATTACHMENT
List of Borrowers which may purchase or carry margin stock:
Bull & Bear Gold Investors Ltd.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Global Income Fund, Inc.
Midas Fund, Inc.
SECURITIES LENDING AUTHORIZATION AGREEMENT
Between
THE CLIENTS IDENTIFIED ON SCHEDULE A
and
STATE STREET BANK AND TRUST COMPANY
w:client\BULLBEA1.doc
(MUTUALSB)
<PAGE>
TABLE OF CONTENTS
PAGE
1. APPOINTMENT OF STATE STREET.................................... 1
2. SECURITIES TO BE LOANED........................................ 1
3. BORROWERS...................................................... 2
4. SECURITIES Loan AGREEMENTS..................................... 3
5. LOANS OF AVAILABLE SECURITIES.................................. 4
6. DISTRIBUTIONS ON AND VOTING RIGHTS WITH RESPECT TO
LOANED SECURITIES.............................................. 4
7. COLLATERAL..................................................... 5
8. COMPENSATION FOR THE CLIENT AND STATE STREET................... 6
9 FEE DISCLOSURE................................................. 7
10. RECORD KEEPING AND REPORTS..................................... 7
11. STANDARD OF CARE............................................... 8
12. REPRESENTATIONS AND WARRANTIES................................. 8
13. DEFINITIONS.................................................... 9
14. CONTINUING AGREEMENT; TERMINATION; REMEDIES.................... 10
15. NOTICES........................................................ 10
16. MISCELLANEOUS.................................................. 11
17. SECURITIES INVESTORS PROTECTION ACT............................ 11
18. MODIFICATION................................................... 12
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBIT 3.1
EXHIBIT 3.2
SCHEDULE A
SCHEDULE B
SCHEDULE 7.1
<PAGE>
SECURITIES LENDING AUTHORIZATION AGREEMENT
Agreement dated the ____ day of ______________, 1997 THE CLIENTS IDENTIFIED ON
SCHEDULE A (each a "Client" or collectively, "Clients"), and STATE STREET BANK
AND TRUST COMPANY, a Massachusetts trust company ("State Street"), setting forth
the terms and conditions under which State Street is authorized to act on behalf
of the Client with respect to the lending of certain securities of the Client
held by State Street as trustee, agent or custodian.
Each undersigned Client, whether organized as a portfolio, series, class of
shares, or otherwise, shall be regarded for all purposes hereunder as a separate
party apart from each other. Unless the context otherwise requires, with respect
to every transaction covered by this Agreement, every reference herein shall be
deemed to relate solely to the particular client to which such transaction
relates. Under no circumstances shall the rights, obligations or remedies with
respect to a particular Client constitute a right, obligation or remedy
applicable to any other Client. The use of this single document to memorialize
the separate agreement of each Client is understood to be for administrative
convenience only and shall not constitute any basis for joining the Clients for
any reason.
Certain capitalized terms used in this Agreement are defined in Section 13.
The Client and State Street, as the parties hereto, hereby agree as follows:
1. Appointment of State Street. The Clients hereby authorize State Street as its
agent to lend Available Securities to Borrowers in accordance with the terms of
this Agreement. State Street shall have the responsibility and authority to do
or cause to be done all acts State Street shall determine to be desirable,
necessary, or appropriate to implement and administer this securities lending
program. Client agrees that State Street is acting as a fully disclosed agent
and not as principal in connection with the securities lending program. State
Street may take action as agent of the Client on an undisclosed or a disclosed
basis. State Street is also hereby authorized to request a third party bank to
undertake certain custodial functions in connection with holding of the
Collateral provided by a Borrower pursuant to the terms hereof. In connection
therewith, State Street may instruct said third party to establish and maintain
a Borrower's account and a State Street account wherein all Collateral,
including cash shall be maintained by said third party in accordance with the
terms of a form of custodial arrangement which shall also be consistent with the
terms hereof.
2. Securities to be Loaned. State Street acts or will act as agent,
trustee or custodian of certain securities owned by the Clients. All of the
Clients' securities held by State Street as agent, trustee or custodian shall be
subject to this securities lending program and constitute Available Securities
hereunder, except those securities which the Client or the Investment Manager
specifically identifies in notices to State Street as not being Available
Securities. In the absence of any such notice identifying specific securities,
State Street shall have no authority or responsibility for determining whether
any of the Client's securities should be excluded from the lending program.
3. Borrowers. The Available Securities may be loaned to any Borrower identified
on the Schedule of Borrowers, as such Schedule may be modified from time to time
by State Street and Client, including without limitation, the Capital Markets
division of State Street; provided, however, if Available Securities are loaned
to the Capital Markets division, in addition to being consistent with the terms
hereof, said Loan shall be made in accordance with
<PAGE>
the terms of the Securities Loan Agreement attached hereto as Exhibit 3.1, as
modified form time to time in accordance with the provisions hereof
(hereinafter, the "State Street Securities Loan Agreement"). The form of the
State Street Securities Loan Agreement may be modified by State Street from time
to time, without the consent of the Client, in order to comply with the
requirements of law or any regulatory authority having jurisdiction over State
Street, the Client or the securities lending program or in any other manner that
is not material and adverse to the interests of the Client.
Client acknowledges that it is aware that State Street, acting as "Lender's
Agent" hereunder and thereunder, is or may be deemed to be the same legal entity
as State Street acting as "Borrower" under the State Street Securities Loan
Agreement, notwithstanding the different designations used herein and therein or
the dual roles assumed by State Street hereunder and thereunder. Client
represents that the power granted herein to State Street, as agent, to lend U.S.
Securities owned by Client (including, in legal effect, the power granted to
State Street to make Loans to itself) and the other powers granted to State
Street, as agent herein, are given expressly for the purpose of averting and
waiving any prohibitions upon such lending or other exercise of such powers
which might exist in the absence of such powers, and that transactions effected
pursuant to and in compliance with this Agreement and the State Street
Securities Loan Agreement will not constitute a breach of trust or other
fiduciary duty by State Street.
Client further acknowledges that it has granted State Street the power to
effect securities lending transactions with the Capital Markets division of
State Street and other powers assigned to State Street hereunder and under the
Securities Loan Agreements and the State Street Securities Loan Agreement as a
result of Client's desire to increase the opportunity for it to lend securities
held in its account on fair and reasonable terms to qualified Borrowers without
such loans being considered a breach of State Street's fiduciary duty. In
connection therewith, each party hereby agrees that it shall furnish to the
other party (i) the most recent available audited statement of its financial
condition, and (ii) the most recent available unaudited statement of its
financial condition, if more recent than the audited statement. As long as any
Loan is outstanding under this Agreement, each party shall also promptly deliver
to the other party all such financial information that is subsequently
available, and any other financial information or statements that such other
party may reasonably request.
In the event any such Loan is made to the Capital Markets division, State Street
hereby covenants and agrees for the benefit of the Clients that it has adopted
and implemented procedural safeguards to help ensure that all actions taken by
it hereunder will be effected by individuals other than, and not under the
supervision of, individuals who are acting in a capacity as Borrower thereunder,
and that all trades effected hereunder will take place at the same fully
negotiated "arms length" prices offered to similarly situated third parties by
State Street when it acts as lending agent, notwithstanding the inherent
conflict of interest with respect to Loans to be effected by State Street to the
Capital Markets division.
In the event Client approves lending to borrowers resident in the United
Kingdom, Client shall complete Part 1 of the document known as a "MOD-2 form,"
which is attached hereto as Exhibit 3.2.
In the event that securities lending activity is undertaken through its London
office, State Street becomes subject to additional regulation in the UK, and
State Street is obliged to notify Client of the following matters:
i. State Street shall make available to Client established procedures in
accordance with the requirements of the Securities and Futures Authority for
<PAGE>
the effective consideration of complaints concerning State Street's activities
carried on in the UK.
ii. Where a liability in one currency is to be matched by an asset in a
different currency, or where an investment transaction relates to an investment
denominated in a currency other than sterling, a movement of exchange rates may
have a separate effect, favorable or unfavorable, on the gain or loss which
would otherwise be experienced on the investment.
iii. State Street or an affiliate may have an interest that is material to the
investment or transaction concerned and neither State Street nor any such
affiliate shall be obliged to disclose such interest or account to Client for
any profits or benefits made or derived by it or any of its associates from any
such transaction.
iv. Any assets which State Street holds in the form of money shall not be
treated by State Street as Clients' Money as defined by The Financial Services
(Client Money) Regulations 1991 of the United Kingdom as amended (the "Clients'
Money Regulations") and will not be held in accordance with the Clients' Money
Regulations or such other regulations as shall amend or replace the Clients'
Money Regulations from time to time.
4. Securities Loan Agreements. The Client authorizes State Street to enter into
one or more Securities Loan Agreements with such Borrowers as may be selected by
State Street. Each Securities Loan Agreement shall have such terms and
conditions as State Street may negotiate with the Borrower, however certain
terms of individual loans, including rebate fees to be paid to the Borrower for
the use of cash Collateral, shall be negotiated at the time a loan is made.
5. Loans of Available Securities. State Street shall have authority to
make Loans of Available Securities to Borrowers, and to deliver such securities
to Borrowers. State Street shall be responsible for determining whether any such
Loan shall be made, and for negotiating and establishing the terms of each such
Loan. State Street shall have the authority to terminate any Loan in its
discretion, at any time and without prior notice to the Client.
The Client acknowledges that State Street administers securities lending
programs for other clients of State Street. State Street will allocate
securities lending opportunities among its clients, using reasonable and
equitable methods established by State Street from time to time. State Street
does not represent or warrant that any amount or percentage of the Client's
Available Securities will in fact be loaned to Borrowers. Client agrees that it
shall have no claim against State Street and State Street shall have no
liability arising from, based on, or relating to, loans made for other clients,
or loan opportunities refused hereunder, whether or not State Street has made
fewer or more loans for any other client, and whether or not any loan for
another client, or the opportunity refused, could have resulted in loans made
under this Agreement.
The Client also acknowledges that, under the applicable Securities Loan
Agreements, Borrowers will not be required to return Loaned Securities
immediately upon receipt of notice from State Street terminating the applicable
Loan, but instead will be required to return such Loaned Securities within such
period of time following such notice as is specified in the applicable
Securities Loan Agreement. Upon receiving a notice from the Client or the
Investment Manager that Available Securities which have been loaned to a
Borrower should no longer be considered Available Securities (whether because of
the sale of such securities or otherwise), State Street shall use its reasonable
efforts to notify promptly thereafter the Borrower which has
<PAGE>
borrowed such securities that the Loan of such securities is terminated and that
such securities are to be returned within the time specified by the applicable
Securities Loan Agreement.
6. Distributions on and Voting Rights with Respect to Loaned Securities. The
Client represents and warrants that it is the beneficial owner of (or exercises
complete investment discretion over) all Available Securities free and clear of
all liens, claims, security interests and encumbrances and no such security has
been sold, and that it is entitled to receive all distributions made by the
issuer with respect to Loaned Securities. Except as provided in the next
sentence, all interest, dividends, and other distributions paid with respect to
Loaned Securities shall be credited to the Client's account on the date such
amounts are delivered by the Borrower to State Street. Any non-cash distribution
on Loaned Securities which is in the nature of a stock split or a stock dividend
shall be added to the Loan (and shall be considered to constitute Loaned
Securities) as of the date such non-cash distribution is received by the
Borrower; provided that the Client (or Investment Manager) may, by giving State
Street ten (l0) Business Days' notice prior to the date of such non-cash
distribution, direct State Street to request that the Borrower deliver such
non-cash distribution to State Street, pursuant to the applicable Securities
Loan Agreement, in which case State Street shall credit such non-cash
distribution to the Client's account on the date it is delivered to State
Street.
The Client acknowledges that it will not be entitled to participate in any
dividend reinvestment program or to vote with respect to securities that are on
loan on the applicable record date for such securities.
The Client also acknowledges that any payments of distributions from Borrower to
Client are in substitution for the interest or dividend accrued or paid in
respect of Loaned Securities and that the tax treatment of such payment may
differ from the tax treatment of such interest or dividend.
If an installment, call or rights issue becomes payable on or in respect of any
Loaned Securities, State Street shall use all reasonable endeavors to ensure
that any timely instructions from the Client are complied with, but State Street
shall not be required to make any payment unless the Client has first placed it
in funds to make such payment.
7. Collateral. The Client authorizes State Street to receive and to hold, on the
Client's behalf, Collateral from Borrowers to secure the obligations of
Borrowers with respect to any loan of securities made on behalf of the Client
pursuant to the Securities Loan Agreements. All investments of cash Collateral
shall be for the account and risk of the Client. Concurrently with the delivery
of the Loaned Securities to the Borrower under any Loan, State Street shall
receive from the Borrower Collateral in any of the forms listed on Schedule 7.1.
Said Schedule may be amended from time to time by State Street upon written
notice to the Client. With respect to foreign cash Collateral, State Street will
provide Client with a multicurrency investment vehicle through which the foreign
cash will be converted to U.S. dollars and invested pursuant to Section 8 hereof
(MCIV"). Client acknowledges that State Street, in providing MCIV, will receive
additional compensation by earning a spread on the foreign currency conversions.
Such Collateral shall have a Market Value of not less than one hundred percent
(l00%) of the Market Value of the Loaned Securities. Thereafter, State Street
shall take such action as is appropriate with respect to the Collateral under
the applicable Securities Loan Agreement.
The Collateral shall be returned to Borrower at the termination of the
Loan upon the return of the Loaned Securities by Borrower to State Street in
accordance with the applicable Securities Loan Agreement. State Street shall
<PAGE>
invest cash Collateral in accordance with any directions, including any
limitations established by the Client in a writing identified to this Agreement
and acknowledged in writing by State Street and shall exercise reasonable care,
skill, diligence and prudence in the investment of Collateral. Subject to the
foregoing limits and standard of care, State Street does not assume any market
or investment risk of loss with respect to the currency conversions associated
with the use of MCIV or the investment of cash Collateral and if, at any time
during the term of any Loan, the value of the cash Collateral so invested is
insufficient to return the rebate fee (i.e., the return to the Borrower), the
full amount of the Collateral, U.S. dollar or otherwise or any and all other
amounts due to such Borrower pursuant to the Securities Loan Agreement, Client
shall be solely responsible for such shortfall and hereby agrees to pay an
amount equal to such shortfall to State Street. In addition, State Street shall
be entitled to charge Client's accounts for such shortfall in accordance with
Section 8.
8. Compensation for the Client and State Street. To the extent that a Loan is
secured by cash Collateral, such Collateral, including money received with
respect to the investment of the same, or upon the maturity, sale, or
liquidation of any such investments, shall be invested by State Street, subject
to the directions referred to above, if any, in short-term instruments, short
term investment funds maintained by State Street, money market mutual funds and
such other investments as State Street may from time to time to time select,
including without limitation investments in obligations or other securities of
State Street or of any State Street affiliate and investments in any short-term
investment fund, mutual fund, securities lending trust or other collective
investment fund with respect to which State Street and/or its affiliates provide
investment management or advisory, trust, custody, transfer agency, shareholder
servicing and/or other services for which they are compensated.
The Client acknowledges that interests in such mutual funds, securities lending
trusts and other collective investment funds, to which State Street and/or one
or more of its affiliates provide services are not guaranteed or insured by
State Street or any of its affiliates or by the Federal Deposit Insurance
Corporation or any government agency. The Client hereby authorizes State Street
to purchase or sell investments of cash Collateral to or from other accounts
held by State Street or its affiliates.
The net income generated by any investment made pursuant to the preceding
paragraph of this Section 8 shall be allocated among the Borrower, State Street,
and the Client, as follows: (a) a portion of such income shall be paid to the
Borrower in accordance with the agreement negotiated between the Borrower and
State Street; (b) the balance, if any, shall be split between State Street [as
compensation for its services in connection with this securities lending program
and the Client [as such income shall be credited to the Client's account], in
accordance with the fee schedule attached hereto as Schedule B.
In the event the net income generated by any investment made pursuant
to the first paragraph of this Section 8 does not equal or exceed the amount due
the Borrower in accordance with the agreement between Borrower and State Street,
State Street shall debit the Client's account by an amount equal to the
difference between the net income generated and the amounts to be paid to the
Borrower pursuant to the Securities Loan Agreement. In the event debits to the
Client's account produce a deficit therein, State Street shall sell or otherwise
liquidate investments made with cash Collateral and credit the net proceeds of
such sale or liquidation to satisfy the deficit. In the event the foregoing does
not eliminate the deficit, State Street shall have the right to charge the
deficiency to any other account or accounts maintained by the Client with State
Street.
<PAGE>
In the event of a Loan to a Borrower resident in Canada, which is made over
record date for a dividend reinvestment program ("DRP") and is secured by cash
Collateral, the Borrower shall pay the Client a substitute payment equal to the
full amount of the cash dividend declared, and may pay a loan premium, the
amount of which shall be negotiated by State Street, above the amount of the
cash dividend. Such loan premium shall be allocated between State Street and the
Client as follows: (a) a portion of such loan premium shall be paid to State
Street as compensation for its services in connection with this securities
lending program, in accordance with Schedule A and (b) the remainder of such
loan premium shall be credited to the Client's account.
To the extent that a Loan is secured by non-cash Collateral, the
Borrower shall be required to pay a loan premium, the amount of which shall be
negotiated by State Street. Such loan premium shall be allocated between State
Street and the Client as follows: (a) a portion of such loan premium shall be
paid to State Street as compensation for its services in connection with this
securities lending program, in accordance with Schedule A hereto; and (b) the
remainder of such loan premium shall be credited to the Client's account.
Client acknowledges that in the event that Client's participation in securities
lending generates income for the Client, State Street may be required to
withhold tax or may claim such tax from the Client as is appropriate in
accordance with applicable law.
The Client shall reimburse State Street for such reasonable fees and expenses
that State Street may incur in connection with the performance of its
obligations hereunder, including, without limitation: (i) the ordinary
telecommunication charges associated with the movement of securities in
connection with the securities lending activity contemplated by this Agreement;
and (ii) any and all funds advanced by State Street on behalf of the Client as a
consequence of the Client's obligations hereunder, including the Client's
obligation to return cash Collateral to the Borrower and to pay any fees due the
Borrower, all as provided in Section 7 hereof.
9. Fee Disclosure. The fees associated with the investment of cash Collateral in
funds maintained or advised by State Street are disclosed on Schedule B hereto.
Said Schedule may be replaced from time to time by State Street upon notice to
Client. An annual report with respect to such funds is available to the Client,
at no expense, upon request.
10. Recordkeeping and Reports. State Street will establish and maintain such
records as are reasonably necessary to account for Loans that are made and the
income derived therefrom. On a monthly basis, State Street will provide the
Client with a statement describing the Loans made, and the income derived from
Loans, during the period covered by such statement. Each party to this Agreement
shall comply with the reasonable requests of the other for information necessary
to the requester's performance of its duties in connection with this securities
lending program.
11. Standard of Care Subject to the requirements of applicable law, State Street
shall not be liable for any loss or damage, including counsel fees and court
costs, whether or not resulting from their acts or omissions to act hereunder or
otherwise, unless the loss damage arises out of State Street's own gross
negligence. Except for any liability, loss, or expense arising from or connected
with State Street's own gross negligence, the Client agrees to reimburse and
hold State Street harmless from and against any liability, loss and expense,
including counsel fees and expenses and court costs, arising in connection with
this Agreement or any Loan or arising from or connected with claims of any third
parties, including any Borrower, from and against all taxes and other
governmental charges, and from and against any out-of-pocket
<PAGE>
or incidental expenses. State Street may charge any amounts to which it is
entitled hereunder against the Client's account. Without limiting the generality
of the foregoing, Client agrees: (i) that State Street shall not be responsible
for any statements, representations or warranties which any Borrower makes in
connection with any securities loans hereunder, or for the performance by any
Borrower of the terms of a Loan, or any agreement related thereto, and shall not
be required to ascertain or inquire as to the performance or observance of, or a
default under the terms of, a Loan or any agreement related thereto; (ii) that
State Street shall be fully protected in acting in accordance with the oral or
written instructions of any person believed by State Street to be authorized to
execute this Agreement on behalf of the Client (an "Authorized Person"); (iii)
that in the event of a default by a Borrower under a Loan, State Street shall be
fully protected in acting in its sole discretion in a manner it deems
appropriate; and (iv) that the records of State Street shall be presumed to
reflect accurately any oral instructions given by an Authorized Person or a
person believed by State Street to be an Authorized Person.
State Street, in determining the Market Value of Securities, including without
limitation, Collateral, may rely upon any recognized pricing service and shall
not be liable for any errors made by such service.
12. Representations and Warranties. Each party hereto represents and warrants
that (a) it has the power to execute and deliver this Agreement, to enter into
the transactions contemplated hereby, and to perform its obligations hereunder;
(b) it has taken all necessary action to authorize such execution, delivery, and
performance; (c) this Agreement constitutes a legal, valid, and binding
obligation enforceable against it; and (d) the execution, delivery, and
performance by it of this Agreement will at all times comply with all applicable
laws and regulations. Client represents and warrants that (a) it has made its
own determination as to the tax treatment of any dividends, remuneration or
other funds received hereunder; and (b) the financial statements delivered to
State Street pursuant to Section 3 fairly present its financial condition and
there has been no material adverse change in its financial condition or the
financial condition of any parent company since the date of the balance sheet
included within such financial statements. Each Loan shall constitute a present
representation by Client that there has been no material adverse change in its
financial condition or the financial condition of any parent company that has
not been disclosed in writing to State Street since the date of the most recent
financial statements furnished to State Street pursuant to Section 3.
The person executing this Agreement on behalf of the Client represents that he
or she has the authority to execute this Agreement on behalf of the Client.
The Client hereby represents to State Street that: (i) its policies generally
permit it to engage in securities lending transactions; (ii) its policies permit
it to purchase shares of the Navigator Securities Lending Trust with cash
Collateral; (iii) its participation in the securities lending program, including
the investment of cash collateral in the Navigator Securities Lending Trust, and
the existing series' thereof, has been approved by a majority of the directors
or trustees that are not "interested persons" within the meaning of section
2(a)(19) of the Investment Company Act of 1940, and such directors or trustees
will evaluate the securities lending program no less frequently than annually to
determine that the investment of cash collateral in the Navigator Securities
Lending Trust, including any series thereof, is in the Client's best interest
and (iv) its prospectus provides appropriate disclosure concerning its
securities lending activity; and (v) that it is not subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") with respect to
this Agreement and the Securities. The Client also hereby represents that it
qualifies as an "accredited investor"
<PAGE>
within the meaning of Rule 501 of Regulation D under the Securities Act of 1933,
as amended.
13. Definitions. For the purposes hereof:
(a) "Available Securities" means the securities of the Client that are available
for Loans pursuant to Section 2.
(b) "Borrower" means any of the entities to which Available Securities may be
loaned under a Securities Lending Agreement, as described in Section 3.
(c) "Collateral" means collateral delivered by a Borrower to secure its
obligations under a Securities Loan Agreement.
(d) "Investment Manager," when used in any provision, means the person or entity
who has discretionary authority over the investment of the Available Securities
to which the provision applies.
(e) "Loan" means a loan of Available Securities to a Borrower.
(f) "Loaned Security" shall mean any "security" which is delivered as a Loan
under a Securities Loan Agreement; provided that, if any new or different
security shall be exchanged for any Loaned Security by recapitalization, merger,
consolidation, or other corporate action, such new or different security shall,
effective upon such exchange, be deemed to become a Loaned Security in
substitution for the former Loaned Security for which such exchange was made.
(g) "Market Value" of a security means the market value of such security
(including, in the case of a Loaned Security that is a debt security, the
accrued interest on such security) as determined by the independent pricing
service designated by State Street, or such other independent sources as may be
selected by State Street on a reasonable basis.
(h) "Securities Loan Agreement" means the agreement between a Borrower and State
Street (on behalf of the Client) that governs Loans, as described in Section 4.
14. Continuing Agreement; Termination; Remedies. It is the intention of the
parties hereto that this Agreement shall constitute a continuing agreement in
every respect and shall apply to each and every Loan, whether now existing or
hereafter made. The Client and State Street may each at any time terminate this
Agreement upon five (5) Business Days' written notice to the other to that
effect. The only effects of any such termination of this Agreement will be that
(a) following such termination, no further Loans shall be made hereunder by
State Street on behalf of the Client, and (b) State Street shall, within a
reasonable time after termination of this Agreement, terminate any and all
outstanding Loans. The provisions hereof shall continue in full force and effect
in all other respects until all Loans have been terminated and all obligations
satisfied as herein provided.
15. Notices. Except as otherwise specifically provided herein, notices under
this Agreement may be made orally, in writing, or by any other means mutually
acceptable to the parties. If in writing, a notice shall be sufficient if
delivered to the party entitled to receive such notices at the following
addresses:
If to Client:
Bull & Bear Advisers
<PAGE>
11 Hanover Square
New York, N.Y. 10005
Attn: Thomas B. Winmill
President
If to State Street:
State Street Bank and Trust Company
Global Securities Lending Division
Two International Place, Floor 31
Boston, Massachusetts 02110
or to such other addresses as either party may furnish the other party by
written notice under this section.
Whenever this Agreement permits or requires the Client to give notice to,
direct, provide information to State Street, such notice, direction, or
information shall be provided to State Street on the Client's behalf by any
individual designated for such purpose by the Client in a written notice to
State Street. (This Agreement shall be considered such a designation of the
person executing the Agreement on the client's behalf.) After its receipt of
such a notice of designation, and until its receipt of a notice revoking such
designation, State Street shall be fully protected in relying upon the notices,
directions, and information given by such designee.
16. Miscellaneous. This Agreement supersedes any other agreement between the
parties or any representations made by one party to the other, whether oral or
in writing, concerning loans of securities by State Street on behalf of the
Client. This Agreement shall not be assigned by either party without the prior
written consent of the other party. Subject to the foregoing, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, representatives, successors, and assigns. This Agreement
shall be governed and construed in accordance with the laws of the Commonwealth
of Massachusetts. Client hereby irrevocably submits to the jurisdiction of any
Massachusetts state or federal court sitting in The Commonwealth of
Massachusetts in any action or proceeding arising out of or related to this
agreement, hereby irrevocably agrees that all claims in respect of such action
or proceeding may be heard and determined in such Massachusetts state or Federal
court except that this provision shall not preclude any party from removing any
action to federal court. Client hereby irrevocably waives, to the fullest extent
it may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding. Client hereby irrevocably appoints as
its agent to receive on its behalf service of copies of the summons and
complaint and any other process which may be served in any such action or
proceeding (the "Process Agent"). Such service may be made by mailing or
delivering a copy of such process, in care of the Process Agent at the above
address. Client hereby irrevocably authorizes and directs the Process Agent to
accept such service on its behalf. As an alternative method of service, Client
also irrevocably consents to the service of any and all process in any such
action or proceeding by the mailing of copies of such process to Client at its
address specified in Section 15 hereof. Client agrees that a final judgment
<PAGE>
in any such action or proceeding, all appeals having been taken or the time
period for such appeals having expired, shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other manner provided
by law. The provisions of this Agreement are severable and the invalidity or
unenforceability of any provision hereof shall not affect any other provision of
this Agreement. If in the construction of this Agreement any court should deem
any provision to be invalid because of scope or duration, then such court shall
forthwith reduce such scope or duration to that which is appropriate and enforce
this Agreement in its modified scope or duration.
17. Securities Investors Protection Act of 1970 Notice. CLIENT IS
HEREBY ADVISED AND ACKNOWLEDGES THAT THE PROVISIONS OF THE SECURITIES INVESTOR
PROTECTION ACT OF 1970 MAY NOT PROTECT THE CLIENT WITH RESPECT TO THE LOAN OF
SECURITIES HEREUNDER AND THAT, THEREFORE, THE COLLATERAL DELIVERED TO THE CLIENT
MAY CONSTITUTE THE ONLY SOURCE OF SATISFACTION OF THE BROKER'S OR DEALER'S
OBLIGATION IN THE EVENT THE BROKER OR DEALER FAILS TO RETURN THE SECURITIES.
18. Modification. This Agreement shall not be modified, except by an
instrument in writing signed by the party against whom enforcement is sought.
<PAGE>
BULL & BEAR FUNDS I, INC. on behalf BULL & BEAR FUNDS II, INC.on of its
series BULL & BEAR U.S. AND behalf of its series
OVERSEAS FUND BULL & BEAR DOLLAR RESERVES
By: _____________________ By: ____________________
Name: ___________________ Name: _________________
Its: ______________________ Its: ___________________
BULL & BEAR GOLD INVESTORS LTD. BULL & BEAR SPECIAL
EQUITIES FUND, INC.
By: ______________________ By: _______________________
Name: ___________________ Name: ____________________
Its: ______________________ Its: ______________________
BULL & BEAR MUNICIPAL INCOME BULL & BEAR GLOBAL
FUND, INC. INCOME FUND, INC.
By: ______________________ By: ______________________
Name: ___________________ Name: ___________________
Its: ______________________ Its: ______________________
<PAGE>
BULL & BEAR U.S. GOVERNMENT MIDAS FUND, INC.
SECURITIES FUND, INC.
By: ________________________ By: _______________________
Name: _____________________ Name: ____________________
Its: ________________________ Its: ______________________
ROCKWOOD FUND, INC. STATE STREET BANK AND
TRUST COMPANY
By: _____________________ By: ____________________
Name: ___________________ Name: __________________
Its: ______________________ Its: ____________________
<PAGE>
SCHEDULE A
This Schedule is attached to and made part of the
Securities Lending Authorization Agreement,
dated the ____day of _______, 1997
between THE CLIENTS IDENTIFIED ON SCHEDULE A (each a "Client" or collectively
"Clients") and
STATE STREET BANK AND TRUST COMPANY ("State Street").
PARTIES TO THE SECURITIES LENDING AUTHORIZATION AGREEMENT
BULL & BEAR FUNDS I, INC. (TIN 13-3368373), on behalf of its series BULL &
BEAR U.S. AND OVERSEAS FUND
BULL & BEAR FUNDS II, INC. (TIN 22-2037796), on behalf of its series BULL &
BEAR DOLLAR RESERVES (TIN 13-6900645)
BULL & BEAR GOLD INVESTORS LTD. (TIN 13-6059519)
BULL & BEAR SPECIAL EQUITIES FUND, INC. (TIN 13-3343918)
BULL & BEAR MUNICIPAL INCOME FUND, INC. (TIN 13-3196171)
BULL & BEAR GLOBAL INCOME FUND, INC. (TIN 13-3926714)
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND, INC. (TIN 13-3907058)
MIDAS FUND, INC. (TIN 41-1536110)
ROCKWOOD FUND, INC. (TIN 82-0395554)
<PAGE>
SCHEDULE B
This Schedule is attached to and made part of the
Securities Lending Authorization Agreement,
dated the ____ day of _______, 1997
between THE CLIENTS IDENTIFIED ON SCHEDULE A (each a "Client" or collectively
"Clients") and
STATE STREET BANK AND TRUST COMPANY ("State Street").
SCHEDULE OF FEES
1. Subject to Paragraph 2 below, all proceeds collected by State Street on
investment of Cash Collateral or any fee income shall be allocated as follows
- - Sixty-five percent (65%) payable to the Client, and
- - Thirty-five percent (35%) payable to State Street.
2. All payments to be allocated under Paragraph 1 above shall be made after
deduction of such other amounts payable to State Street or to the Borrower under
the terms of the attached Securities Lending Authorization Agreement.
3. Investment Management Fees
The Navigator Securities Lending Trust:
On an annualized basis, the management/trust/custody fee for investing cash
Collateral in the Navigator Securities Lending Prime Portfolio is not more than
10.00 basis points netted out of yield. The trustee may pay out of the assets of
the Portfolio all reasonable expenses and fees of the Portfolio, including
professional fees or disbursements incurred in connection with the operation of
the Portfolio.
<PAGE>
SCHEDULE 7.1
This Schedule is attached to and made part of the
Securities Lending Authorization Agreement,
dated the ____day of _______, 1997
between THE CLIENTS IDENTIFIED ON SCHEDULE A (each a "Client" or collectively
"Clients") and
STATE STREET BANK AND TRUST COMPANY ("State Street").
ACCEPTABLE FORMS OF COLLATERAL
- - Cash (U.S. and foreign currency);
- - Securities issued or guaranteed by the United States government or its
agencies;
- - Sovereign debt rated A or better
- - Convertible Bonds
- - Irrevocable bank letters of credit issued by a person other than the Borrower
or an affiliate of the Borrower may be accepted as Collateral, if State Street
has determined that it is appropriate to accept such letters of credit as
Collateral under the securities lending programs it administers; and
- - Such other Collateral as the parties may agree to in writing from time
to time.
SEGREGATED ACCOUNT PROCEDURAL AND SAFEKEEPING AGREEMENT
THIS AGREEMENT is made effective the 17th day of June, 1997, by and
between INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under the
laws of the state of Missouri, having its trust office and principal place of
business in Kansas City, Missouri ("IFTC"); STATE STREET BANK AND TRUST COMPANY,
a trust company organized under the laws of the Commonwealth of Massachusetts,
having its trust office and principal place of business in North Quincy,
Massachusetts ("Bank"); SMITH BARNEY, INC., a registered futures commission
merchant ("Broker"); and each registered investment company listed on Schedule A
hereto, as it may be amended from time to time, incorporated herein by this
reference (each a "Customer"); and
WHEREAS, Customer, on behalf of each of the Portfolios identified in
Schedule A, as it may be amended from time to time, incorporated herein by this
reference, has opened or may hereafter open a trading account with Broker for
the purpose of purchasing and selling futures contracts and related options
("Contracts") through Broker; and
WHEREAS, in connection with the opening of such trading account,
Customer and Broker have entered or will enter into a Customer Agreement
requiring Customer to deposit as collateral the initial margin (including
subsequent margin calls and any additional initial margin requirements for short
option positions) ("Margin") with respect to each Contract as required by the
Commodity Exchange Act, Commodity Futures Trading Commission regulations, and
the rules and regulations of the Chicago Mercantile Exchange, the Chicago Board
of Trade, the Commodity Exchange, and such other exchanges on which Broker may
effect or cause to be effected transactions as broker for Customer (collectively
the "Rules and Regulations"); and
WHEREAS, IFTC serves as custodian of certain monies and securities
owned by Customer ("Assets") pursuant to a Custody Agreement between IFTC and
Customer (each a "Custody Agreement"); and
WHEREAS, Bank serves as IFTC's sub-custodian of said Assets pursuant to
a Sub-Custody Agreement between Bank and IFTC (the "Sub-Custody Agreement"); and
WHEREAS, the parties hereto desire to provide for segregated accounts
for the benefit of Customer to be established at Bank (the "Safekeeping
Accounts") for custody of the Margin;
NOW, THEREFORE, for and in consideration of the mutual promises
contained herein, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. GOVERNING AGREEMENT. As between each Customer and IFTC, the Assets in the
Safekeeping Account as collateral for the Margin ("Collateral") and all
instructions, deliveries, duties, rights and liabilities of such Customer and
IFTC with respect to such Safekeeping Account shall be governed in all respects
by the Custody Agreement, except as expressly provided otherwise in this
Agreement. As between IFTC and Bank, the Collateral and all instructions,
deliveries, duties, rights and liabilities of IFTC and Bank with respect to the
Safekeeping Accounts shall be governed in all respects by the Sub-Custody
Agreement, except as expressly provided otherwise in this Agreement.
2. SAFEKEEPING ACCOUNT. Pursuant to the applicable Custody Agreement, IFTC shall
establish and maintain a Safekeeping Account at Bank for each Customer, and,
pursuant to the Sub-Custody Agreement, Bank shall open, upon instruction from
IFTC, such Safekeeping Account in the name of "Smith Barney Customer Funds for
the benefit of [applicable Customer Name] (Customer Segregated Account)"
<PAGE>
for the Collateral, in accordance with the Rules and Regulations. In its
custodial capacity, IFTC is limited to holding the Collateral in safekeeping for
Customer pursuant to the Custody Agreement and dealing with it as herein
expressed unless otherwise mutually agreed in writing. IFTC shall make or cause
Bank to make purchases, sales, withdrawals and deliveries of securities held as
Collateral only as Customer may direct, subject to the rights of Broker
hereunder. IFTC is hereby authorized and directed to, and to cause Bank to:
A. Collect income and principal on bearer securities in the
Safekeeping Accounts;
B. Dispose of the monies received from income collections,
maturity, redemption, sale, or other disposition of the Assets
pursuant to the terms hereof;
C. Send daily confirmations of receipts and disbursements to
Customer and to Broker;
D. Provide monthly lists of Assets held in the Safekeeping
Accounts to Customer and to Broker;
E. On request, confirm to Broker and Customer all account charges
and positions; and
F. Provide Broker and Customer with prompt Written Notice, as
hereinafter defined, of each transfer of Collateral into or
out of the Safekeeping Account of such Customer.
Bank may hold Assets in the Safekeeping Account in bearer, nominee, book entry,
or other form and in any depository or clearing corporation, with or without
indicating that such Assets are held hereunder; provided, however, that all
Assets held in the Safekeeping Account shall be identified on IFTC's and Bank's
records as subject to this Agreement and shall be in a form that permits
transfer without additional authorization or consent of Customer.
Pursuant to Section 1.20 of the Commodity Futures Trading Commission
Regulations, IFTC and Bank hereby acknowledge that all Collateral is that of a
"commodity or option" customer of Broker and is being separately accounted for
and held as segregated and secured funds. Such Collateral will not be treated by
IFTC or Bank as the funds or securities of any person other than Customer, and
will not be used by IFTC or Bank in connection with the obligations of any
person other than Customer. IFTC and Bank have no claim, and will assert no
lien, right of set off or any other claim or interest in the Collateral, and
will not use the Collateral to margin, collateralize, secure or to extend credit
to Customer, to any of its affiliates, to Broker, to any of Broker's affiliates
or to any other persons for such activities or otherwise. IFTC and Bank hereby
agree that the books and records accounting for the Collateral may be examined
by an authorized employee of the Commodity Futures Trading Commission.
<PAGE>
3. DEPOSIT OF COLLATERAL. IFTC shall direct Bank to deposit, transfer and
maintain assets specified by Customer by Written Notice as Collateral in the
Safekeeping Account in an amount sufficient to provide such Margin as shall be
required by the Rules and Regulations, and Bank shall provide Broker and IFTC
with Written Notice of each such deposit. Customer may deposit amounts in excess
of such requirements. The designation "Customer Funds" in the account title is
intended to indicate the status of the Safekeeping Accounts under the Rules and
Regulations; however, to the extent not inconsistent with such Rules and
Regulations, the provisions of this Agreement shall be controlling as to the
rights of the parties in the Collateral.
4. FORM OF COLLATERAL. The Collateral shall be in the form, as Customer elects,
of cash, of eligible securities of the U.S. Government (valued at the current
market value), other securities issued by United States issuers as Broker shall
accept, or of a combination thereof. Customer may substitute U.S. Government
securities of equal or greater value upon prior approval by Broker, which
approval shall not be unreasonably withheld. Upon receipt of such substitute
securities and Written Notice of Broker's approval, IFTC shall cause Bank to
release from the Safekeeping Account cash or securities of an equal value, or
such lesser amount as may be directed by Customer. Separate interest payments on
the Collateral shall be automatically credited by IFTC in Federal Funds to
demand deposit accounts designated in Written Notice from Customer on the date
that such interest becomes due and received unless Notice of Default has been
given to IFTC pursuant to Paragraph 7. Amounts due on Assets which mature or are
redeemed will be credited to the applicable Safekeeping Account in Federal Funds
on the date such amounts are received.
5. WITHDRAWALS. Withdrawals from the Safekeeping Account shall be effected upon
receipt by Bank of Written Notice from Customer and Broker's prior written
consent to such withdrawal. Broker shall, upon request of Customer, inform
Customer of the amount of any excess Collateral in the Safekeeping Account.
6. VARIATION MARGIN. If additional Collateral is required by Broker due to
variation in the value of one or more Contracts held in the trading account or
otherwise pursuant to the Customer Agreement ("Variation Margin"):
A. Broker shall give Customer Written Notice of such requirement
and such Variation Margin shall be satisfied from any amounts
currently credited to Customer's trading account, to the
extent thereof.
B. If the Variation Margin cannot be satisfied as set forth in
Paragraph A, then Customer shall immediately transfer the
Variation Margin to Broker and Broker shall give Customer
prompt Written Notice of receipt.
C. If the Variation margin is not satisfied as set forth in Paragraphs
A or B, then, Broker may give notice to IFTC of the failure to deposit or pay
such amount and the amount required, which notice shall state that all
conditions precedent to Broker's right to receive Collateral have been
satisfied. Immediately upon receipt of such notice, IFTC shall transfer
Collateral of such specified amount from the Safekeeping Account to
or for the account of Broker.
7. DEFAULT. If Customer has failed to deposit sufficient Collateral pursuant to
Paragraph 3 hereof, or transfer the required Variation Margin pursuant to
Paragraph 6.B hereof, Broker shall give Customer immediate Written Notice of
such failure, specifying the amount of such default ("Notice of Default"). In
the event that Broker gives Notice of Default to IFTC, Broker shall immediately
give
<PAGE>
Written Notice to Customer thereof and, without prejudice to any rights of
Broker hereunder, IFTC shall give Written Notice to Customer of its receipt of,
and the instructions, if any, contained in, such Notice of Default. The Notice
of Default by Broker to IFTC shall certify that all conditions precedent to
Broker's right to direct disposition of Collateral hereunder have been
satisfied, and shall include instructions to IFTC to instruct Bank:
A. To transfer specified eligible U.S. Government securities or other
securities held as Collateral to Broker, in which event Broker shall
have the right to sell or otherwise dispose of such securities in
the principal market for such securities or, in the event such
principal market is closed, in a manner commercially reasonable for
such securities; provided, however, that Broker shall remit to
Customer any proceeds of such sale or disposition in excess of the
amount specified in the Notice of Default;
B. To sell at the prevailing market price sufficient Collateral to
provide for payment to Broker of the amount specified in the Notice
of Default, in which event Bank shall give consideration to any
timely request by Customer by Written Notice with respect to
particular Collateral to be sold and shall sell any Collateral in
the principal market therefor, or, in the event such principal
market is closed, in a manner commercially reasonable for such
Collateral; or
C. With respect to cash Collateral, to immediately transfer cash
in the amount specified in the Notice of Default from the
Safekeeping Account to Broker.
IFTC shall cause Bank to retain in the Safekeeping Account any Collateral not
transferred as set forth above, including any proceeds from the Bank's sale of
Collateral in excess of the amount required. In no event shall IFTC or Bank be
required to transfer any amount in excess of the value of the Collateral.
8. CREDITS TO CUSTOMER. Broker shall promptly credit to the trading account of
Customer any Variation Margin resulting from the variation in value of one or
more Contracts purchased or sold by Customer in accordance with the Rules and
Regulations. Each business day such a credit is made, Broker shall transfer
trading account balances of Customer in Federal Funds to IFTC, or to such other
bank account in Customer's name as Customer shall direct. Amounts due to a
Customer as a result of the variation in value of such Customer's short option
positions shall be credited to Customer by reducing the amount of Collateral
required to be maintained in the Safekeeping Account.
9. LIMITATION OF LIABILITY.
a. IFTC and Bank shall not be responsible or liable for, and
Customer and Broker shall indemnify and hold IFTC and Bank
harmless from and against, any and all costs, expenses,
losses, damages, charges, counsel fees, payments and
liabilities which may be asserted against or incurred by IFTC
or Bank or for which IFTC or Bank may be held to be liable,
arising out of or attributable to:
<PAGE>
i. IFTC's or Bank's action or omission to act pursuant
hereto; provided that IFTC or Bank have acted in good
faith and with due diligence and reasonable care; and
provided further, that IFTC shall not be liable for
consequential, special, or punitive damages in any
event.
ii. IFTC's action or omission to act hereunder upon any Written
Notice, instructions, advice, notice, request, consent,
certificate or other instrument or paper reasonably appearing
to it to be genuine and to have been properly executed,
including but not limited to instructions contained in a
Notice of Default, it being expressly understood that IFTC and
Bank shall have no duty to determine whether a default has, in
fact, occurred, or any other duty of inquiry or verification
with respect thereto.
iii. Customer's or Broker's refusal or failure to comply
with the terms hereof (including without limitation
failure to pay or reimburse IFTC or Bank and under
Section 9 hereof), Customer's or Broker's acts or
omissions, negligence or willful misconduct, or the
failure of any representation or warranty of Customer
or Broker hereunder to be and remain true and correct
in all respects at all times.
iv. The failure or delay in performance of its obligations
hereunder, or those of any entity for which it is responsible
hereunder, arising out of or caused, directly or indirectly,
by circumstances beyond the affected entity's reasonable
control, including, without limitation: any interruption,
loss or malfunction of any utility, transportation, computer
(hardware or software) or communication service; inability to
obtain labor, material, equipment or transportation, or a
delay in mails; governmental or exchange action, statute,
ordinance, rulings, regulations or direction; war, strike,
riot, emergency, civil disturbance, terrorism, vandalism,
explosions, labor disputes, freezes, floods, fires, tornados,
acts of God or public enemy, revolutions, or insurrection.
v. The sufficiency or adequacy of the Collateral deposited
hereunder from time to time, or compliance with any statute or
regulation regarding the amount and form of Collateral, it
being understood that IFTC and Bank shall have no duty to
require any Assets to be delivered at any time, or the
establishment or maintenance of margin credit, including but
not limited to the Rules and Regulations, Regulations T or X
of the Board of Governors of the Federal
Reserve System, or with any rules or regulations of the
Options Clearing Corporation or the Securities and Exchange
Commission.
b. Broker shall not be responsible or liable for any loss
incurred by any Customer by reason of IFTC's or Bank's
negligence or willful misconduct in performing their duties
under this Agreement.
<PAGE>
10. NOTICE. All notices, instructions and communications shall be given by the
most expeditious means possible and shall be deemed a valid "Written Notice"
hereunder if delivered by hand, sent by registered or certified mail (return
receipt requested), transmitted by telegraph, telex or telecopier (receipt
confirmed) or given by telephone (promptly followed by written copy) and shall
be deemed effective when given if given by telephone and when received by the
addressee at the address set forth opposite its signature hereto or at such
other address given by Written Notice if given in a manner other than by
telephone.
11. FEES AND EXPENSES. Customer shall pay as compensation to IFTC for its
services hereunder such amount as may be agreed to by Customer and IFTC from
time to time in writing. Any and all expenses of establishing, maintaining, or
terminating a Safekeeping Account shall be borne by the applicable Customer.
12. TERMINATION. As to each Safekeeping Account, this Agreement shall terminate:
(a) on the effective date of IFTC's or Bank's resignation or termination as
custodian or sub-custodian (b) upon the consent by Written Notice of Customer
and Broker, or (c) upon thirty (30) days prior written notice by IFTC and Bank
to Broker and Customer. Upon any termination, all Assets in the Safekeeping
Account shall be held by Bank pursuant to the Sub-Custody Agreement.
13. INDIVIDUAL CUSTOMERS. Each Customer shall be regarded for all purposes as a
separate party apart from any other Customer and every reference to Customer
shall be deemed a reference solely to the particular Customer to which a
particular transaction under the Agreement relates. Under no circumstances shall
the rights, obligations or remedies with respect to a particular Customer
constitute a right, obligation or remedy applicable to any other Customer. The
use of this single document to memorialize the separate agreement of each
Customer is understood to be for clerical convenience only and shall not
constitute any basis for joining Customers for any reason.
14. MISCELLANEOUS.
a. This Agreement shall be construed according to, and the rights
and liabilities of the parties hereto shall be governed by,
the laws of the State of New York, without reference to the
choice of laws principles thereof.
b. All terms and provisions hereof shall be binding upon, inure
to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
<PAGE>
c. The representations and warranties, the indemnifications
extended hereunder, and the provisions of Section 9 hereof are
intended to and shall continue after and survive the
expiration, termination or cancellation hereof.
d. No provisions hereof may be amended or modified in any manner
except by a written agreement properly authorized and executed
by each party hereto.
e. The failure of either party to insist upon the performance of any
terms or conditions hereof or to enforce any rights resulting from
any breach of any of the terms or conditions hereof, including the
payment of damages, shall not be construed as a continuing or
permanent waiver of any such terms, conditions, rights or
privileges, but the same shall continue and remain in full force and
effect as if no such forbearance or waiver had occurred. No waiver,
release or discharge of any party's rights hereunder shall be
effective unless contained in a written instrument signed by the
party sought to be charged.
f. The captions herein are included for convenience of reference
only, and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect.
g. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
h. If any provision hereof shall be determined to be invalid,
illegal, in conflict with any law or otherwise unenforceable,
the remaining provisions hereof shall be considered severable
and shall not be affected thereby, and every remaining
provision hereof shall remain in full force and effect and
shall remain enforceable to the fullest extent permitted by
applicable law.
i. This Agreement may not be assigned by any party hereto without
the prior written consent of the other party.
j. Neither the execution nor performance hereof shall be deemed
to create a partnership or joint venture by and among any of
the parties hereto.
k. Except as specifically provided herein, this Agreement does
not in any way affect any other agreements entered into among
the parties hereto and any actions taken or omitted by either
party hereunder shall not affect any rights or obligations of
the other party hereunder.
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
duly executed on the date first above written.
Bull & Bear Global Income Fund, Inc.:
Bull & Bear Funds I, Inc.:
Bull & Bear Funds II, Inc.:
Bull & Bear U.S. Government
Securities Fund, Inc.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear Gold Investors Ltd.
Bull & Bear Municipal Income Fund, Inc.
Midas Fund, Inc.
Rockwood Fund, Inc.
Bull & Bear By:
11 Hanover Square, 11th Floor Title:
New York, NY 10005
Attn: Heidi Keating
Smith Barney, Inc. SMITH BARNEY, INC.
388 Greenwich Street By:
New York, NY 10013 Title:
Attn: Michael Schaefer
127 West 10th Street INVESTORS FIDUCIARY TRUST COMPANY
Kansas City, MO 64105 By:
Attn: Custody Department Title:
1776 Heritage Drive STATE STREET BANK AND TRUST COMPANY
North Quincy, MA 02171 By:
Attn: Securities Services Division Title:
<PAGE>
SCHEDULE A
LIST OF CUSTOMERS
Portfolios of Customer under the Segregated Account Procedural and Safekeeping
Agreement with Smith Barney, Inc. ("Broker").
CUSTOMER AND PORTFOLIO NAME TAX ID NUMBER
--------------------------- ---------------------
Bull & Bear Funds I, Inc.:
Bull & Bear U.S. and Overseas Fund 13-3368373
Bull & Bear Funds II, Inc.:
Bull & Bear Dollar Reserves 13-6900645
Bull & Bear U.S. Government Securities Fund, Inc. 13-3907058
Bull & Bear Special Equities Fund, Inc. 13-3343918
Bull & Bear Gold Investors Ltd. 13-6059519
Bull & Bear Municipal Income Fund, Inc. 13-3196171
Midas Fund, Inc. 41-1536110
Rockwood Fund, Inc. 82-0395554
Bull & Bear Global Income Fund, Inc. 13-3926714
Customer is a series investment company currently consisting of the Portfolios
set forth above. For purposes of the Segregated Account Procedural and
Safekeeping Agreement, each Portfolio shall be regarded for all purposes
hereunder as a separate party apart from each other Portfolio. Unless the
context otherwise requires, with respect to every transaction covered hereby,
every reference herein to Customer shall be deemed to relate solely to the
particular Portfolio to which such transaction relates. Under no circumstances
shall the rights, obligations or remedies with respect to a particular Portfolio
constitute a right, obligation or remedy applicable to any other Portfolio. The
use of this single document to memorialize the separate agreement of each
Portfolio is understood to be for clerical convenience only and shall not
constitute any basis for joining the Portfolios for any reason.
Customer may add additional Portfolios to the Segregated Account Procedural and
Safekeeping Agreement from time to time by written notice to the other parties,
provided that IFTC consents to such addition. Rates or charges for each
additional Portfolio shall be as agreed upon by IFTC and Customer in writing.
TOWNLEY & UPDIKE
(GIFFORD, WOODY, PALMER & SERLES)
CHRYSLER BUILDING
405 LEXINGTON AVENUE
NEW YORK, N.Y. 10174
January 21, 1986
Bull & Bear Equities Fund, Inc.
11 Hanover Square
New York, New York 10005
Re: Bull & Bear Special Ecruities Fund, Inc.
Gentlemen:
We have examined the corporate records, including the Articles
of Incorporation, By-Laws and minutes of meetings of the Board of Directors of
Bull & Bear Special Equities Fund, Inc. (the "Fund"), together with such other
documents, certificates and instruments as we deem appropriate to enable us to
render this opinion.
It is our opinion that the Fund is a corporation validly
organized and existing under the laws of the State of Maryland and that shares
of its common stock, par value $.Ol per share which will be sold pursuant to the
Fund's registration statement on Form N-lA (the "Registration Statement") upon
the effectiveness thereof, will, upon receipt of the offering price determined
as prescribed in the Fund's Articles of Incorporation, and as set forth in the
prospectus and statement of additional information included in the Registration
Statement, be duly and legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
TOWNLEY & UPDIKE
CONSENT 0F INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 23, 1998 on the financial
statements and financial highlights of Bull & Bear Special Equities Fund, Inc.
Such financial statements and financial highlights appear in the 1997 Annual
Report to Shareholders which is incorporated by reference in the Statement of
Additional Information filed in Post-Effective Amendment No. 19 under the
Securities Act of 1933 and Amendment No. 19 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 27, 1998
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NY 10038-4982
PHONE 212-806-5400
FAX 212-806-6006
April 27, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are counsel to Bull & Bear Special Equities Fund, Inc. (the "Fund"), and in
so acting have reviewed Post-Effective Amendment No. 21 (the "Post-Effective
Amendment") to the Fund's Registration Statement on Form N- 1A, Registration
File No. 33-2847.
Representatives of the Fund have advised us that the Fund will file the
Post-Effective Amendment pursuant to paragraph (b) of Rule 485 ("Rule 485")
promulgated under the Securities Act of 1933. In connection therewith, the Fund
has requested that we provide this letter.
In our examination of the Post-Effective Amendment, we have assumed the
conformity to the originals of all documents submitted to us as copies.
Based upon the foregoing, we hereby advise you that the prospectus included as
part of the Post-Effective Amendment does not include disclosure which we
believe would render it ineligible to become effective pursuant to paragraph (b)
of Rule 485.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
January 21, 1986
Board of Directors
Bull Bear Special Equities Fund, Inc.
11 Hanover Square
New York, New York 10005
Gentlemen:
In order to provide Bull & Bear Special Equities Fund, Inc. (the
"Fund") with the initial capital that it will require in order to commence
operation as an open-end investment company under the Investment Company Act of
1940, Bull & Bear Group, Inc. ("Group") has agreed to purchase 7,000 shares of
the Fund's common stock, par value $.Ol per share, at a purchase price of $15.00
per share.
Group hereby represents and warrants to Bull & Bear special
Equities Fund, Inc. and its Board of Directors that the shares which will be
acquired in accordance with this agreement will be so acquired for investment
purposes and that Group has no present intention of reselling or otherwise
disposing of any portion of such shares, nor of redeeming all or any portion of
such shares, provided that it shall have the right to have any or all dividends
paid to it in cash or shares acquired through reinvestment of dividends redeemed
at any time, and provided further that the foregoing representations do not
apply to any purchases that Group may make after the effective date of the
Fund's registration statement on Form N-1.
<PAGE>
Page II
Group further represents that no consideration has been or will
be paid by the Fund to Group for providing such initial capital.
Group acknowledges that, as of the date hereof, the shares of
the Fund are not registered under the Securities Act of 1933 and are being sold
in reliance on the exemption from registration provided by Section 4(2) thereof
relating to transactions not involving a public offering.
Very truly yours,
BULL & BEAR GROUP, INC.
By:
Robert D. Anderson
President
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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>
<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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of each
Employee taken into account under the Plan shall not exceed the OBRA '93
annual Compensation limit. The OBRA '93 annual Compensation limit is
$150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with Section 401(a)(17)(B) of the Internal Revenue
Code. The cost-of-living adjustment in effect for a calendar year applies to
any period, not exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93 annual Compensation
limit will be multiplied by a fraction, the numerator of which is the number
of months in the determination period, and the denominator of which is 12.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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;
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
2.01 ELIGIBILITY TO PARTICIPATE
Each Employee of the Employer, except those Employees who belong to a
class of Employees which is excluded from participation as indicated
in the Adoption Agreement, shall be eligible to participate in this
Plan upon the satisfaction of the age and Years of Eligibility Service
requirements specified in the Adoption 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
requirements of Section 2.01.
C. The Plan Administrator shall notify each Employee who becomes
eligible to be a Participant under this Plan and shall furnish him
with the application form, enrollment forms or other documents
which are required of Participants. The eligible Employee shall
execute such forms or documents and make available such information
as may be required in the administration of the Plan.
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS
If an Employee who had been a Participant becomes ineligible to
participate because he is no longer a member of an eligible class of
Employees, but has not incurred a Break in Eligibility Service, such
Employee shall participate immediately upon his return to an eligible
class of Employees. If such Employee incurs a Break in Eligibility
Service, his eligibility to participate shall be determined by Section
2.04.
An Employee who is not a member of the eligible class of Employees
will become a Participant immediately upon becoming a member of the
eligible class provided such Employee has satisfied the age and Years
of Eligibility Service requirements. If such Employee has not
satisfied the age and Years of Eligibility Service requirements as of
the date he becomes a member of the eligible class, he shall become a
Participant on the first Entry Date following the date he satisfies
said requirements.
<PAGE>
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
Contributions shall continue to participate in the Plan, or, if
terminated, shall participate immediately upon reemployment.
2.05 DETERMINATIONS UNDER THIS SECTION
The Plan Administrator shall determine the eligibility of each
Employee to be a Participant. This determination shall be conclusive
and binding upon all persons except as otherwise provided herein or by
law.
2.06 TERMS OF EMPLOYMENT
Neither the fact of the establishment of the Plan nor the fact that a
common law Employee has become a Participant shall give to that common
law Employee any right to continued employment; nor shall
<PAGE>
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
qualifying Participants in accordance with the allocation or
contribution formula specified in the Adoption Agreement. The
Employer Contribution for any Plan Year will be allocated to
each Participant's Individual Account as of the last day of that
Plan Year.
<PAGE>
Any Employer Contribution for a Plan Year must satisfy Section
401(a)(4) and the regulations thereunder for such Plan Year.
2. Qualifying Participants - A Participant is a qualifying
Participant and is entitled to share in the Employer
Contribution for any Plan Year if (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 Termination of Employment during such
Plan Year with not more than 500 Hours of Service if he is not
an Employee on the last day of the Plan Year. The determination
of whether a Participant
<PAGE>
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,
Forfeitures shall be allocated in the manner provided in Section
3.01 (B) (for Employer Contributions) to the Individual Accounts
of Participants who are entitled to share in the Employer
Contribution for such Plan Year.
2. Money Purchase Pension and Target Benefit Plan - If this Plan is
a money purchase 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
<PAGE>
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
allocation provisions of this Section 3.01(E) shall apply for any
Plan Year with respect to which this Plan is a Top-Heavy Plan.
1. Except as otherwise provided in (3) and (4) below, the Employer
Contributions and Forfeitures allocated on behalf of any
Participant who is not a Key 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
allocation shall be made even though under other Plan provisions,
the Participant would not otherwise be entitled to receive an
allocation, or would have received a lesser allocation for the
year because of (a) the Participant's failure to complete 1,000
Hours of Service (or any equivalent provided in the Plan), or (b)
the Participant's failure to make mandatory Employee
Contributions to the Plan, or (c) Compensation less than a stated
amount.
2. For purposes of computing the minimum allocation, Compensation
shall mean Compensation as defined in Section 1.06 of the Plan.
3. The provision in (1) above shall not apply to any Participant
who was not employed by the Employer on the last day of the Plan
Year.
4. The provision in (1) above shall not apply to any Participant to
the extent the Participant is covered under any other plan or
plans of the Employer and the Employer has provided in the adop-
<PAGE>
tion agreement that the minimum allocation or benefit requirement
applicable to Top-Heavy Plans will be met in the other plan or
plans.
5. The minimum allocation required under this Section 3.01(E) and
Section 3.01(F)(1) (to the extent required to be nonforfeitable
under Code Section 416(b)) may not be forfeited under Code
Section 411(a)(3)(B) or 411(a)(3)(D).
F. Special Requirements for Paired Plans - The Employer maintains
paired plans if the Employer has adopted both a standardized profit
sharing plan and a standardized money purchase pension plan using
this Basic Plan Document.
<PAGE>
1. Minimum Allocation - The mandatory minimum allocation provision
of Section 3.01(E) shall not apply to any Participant if the
Employer maintains paired plans. Rather, for each Plan Year, the
Employer will provide a minimum contribution equal to 3% of
Compensation for each non-Key Employee who is entitled to a
minimum contribution. Such minimum contribution 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 disparity
in contributions which is permitted under Section 401(l) of the
Code. In the event that both Adoption Agreements provide for such
integration, only the money purchase pension plan shall be deemed
to be integrated.
G. Return of the Employer Contribution to the Employer Under Special
Circumstances - Any contribution made by the Employer because of a
mistake of fact must be returned to the Employer within one year of
the contribution.
In the event that the Commissioner of Internal Revenue determines
that the Plan is not initially qualified under the Code, any
contributions made incident to that initial qualification by the
Employer must be returned to the Employer within one year after the
date the initial qualification is denied., but only if the
application for qualification is made by the time prescribed by law
for filing the Employer's return for the taxable year in which the
Plan is adopted, or such later date as the Secretary of the Treasury
may
<PAGE>
prescribe.
In the event that a contribution made by the Employer under this
Plan is conditioned on deductibility and is not deductible under
Code Section 404, the contribution, to the extent of the amount
disallowed, must be returned to the Employer within one year after
the deduction is disallowed.
H. Omission of Participant
1. If the Plan is a money purchase plan or a target benefit plan
and, if in any Plan Year, any Employee who should be included as
a Participant is erroneously omitted and discovery of such
omission is not made until after a contribution by the Employer
for the year has been made and allocated, the Employer shall make
a subsequent contribution with respect to the omitted Employee in
the amount which the Employer would have contributed with respect
to that Employee had he not been omitted.
2. If the Plan is a profit sharing plan, and if in any Plan Year,
any Employee who should be included as a Participant is
erroneously omitted and discovery of such omission is not made
until after the Employer Contribution has been made and
allocated, then the Plan Administrator must re-do the allocation
(if a correction can be made) and inform the Employee.
Alternatively, the Employer may choose to contribute for the
omitted Employee the amount which the Employer would have
contributed for him.
3.02 EMPLOYEE CONTRIBUTIONS
This Plan will not accept nondeductible employee contributions and
matching contributions for Plan Years beginning after the Plan Year in
which this Plan is adopted by the Employer. Employee contributions for
Plan Years, beginning after December 31, 1986, together with any
matching contributions as defined in Section 401(m) of the Code, will
be limited so as to meet the nondiscrimination test of Section 401(m)
of the Code.
A separate account will be maintained by the Plan Administrator for the
nondeductible employee contributions of each Participant.
A Participant may, upon a written request submitted to the Plan
Administrator withdraw the lesser of the portion of his Individual
Account attributable to his nondeductible employee contributions or the
amount he contributed as nondeductible employee contributions.
<PAGE>
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
contributions which are made for a taxable year beginning after
December 31, 1986. Contributions made prior to that date will be
maintained in a separate account which will be nonforfeitable at all
times. The account will share in the gains and losses of the Fund in
the same manner as described in Section 4.03 of the Plan. No part of
the deductible employee contribution account will be used to purchase
life insurance. Subject to Section 6.05, joint and survivor annuity
requirements (if applicable), the Participant may withdraw any part of
the deductible employee contribution account by making a written
application to the Plan Administrator.
3.03 ROLLOVER CONTRIBUTIONS
If the Plan Administrator so permits in a uniform and nondiscriminatory
manner, an Employee may contribute a rollover contribution to the Plan;
provided that such Employee submits a written certification,
satisfactory to the Trustee (or Custodian), that the contribution
qualifies as a rollover contribution.
A separate account shall be maintained by the Plan Administrator for
each Employee's rollover contributions which will be nonforfeitable at
all times. Such account will share in the income and gains and losses
of the Fund in the manner described in Section 4.03 and shall be
subject to the Plan's provisions governing distributions.
For purposes of this Section 3.03, "rollover contribution" means a
contribution described in Sections 402(a)(5), 403(a)(4) or 408(d)(3) of
the Code or in any other provision which may be added to the Code which
may authorize rollovers to the Plan.
3.04 TRANSFER CONTRIBUTIONS
If the Plan Administrator so permits in a uniform and nondiscriminatory
manner, the Trustee (or Custodian, if applicable) may receive any
amounts transferred to it from the trustee or custodian of another plan
qualified under Code Section 401(a).
A separate account shall be maintained by the Plan Administrator for
each Employee's transfer contributions which will be nonforfeitable at
all times. Such account will share in the income and gains and losses
of the Fund in the manner described in Section 4.03 and shall be
<PAGE>
subject to the Plan's provisions governing distributions.
3.05 LIMITATION ON ALLOCATIONS
A. If the Participant does not participate in, and has never
participated in another qualified plan maintained by the Employer
or a welfare benefit fund, as defined in Section 419(e) of the Code
maintained by the Employer, or an individual medical account, as
defined in Section 415(l)(2) of the Code, maintained by the
Employer, which provides an annual addition as defined in Section
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
permissible amount for a Participant on the basis of a
reasonable estimation of the Participant's Compensation for the
limitation year, uniformly determined for all participants
similarly situated.
3. As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the
limitation year will be determined on the basis of the
Participant's actual compensation for the limitation year.
4. If pursuant to Section 3.08(A)(3) or as a result of the
allocation of Forfeitures there is an excess amount, the excess
will be disposed of as follows:
a. Any nondeductible voluntary employee contributions, to the
extent they would reduce the excess amount, will be returned
to the Participant;
b. If after the application of paragraph (a) an excess amount
still exists, and the Participant is covered by the Plan at
the end of the limitation year, the excess amount in the
<PAGE>
Participant's Individual Account will be used to reduce
Employer Contributions (including any allocation of
Forfeitures) for such Participant in the next limitation
year, and each succeeding limitation year if necessary.
c. If after the application of paragraph (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
another qualified master or prototype defined contribution plan
maintained by the Employer, a welfare benefit fund, as defined in
Section 419(e) of the Code maintained by the Employer, or an
individual medical account, as defined in Section 415(l)(2) of the
Code, maintained by the Employer, which provides an annual addition
as defined in Section 3.05(E)(1), during any limitation year, the
following rules apply:
1. The annual additions which may be credited to a Participant's
Individual Account under this Plan for any such limitation year
will not exceed the maximum permissible amount reduced by the
annual additions credited to a Participant's Individual Account
under the other plans and welfare benefit funds for the same
limitation year. If the annual additions with respect to the
Participant under other defined contribution plans and welfare
benefit funds maintained by the employer are less than the maximum
permissible amount and the Employer Contribution that would
otherwise be contributed or allocated to the Participant's
Individual Account under this Plan would cause the annual
additions for the limitation year to exceed this limitation, the
amount contributed
<PAGE>
or allocated will be reduced so that the annual additions under
all such plans and funds for the limitation year will equal the
maximum permissible amount. If the annual additions with respect
to the Participant under such other defined contribution plans and
welfare benefit funds in the aggregate are equal to or greater
than the maximum permissible amount, no amount will be contributed
or allocated to the Participant's Individual Account under this
Plan for the limitation year.
2. Prior to determining the Participant's actual compensation for the
limitation year, the Employer may determine the maximum
permissible amount for a Participant in the manner described in
Section 3.05(A)(2).
3. As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the limitation
year will be determined on the basis of the Participant's actual
compensation for the limitation year.
4. If, pursuant to Section 3.05(B)(3) or as a result of the
allocation of Forfeitures a Participant's annual additions under
this Plan and such other plans would result in an excess amount
for a limitation year, the excess amount will be deemed to consist
of the annual additions last allocated, except that annual
additions attributable to a welfare benefit fund or individual
medical account will be deemed to have been allocated first
regardless of the actual allocation date.
5. If an excess amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation
date of another plan, the excess amount attributed to this Plan
will be the product of,
a. the total excess amount allocated as of such date, times
b. the 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
Participant 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-
<PAGE>
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
defined benefit plan covering any Participant in this Plan, the sum
of the Participant's defined benefit plan fraction and defined
contribution plan fraction will not exceed 1.0 in any limitation
year. The annual additions which may be credited to the Participant's
Individual Account under this Plan for any limitation year will be
limited in accordance with the Section of the Adoption Agreement
titled "Limitation on Allocation - More Than One Plan."
E. The following terms shall have the following meanings when used in
this Section 3.05:
1. Annual additions: The sum of the following amounts credited to a
Participant's Individual Account for the limitation year:
a. Employer Contributions,
b. Employee contributions,
c. Forfeitures, and
d. amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Section 415(l)(2) of the Code,
which is part of a pension or annuity plan maintained by the
Employer are treated as annual additions to a defined 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
<PAGE>
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
location of the employment or the services performed (such as
the exception for agricultural labor in Section 3401(a)(2)).
c. 415 safe-harbor compensation. Wages, salaries, and fees for
professional services and other amounts received (without
regard to whether or not an amount is paid in cash) for 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
contributions under a simplified employee pension plan to
the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred
compensation;
2. Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by the
<PAGE>
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
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an
annuity described in Section 403(b) of the Code (whether or
not the amounts are actually 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
permanently and totally disabled (as defined in Section
22(e)(3) of the Code) is the compensation such Participant
would have received for the limitation year if the
Participant had been paid at the rate of compensation paid
immediately before becoming permanently and totally
disabled; such imputed compensation for the disabled
participant may be taken into account only if the
Participant is not a Highly Compensated Employee (as
defined in Section 414(q) of the Code) and contributions
made on behalf of such Participant are nonforfeitable when
made.
3. Defined benefit fraction: A fraction, the numerator of which is
the sum of the Participant's projected annual benefits under all
the defined benefit plans (whether or not terminated) maintained
by the Employer, and the denominator of which is the lesser of
125% of the dollar limitation determined for the limitation year
under Section 415(b) and (d) of the Code or 140% of the highest
average compensation, including any adjustments under Section
415(b) of the Code.
Notwithstanding the above, if the Participant was a Participant as
of the first day of the first limitation year beginning after
<PAGE>
<PAGE>
December 31, 1986, in one or more defined benefit plans maintained
by the employer which were in existence on May 6, 1986, the
denominator of this fraction will not be less than 125% of the sum
of the annual benefits under such plans which the participant had
accrued as of the close of the last limitation year beginning
before January 1, 1987, disregarding any changes in the terms and
conditions of the plan after May 5, 1986. The preceding sentence
applies only if the defined benefit plans individually and in the
aggregate satisfied the requirements of Section 415 of the Code
for all limitation years beginning before January 1, 1987.
4. Defined contribution dollar limitation: $30,000 or if greater,
one-fourth of the defined benefit dollar limitation set forth in
Section 415(b)(1) of the Code as in effect for the limitation
year.
5. Defined contribution fraction: A fraction, the numerator of which
is the sum of the annual additions to the Participant's account
under all the defined contribution plans (whether or not
terminated) maintained by the Employer for the current and all
prior limitation years (including the annual additions
attributable to the Participant's nondeductible employee
contributions to all defined benefit plans, whether or not
terminated, maintained by the Employer, and the annual additions
attributable to all welfare benefit funds, as defined in Section
419(e) of the Code, and individual medical accounts, as defined in
Section 415(l)(2) of the Code, maintained by the Employer), and
the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior limitation years of service
with the Employer (regardless of whether a defined contribution
plan was maintained by the Employer). The maximum aggregate amount
in any limitation year is the lesser of 125% of the dollar
limitation determined under Section 415(b) and (d) of the Code in
effect under Section 415(c)(1)(A) of the Code or 35% of the
Participant's compensation for such year.
If the Employee was a participant as of the end of the first day
of the first limitation year beginning after December 31, 1986, in
one or more defined contribution plans maintained by the Employer
which were in existence on May 6, 1986, the numerator of this
fraction will be adjusted if the sum of this fraction and the
defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the
product of (1) the excess of the sum of the fractions over 1.0
times (2) the denominator of this fraction, will be permanently
subtracted from the numerator of this fraction. The adjustment is
<PAGE>
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
contributions as annual additions.
6. Employer: For purposes of this Section 3.05, Employer shall mean
the Employer that adopts this Plan, and all members of a
controlled group of corporations (as defined in Section 414(b) of
the Code as modified by Section 415(h)), all commonly controlled
trades or businesses (as defined in Section 414(c) as modified by
Section 415(h)) or affiliated service groups (as defined in
Section 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:
<PAGE>
a. the defined contribution dollar limitation, or
b. 25% of the Participant's compensation for the limitation year.
The compensation limitation referred to in (b) shall not apply to
any contribution for medical benefits (within the meaning of
Section 401(h) or Section 419A(f)(2) of the Code) which is
otherwise treated as an annual addition under Section 415(l)(1) or
419A(d)(2) of the Code.
If a short limitation year is created because of an amendment
changing the limitation year to a different 12-consecutive month
period, the maximum permissible amount will not exceed the defined
contribution dollar limitation multiplied by the following
fraction:
Number of months in the short limitation year / 12
12. Projected annual benefit: The annual retirement benefit (adjusted
to an actuarially equivalent straight life annuity if such benefit
is expressed in a form other than a straight life annuity or
qualified joint and survivor annuity) to which the Participant
would be entitled under the terms of the Plan assuming:
a. the Participant will continue employment until normal 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
established hereunder shall consist of such subaccounts as may be
needed for each Participant including:
1. a subaccount to reflect Employer Contributions and Forfeitures
allocated on behalf of a Participant;
2. a subaccount to reflect a Participant's rollover contributions;
<PAGE>
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
determined. Each such portion is reduced by any withdrawal made
from the applicable Investment Fund to or for the benefit of a
Participant or his Beneficiary, further reduced by any amounts
forfeited by the Participant pursuant to Section 6.01(D) and
further reduced by any transfer to another Investment Fund
since the previous Valuation Date and is increased by any
amount transferred from another Investment Fund since the
previous Valuation Date. The resulting amounts are the net
Individual Account portions invested in the Investment Funds.
2. Secondly, the net Individual Account portions invested in each
Investment Fund are adjusted upwards or downwards, pro rata
(i.e., ratio of each net Individual Account portion to the sum
of all net Individual Account portions) so that the sum of all
the net Individual Account portions invested in an Investment
Fund will equal the then fair market value of the Investment
<PAGE>
Fund. Notwithstanding the previous sentence, for the first Plan
Year only, the net Individual Account portions shall be the sum
of all contributions made to each Participant's Individual
Account during the first Plan Year.
3. Thirdly, any contributions to the Plan and Forfeitures are
allocated in accordance with the appropriate allocation
provisions of Section 3. For purposes of Section 4,
contributions made by the Employer for any Plan Year but after
that Plan Year will be considered to have been made on the last
day of that Plan Year regardless of when paid to the Trustee
(or Custodian, if applicable).
Amounts contributed between Valuation Dates will not be
credited with investment gains or losses until the next
following Valuation Date.
4. Finally, the portions of the Individual Account invested in
each Investment Fund (determined in accordance with (1), (2)
and (3) above) are added together.
4.04 SEGREGATION OF ASSETS
If a Participant elects a mode of distribution other than a lump sum,
the Plan Administrator may place that Participant's account balance
into a segregated Investment Fund for the purpose of maintaining the
necessary liquidity to provide benefit installments on a periodic
basis.
4.05 STATEMENT OF INDIVIDUAL ACCOUNTS
No later than 270 days after the close of each Plan Year, the Plan
Administrator shall furnish a statement to each Participant
indicating the Individual Account balances of such Participant as of
the last Valuation Date in such Plan Year.
4.06 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS If necessary
or appropriate, the Plan Administrator may establish different or
additional procedures (which shall be uniform and non-discriminatory)
for determining the fair market value of the Individual Accounts.
SECTION FIVE TRUSTEE OR CUSTODIAN
<PAGE>
5.01 CREATION OF FUND
By adopting this Plan, the Employer establishes the Fund which shall
consist of the assets of the Plan held by the Trustee (or Custodian,
if applicable) pursuant to this Section 5. Assets within the Fund may
be pooled on behalf of all Participants, earmarked on behalf of each
Participant or be a combination of pooled and earmarked. To the
extent that assets are earmarked for a particular Participant, they
will be held in a Separate Fund for that Participant.
No part of the corpus or income of the Fund may be used for, or
diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries.
5.02 INVESTMENT AUTHORITY
Except as provided in Section 5.14 (relating to individual direction
of investments by Participants), the Employer, not the Trustee (or
<PAGE>
Custodian, if applicable), shall have exclusive management and
control over the investment of the Fund into any permitted
investment. Notwithstanding the preceding sentence, a Trustee with
full trust powers (under applicable law) may make an agreement with
the Employer whereby the Trustee will manage the investment of all or
a portion of the Fund. Any such agreement shall be in writing and set
forth such matters as the Trustee deems necessary or desirable.
5.03 FINANCIAL ORGANIZATION CUSTODIAN OR TRUSTEE WITHOUT FULL
TRUST POWERS
This Section 5.03 applies where a financial organization has
indicated in the Adoption Agreement that it will serve, with respect
to this Plan, as Custodian or as Trustee without full trust powers
(under applicable law). Hereinafter, a financial organization Trustee
without full trust powers (under applicable law) shall be referred to
as a Custodian.
A. Permissible Investments - The assets of the Plan shall be invested
only in those investments which are available through the
Custodian in the ordinary course of business which the Custodian
may legally hold in a qualified plan and which the Custodian
chooses to make available to Employers for qualified plan
investments.
B. Responsibilities of the Custodian - The responsibilities of the
Custodian shall be limited to the following:
1. To receive Plan contributions and to hold, invest and reinvest
the Fund without distinction between principal and interest;
<PAGE>
provided, however, that nothing in this Plan shall require the
Custodian to maintain physical custody of stock certificates
(or other indicia of ownership of any type of asset)
representing assets within the Fund;
2. To maintain accurate records of contributions, earnings, 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
responsibilities under this Plan including, but not limited to, the
following powers:
1. To invest all or a portion of the Fund (including idle cash
balances) in time deposits, savings accounts, money market
accounts or similar investments bearing a reasonable rate of
interest in the Custodian's own savings department or the savings
department of another financial organization;
2. To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or without
power of substitution; to exercise any conversion privileges or
subscription rights and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in,
corporate reorganizations or other changes affecting corporate
securities, and to pay any assessment or charges in connection
therewith; and generally to exercise any of the powers of an owner
with respect to stocks, bonds, securities or other property;
3. To hold securities or other property of the Fund in its own name,
in the name of its nominee or in bearer form; and
4. To make, execute, acknowledge, and deliver any and all documents
of transfer and conveyance and any and all other instruments that
may be necessary or appropriate to carry out the powers herein
<PAGE>
granted.
5.04 FINANCIAL ORGANIZATION TRUSTEE WITH FULL TRUST POWERS AND
INDIVIDUAL
TRUSTEE
This Section 5.04 applies where a financial organization has
indicated in the Adoption Agreement that it will serve as Trustee
with full trust powers. This Section also applies where one or more
individuals are named in the Adoption Agreement to serve as
Trustee(s).
A. Permissible Investments - The Trustee may invest the assets of the
Plan in property of any character, real or personal, including,
but not limited to the following: stocks, including shares of
open-end investment companies (mutual funds); bonds; notes;
debentures; options; limited partnership interests; mortgages;
real estate or any interests therein; unit investment trusts;
Treasury Bills, and other U.S. Government obligations; common
trust funds, combined investment trusts, collective trust funds or
commingled funds maintained by a bank or similar financial
organization (whether or not the Trustee hereunder); savings
accounts, time deposits or money market accounts of a bank or
similar financial organization (whether or not the Trustee
hereunder); annuity contracts; life insurance policies; or in such
other investments as is deemed proper without regard to
investments authorized by statute or rule of law governing the
investment of trust funds but with regard to ERISA and this Plan.
Notwithstanding the preceding sentence, the Prototype Sponsor may,
as a condition of making the Plan available to the Employer for
adoption, limit the types of property in which the Trustee (other
than a financial organization Trustee with full trust powers), is
permitted to invest.
B. Responsibilities of the Trustee - The responsibilities of the Trustee
shall be limited to the following:
1. To receive Plan contributions and to hold, invest and reinvest the
Fund without distinction between 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-
<PAGE>
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
contract or at public auction. No person dealing with the Trustee
shall be bound to see to the application of the purchase money or
to inquire into the validity, expediency, or propriety of any such
sale or other disposition, with or without advertisement;
4. To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or without
power of substitution; to exercise any conversion privileges or
subscription rights and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in,
corporate reorganizations or other changes affecting corporate
securities, and to delegate discretionary powers, and to pay any
assessments or charges in connection therewith; and generally to
exercise any of the powers of an owner with respect to stocks,
bonds, securities or other property;
5. To invest any part or all of the Fund (including idle cash
balances) in certificates of deposit, demand or time deposits,
savings accounts, money market accounts or similar investments of
the Trustee (if the Trustee is a bank or similar financial
organiza-
<PAGE>
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
reimbursement of direct expenses properly and actually incurred in
the performance of such services);
7. To hold in the form of cash for distribution or investment such
portion of the Fund as, at any time and from time-to-time, the
Trustee shall deem prudent and deposit such cash in interest
bearing or noninterest bearing accounts.;
8. To make, execute, acknowledge, and deliver any and all documents
of transfer and conveyance and any and all other instruments that
may be necessary or appropriate to carry out the powers herein
granted;
9. To settle, compromise, or submit to arbitration any claims, debts,
or damages due or owing to or from the Plan, to commence or defend
suits or legal or administrative proceedings, and to represent the
Plan in all suits and legal and administrative proceedings;
10. To employ suitable agents and counsel, to contract with agents to
perform administrative and recordkeeping duties and to pay their
reasonable expenses, fees and compensation, and such agent or
counsel may or may not be agent or counsel for the Employer;
11. To cause any part or all of the Fund, without limitation as to
amount, to be commingled with the funds of other trusts (including
trusts for qualified employee benefit plans) by causing such money
to be invested as a part of any pooled, common, collective or
commingled trust fund heretofore or hereafter created by any
trustee (if the Trustee is a bank), by the Prototype Sponsor, by
any affiliate bank of such a Trustee or 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,
initiate such proceedings, and exercise all such rights and
privileges with relation to property constituting the Fund as if
the Trustee were the absolute owner thereof.
<PAGE>
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
reasonable compensation as may be agreed upon by the Trustee (or
Custodian) and the Employer. The Trustee (or Custodian) shall be
entitled to reimbursement by the Employer for all proper expenses
incurred in carrying out his duties under this Plan, including
reasonable legal, accounting and actuarial expenses. If not paid by
the Employer, such compensation and expenses may be charged against
the Fund.
All taxes of any kind that may be levied or assessed under existing
or future laws upon, or in respect of, the Fund or the income thereof
shall be paid from the Fund.
5.07 NOT OBLIGATED TO QUESTION DATA
The Employer shall furnish the Trustee (or Custodian, if applicable)
and Plan Administrator the information which each party deems
necessary for the administration of the Plan including, but not
limited to, changes in a Participant's status, eligibility, mailing
addresses and other such data as may be required. The Trustee (or
Custodian) and Plan Administrator shall be entitled to act on such
information as is supplied them and shall have no duty or
responsibility to further verify or question such information.
5.08 LIABILITY FOR WITHHOLDING ON DISTRIBUTIONS
The Plan Administrator shall be responsible for withholding federal
income taxes from distributions from the Plan, unless the Participant
(or Beneficiary, where applicable) elects not to have such taxes
withheld. However, the Trustee (or Custodian) shall act as agent for
the Plan Administrator to withhold such taxes and to make the
appropriate distribution reports, subject to the Plan Administrator's
obligation to furnish all the necessary information to so withhold to
the Trustee (or Custodian).
<PAGE>
5.09 RESIGNATION OR REMOVAL OF TRUSTEE (OR CUSTODIAN) The Trustee (or
Custodian, if applicable) may resign at any time by giving 30 days
advance written notice to the Employer. The resignation shall become
effective 30 days after receipt of such notice unless a shorter
period is agreed upon.
The Employer may remove any Trustee (or Custodian) at any time by
giving written notice to such Trustee (or Custodian) and such removal
shall be effective 30 days after receipt of such notice unless a
shorter period is agreed upon. The Employer shall have the power to
appoint a successor Trustee (or Custodian).
Upon such resignation or removal, if the resigning or removed Trustee
(or Custodian) is the sole Trustee (or Custodian), he shall transfer
all of the assets of the Fund then held by him as expeditiously as
possible to the successor Trustee (or Custodian) after paying or
reserving such reasonable amount as he shall deem necessary to
provide for the expense in the settlement of the accounts and the
amount of any compensation due him and any sums chargeable against
the Fund for which he may be liable. If the Funds as reserved are not
sufficient for such purpose, then he shall be entitled to
reimbursement from the successor Trustee (or Custodian) out of the
assets in the successor Trustee's (or Custodian's) hands under this
Plan. If the amount reserved shall be in excess of the amount
actually needed, the former Trustee (or Custodian) shall return such
excess to the successor Trustee (or Custodian).
Upon receipt of such assets, the successor Trustee (or Custodian)
shall thereupon succeed to all of the powers and responsibilities
given to the Trustee (or Custodian) by this Plan.
The resigning or removed Trustee (or Custodian) shall render an
accounting to the Employer and unless objected to by the Employer
within 30 days of its receipt, the accounting shall be deemed to have
been approved and the resigning or removed Trustee (or Custodian)
<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
organization shall serve as the successor Trustee (or Custodian) of
this Plan, but only if it is the type of organization that can so
serve under applicable law.
Where the Trustee or Custodian is serving as a nonbank trustee or
<PAGE>
custodian pursuant to Section 1.401-12(n) of the Income Tax
Regulations, the Employer will appoint a successor Trustee (or
Custodian) upon notification by the Commissioner of Internal Revenue
that such substitution is required because the Trustee (or Custodian)
has failed to comply with the requirements of Section 1.401-12(n) or
is not keeping such records or making such returns or rendering such
statements as are required by forms or regulations.
5.10 DEGREE OF CARE
Limitations of Liability - The Trustee (or Custodian) shall not be
liable for any losses incurred by the Fund by any lawful direction to
invest communicated by the Employer, Plan Administrator or any
Participant or Beneficiary. The Trustee (or Custodian) shall be under
no liability for distributions made or other action taken or not
taken at the written direction of the Plan Administrator. It is
specifically understood that the Trustee (or Custodian) shall have no
duty or responsibility with respect to the determination of matters
pertaining to the eligibility of any Employee to become a Participant
or remain a Participant hereunder, the amount of benefit to which a
Participant or Beneficiary shall be entitled to receive hereunder,
whether a distribution to Participant or Beneficiary is appropriate
under the terms of the Plan or the size and type of any policy to be
purchased from any insurer for any Participant hereunder or similar
matters; it being understood that all such responsibilities under the
Plan are vested in the Plan Administrator.
5.11 INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE (OR
CUSTODIAN)
Notwithstanding any other provision herein, and except as may be
otherwise provided by ERISA, the Employer shall indemnify and hold
harmless the Trustee (or Custodian, if applicable) and the Prototype
Sponsor, their officers, directors, employees, agents, their heirs,
executors, successors and assigns, from and against any and all
liabilities, damages, judgments, settlements, losses, costs, charges,
or expenses (including legal expenses) at any time arising out of or
incurred in connection with any action taken by such parties in the
performance of their duties with respect to this Plan, unless there
has been a final adjudication of gross negligence or willful
misconduct in the performance of such duties.
Further, except as may be otherwise provided by ERISA, the Employer
will indemnify the Trustee (or custodian) and Prototype Sponsor from
any liability, claim or expense (including legal expense) which the
Trustee (or Custodian) and Prototype Sponsor shall incur by reason of
or which results, in whole or in part, from the Trustee's (or Custo-
<PAGE>
dian's) or Prototype Sponsor's reliance on the facts and other
directions and elections the Employer communicates or fails to
communicate.
5.12 INVESTMENT MANAGERS
A. Definition of Investment Manager - The Employer may appoint one or
more investment managers to make investment decisions with respect
to all or a portion of the Fund. The investment manager shall be
any firm or individual registered as an investment adviser under
the Investment Advisers Act of 1940, a bank as defined in said Act
or an insurance company qualified under the laws of more than one
state to perform services consisting of the management,
acquisition or disposition of any assets of the Plan.
B. Investment Manager's Authority - A separate Investment Fund shall
be established representing the assets of the Fund invested at the
direction of the investment manager. The investment manager so
appointed shall direct the Trustee (or Custodian, if applicable )
with respect to the investment of such Investment Fund. The
investments which may be acquired at the direction of the
investment manager are those described in Section 5.03(A) (for
Custodians) or Section 5.04(A) (for Trustees).
C. Written Agreement - The appointment of any investment manager
shall be by written agreement between the Employer and the
investment manager and a copy of such agreement (and any
modification or termination thereof) must be given to the Trustee
(or Custodian).
The agreement shall set forth, among other matters, the effective
date of the investment manager's appointment and an
acknowledgement by the investment manager that it is a fiduciary
of the Plan under ERISA.
D. Concerning the Trustee (or Custodian) - Written notice of each
appointment of an investment manager shall be given to the Trustee
(or Custodian) in advance of the effective date of such
appointment. Such notice shall specify which portion of the Fund
will constitute the Investment Fund subject to the investment
manager's direction. The Trustee (or Custodian) shall comply with
the investment direction given to it by the investment manager and
will not be liable for any loss which may result by reason of any
action (or inaction) it takes at the direction of the investment
manager.
<PAGE>
5.13 MATTERS RELATING TO INSURANCE
A. If a life insurance policy is to be purchased for a Participant,
the aggregate premium for certain life insurance for each
Participant must be less than a certain percentage of the
aggregate Employer Contributions and Forfeitures allocated to a
Partici- pant's Individual Account at any particular time as
follows:
<PAGE>
1. Ordinary Life Insurance - For purposes of these incidental
insurance provisions, ordinary life insurance contracts are
contracts with both nondecreasing death benefits and
nonincreasing premiums. If such contracts are purchased, less
than 50% of the aggregate Employer Contributions and
Forfeitures allocated to any Participant's Individual Account
will be used to pay the premiums attributable to them.
2. Term and Universal Life Insurance - No more than 25% of the
aggregate Employer Contributions and Forfeitures allocated to
any Participant's Individual Account will be used to pay the
premiums on term life insurance contracts, universal life
insurance contracts, and all other life insurance contracts
which are not ordinary life.
3. Combination - The sum of 50% of the ordinary life insurance
premiums and all other life insurance premiums will not exceed
25% of the aggregate Employer Contributions and Forfeitures
allocated to any Participant's Individual Account.
B. Any dividends or credits earned on insurance contracts for a 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
contract(s) to the Participant's designated Beneficiary in accordance
with the distribution provisions of this Plan. A Participant's spouse
will be the designated Beneficiary of the proceeds in all
circumstances unless a qualified election has been made in accordance
with Section 6.05. Under no circumstances shall the Fund retain any
<PAGE>
part of the proceeds. In the event of any conflict between the terms
of this Plan and the terms of any insurance contract purchased
hereunder, the Plan provisions shall control.
E. The 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
individually direct the Trustee (or Custodian, if applicable)
regarding the investment of part or all of his Individual Account. To
the extent so directed, the Employer, Plan Administrator, Trustee (or
Custodian) and all other fiduciaries are relieved of their fiduciary
responsibility under Section 404 of ERISA.
The Plan Administrator shall direct that a Separate Fund be
established in the name of each Participant who directs the
investment of part or all of his Individual Account. Each Separate
Fund shall be charged or credited (as appropriate) with the earnings,
gains, losses or expenses attributable to such Separate Fund. No
fiduciary shall be liable for any loss which results from a
Participant's individual direction. The assets subject to individual
direction shall not be invested in collectibles as that term is
defined in Section 408(m) of the Code.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules relating to individual direction as it deems
necessary or advisable including, but not limited to, rules
describing (1) which portions of Participant's Individual Account can
be individually directed; (2) the frequency of investment changes;
(3) the forms and procedures for making investment changes; and (4)
the effect of a Participant's failure to make a valid direction.
Subject to the approval of the Prototype Sponsor, the Plan
Administrator may, in a uniform and nondiscriminatory manner, limit
the available investments for Participants' individual direction to
certain specified investment options (including, but not limited to,
certain mutual funds, investment contracts, deposit accounts and
group trusts). The Plan Administrator may permit, in a uniform and
nondiscriminatory manner, a Beneficiary of a deceased Participant to
individually direct in accordance with this Section.
<PAGE>
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
Participant upon the occurrence of any of the following events:
a. the Participant's Termination of Employment;
b. the Participant's attainment of Normal Retirement Age;
c. the Participant's Disability;
d. the termination of the Plan;
2. Written Request: When Distributed - A Participant entitled to
distribution who wishes to receive a distribution must submit a
written request to the Plan Administrator. Such request shall be
made upon a form provided by the Plan Administrator. Upon a valid
request, the Plan Administrator shall direct the Trustee (or
Custodian, if applicable) to commence distribution no later than
90 days following the later of:
a. the close of the Plan Year within which the event occurs which
entitles the Participant to distribution; or
b. the close of the Plan Year in which the request is received.
3. Special Rules for Withdrawals During Service - If this is a profit
sharing plan and the Adoption Agreement so provides, a Participant
who is not otherwise entitled to a distribution under Section 6.01
<PAGE>
(A)(1) may elect to receive a distribution of all or part of the
Vested portion of his Individual Account, subject to the
requirements 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
<PAGE>
full Plan Years.
However, if the distribution is on account of hardship, the
Participant may withdraw up to his entire Vested portion of
his Individual Account. For purposes of the preceding
sentence, hardship is defined as an immediate and heavy
financial need of the Participant where such Participant lacks
other available resources. The following are the only
financial needs considered immediate and heavy: expenses
incurred or necessary for medical care, described in Section
213(d) of the Code, of the Employee, the Employee's spouse or
dependents; the purchase (excluding mortgage payments) of a
principal residence for the Employee; payment of tuition and
related educational fees for the next 12 months of
post-secondary education for the Employee, the Employee's
spouse, children or dependents; or the need to prevent the
eviction of the Employee from, or a foreclosure on the
mortgage of, the Employee's principal residence.
A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
1) The employee has obtained all distributions, other than
hardship distributions, and all nontaxable loans under
all 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
provision, unless the Participant elects otherwise,
distribution of benefits will begin no later than the 60th day
after the latest of the close of the Plan Year in which:
a. the Participant attains Normal Retirement Age;
b. occurs the 10th anniversary of the year in which the 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
<PAGE>
a Participant's Individual Account, the following rules apply:
1. Employer Contributions and Forfeitures - The Vested portion of
a Participant's Individual Account derived from Employer
Contributions and Forfeitures is determined by applying the
vesting schedule selected in the Adoption Agreement (or the
vesting schedule described in Section 6.01(C) if the Plan is a
Top-Heavy Plan).
2. Rollover and Transfer Contributions - A Participant is fully
Vested in his rollover contributions and transfer
contributions.
3. Fully Vested Under Certain Circumstances - A Participant is
fully Vested in his Individual Account if any of the following
occurs:
a. the Participant reaches Normal Retirement Age;
b. the Participant incurs a Disability;
c. the Participant dies;
d. the Plan is terminated or partially terminated; or
e. there exists a complete discontinuance of contributions
under the Plan.
4. Participants in a Prior Plan - If a Participant was a
participant in a Prior Plan on the Effective Date, his Vested
percentage shall not be less than it would have been under
such Prior Plan as computed on the Effective Date.
C. Minimum Vesting Schedule for Top-Heavy Plans - The following vesting
provisions apply for any Plan Year in which this Plan is a Top-Heavy
Plan.
Notwithstanding the other provisions of this Section 6.01 or the
vesting schedule selected in the Adoption Agreement (unless those
provisions or that schedule provide for more rapid vesting), a
Participant's Vested portion of his 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
before the Plan became a Top-Heavy Plan. Further, no decrease in a
Participant's Vested percentage may occur in the event the Plan's
status as a Top-Heavy Plan changes for any Plan Year. However, this
Section 6.01(C) does not apply to the Individual Account of any
Employee who does not have an Hour of Service after the Plan has
initially become a Top-Heavy Plan and such Employee's Individual
Account attributable to Employer Contributions and Forfeitures will
be determined without regard to this Section.
If this Plan ceases to be a Top-Heavy Plan, then in accordance with
the above restrictions, the vesting schedule as selected in the
Adoption Agreement will govern. If the vesting schedule under the
Plan shifts in or out of top-heavy status, such shift is an
amendment to the vesting schedule and the election in Section 9.04
applies.
D. Break in Vesting Service and Forfeitures - If a Participant incurs a
Termination of Employment, any portion of his Individual Account
which is not Vested shall be held in a suspense account. Such
suspense account shall share in any increase or decrease in the fair
market value of the assets of the Fund in accordance with Section 4
of the Plan. The disposition of such suspense account shall be as
follows:
1. No Breaks in Vesting Service - If a Participant neither receives
nor is deemed to receive a distribution pursuant to Section 6.01
(D)(2) or (3) and the Participant returns to the service of the
Employer before incurring 5 consecutive Breaks in Vesting Service,
there shall be no Forfeiture and the amount in such suspense
account shall be recredited to such Participant's Individual
Account.
2. Cash-out of Certain Participants - If the value of the Vested
portion of such Participant's Individual Account derived from
Employee and Employer Contributions does not exceed $3,500, the
Participant shall receive a distribution of the entire Vested
portion of such Individual Account and the portion which is not
Vested shall be treated as a Forfeiture and allocated in the year
of the cash-
<PAGE>
out. For purposes of this Section, if the value of the Vested
portion of a Participant's Individual Account is zero, the
Participant shall be deemed to have received a distribution of
such Vested Individual Account. A Participant's Vested Individual
Account balance shall not include accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the
Code for Plan Years beginning prior to January 1, 1989.
3. Participants Who Elect to Receive Distributions - If such
Participant elects to receive a distribution, in accordance with
Section 6.02(B), of the value of the Vested portion of his
Individual Account derived from Employee and Employer
Contributions, the portion which is not Vested shall be treated as
a Forfeiture.
4. Re-employed Participants - If a Participant receives or is deemed
to receive a distribution pursuant to Section 6.01(D)(2) or (3)
above and the Participant resumes employment covered under this
Plan, the Participant's Employer-derived Individual Account
balance will be restored to the amount on the date of distribution
if the Participant repays to the Plan the full amount of the
distribution attributable to Employer Contributions before the
earlier of 5 years after the first date on which the Participant
is subsequently re-employed by the Employer, or the date the
Participant incurs 5 consecutive Breaks in Vesting Service
following the date of the distribution.
Amounts forfeited under Section 6.01(D) shall be allocated in
accordance with Section 3.01(C) as of the last day of the Plan
Year during which the Forfeiture arises. Any restoration of a
Participant's Individual Account pursuant to Section 6.01(D)(4)
shall be made from other Forfeitures, income or gain to the Fund
or contributions made by the Employer.
E. Distribution Prior to Full Vesting - If a distribution is made to a
Participant who was not then fully Vested in his Individual Account
derived from Employer Contributions and the Participant may increase
his Vested percentage in his Individual Account, then the following
rules shall apply:
1. a separate account will be established for the Participant's 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
<PAGE>
percentage at the relevant time, "AB" is the separate account
balance at the relevant time; "D" is the amount of the
distribution; and "R" is the ratio of the separate account balance
at the relevant time to the separate account balance after
distribution.
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT
A. Value of Individual Account Does Not Exceed $3,500 - If the value of
the Vested portion of a Participant's Individual Account derived from
Employee and Employer Contributions does not exceed $3,500,
distribution from the Plan shall be made to the Participant in a
single lump sum in lieu of all other forms of distribution from the
Plan.
B. Value of Individual Account Exceeds $3,500
1. If the value of the Vested portion of a Participant's Individual
Account derived from Employee and Employer Contributions exceeds
(or at the time of any prior distribution exceeded) $3,500, and
the Individual Account is immediately distributable, the
Participant and the 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 Administrator shall notify the Participant and the
Participant's spouse of the right to defer any distribution until
the Participant's Individual Account is no longer immediately
distributable. Such notification shall include a general
description of the material features, and an explanation of the
relative values of, the optional forms of benefit available under
the Plan in a manner that would satisfy the notice requirements of
Section 417(a)(3) of the Code, and shall be provided no less than
30 days and no more than 90 days prior to the annuity starting
date. If a distribution is one to which Sections 401(a)(11) and
417 of the Internal Revenue Code do not apply, such distribution
may commence less than 30 days after the notice required under
Section 1.411(a)- 11(c) of the Income Tax Regulations is given,
provided that:
a. the Plan Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not
to elect a distribution (and, if applicable, a particular
distribution option), and
<PAGE>
b. the Participant, after receiving the notice, affirmatively
elects a distribution.
<PAGE>
Notwithstanding the foregoing, only the Participant need consent
to the commencement of a distribution in the form of a qualified
joint and survivor annuity while the Individual Account is
immediately distributable. Neither the consent of the Participant
nor the Participant's spouse shall be required to the extent that
a distribution is required to satisfy Section 401(a)(9) or Section
415 of the Code. In addition, upon termination of this Plan if the
Plan does not offer an annuity option (purchased from a commercial
provider), the Participant's Individual Account may, without the
Participant's consent, be distributed to the Participant or
transferred to another defined contribution plan (other than an
employee stock ownership plan as defined in Section 4975 (e)(7) of
the Code) within the same controlled group.
An Individual Account is immediately distributable if any part of
the Individual Account could be distributed to the Participant (or
surviving spouse) before the Participant attains or would have
attained (if not deceased) the later of Normal Retirement Age or
age 62.
2. For purposes of determining the applicability of the foregoing
consent requirements to distributions, made before the first day
of the first Plan year beginning after December 31, 1988, the
Vested portion of a Participant's Individual Account shall not
include amounts attributable to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) 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
expectancy of the Participant and his designated Beneficiary; or (3)
applied to the purchase of an annuity contract.
Notwithstanding anything in this Section 6.02 to the contrary, a
Participant cannot elect payments in the form of an annuity if the
safe harbor rules of Section 6.05(F) apply.
<PAGE>
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT
A. Designation of Beneficiary - Spousal Consent - Each Participant may
designate, upon a form provided by and delivered to the Plan
Administrator, one or more primary and contingent Beneficiaries to
receive all or a specified portion of his Individual Account in the
event of his death. A Participant may change or revoke such
Beneficiary designation from time to time by completing and
delivering the proper form to the Plan Administrator.
In the event that a Participant wishes to designate a primary
Beneficiary who is not his spouse, his spouse must consent in writing
to such designation, and the spouse's consent must acknowledge the
effect of such designation and be witnessed by a notary public.
Notwithstanding this consent requirement, if the Participant
establishes to the satisfaction of the Plan Administrator that such
written consent may not be obtained because there is no spouse or the
spouse cannot be located, no consent shall be required. Any change of
Beneficiary will require a new spousal consent.
B. Payment to Beneficiary - If a Participant dies before his entire
Individual Account has been paid to him, such deceased Participant's
Individual Account shall be payable to any surviving Beneficiary
designated by the Participant, or, if no Beneficiary survives the
Participant, to the Participant's estate.
C. Written Request: When Distributed - A Beneficiary of a deceased
Participant entitled to a distribution who wishes to receive a
distribution must submit a written request to the Plan Administrator.
Such request shall be made upon a form provided by the Plan
Administrator. Upon a valid request, the Plan Administrator shall
direct the Trustee (or Custodian) to commence distribution no later
than 90 days following the later of:
1. the close of the Plan Year within which the Participant dies; or
2. the close of the Plan Year in which the request is received.
D. Location of Participant or Beneficiary Unknown - In the event that
all, or any portion, of the distribution payable to a Participant or
his Beneficiary hereunder shall, at the expiration of 5 years after
it becomes payable, remain unpaid solely by reason of the inability
of the Plan Administrator, after sending a registered letter, return
receipt requested, to the last known address, and after further
diligent effort, to ascertain the whereabouts of such Participant or
his
<PAGE>
Beneficiary, the amount so distributable shall be forfeited and
allocated in accordance with the terms of the Plan. In the event a
Participant or Beneficiary is located subsequent to his benefit being
forfeited, such benefit shall be restored; provided, however, if all
or a portion of such amount has been lost by reason of escheat under
state law, the Participant or Beneficiary shall cease to be entitled
to the portion so lost.
6.04 FORM OF DISTRIBUTION TO BENEFICIARY
A. Value of Individual Account Does Not Exceed $3,500 - If the value of
the Participant's Individual Account derived from Employee and
Employer Contributions does not exceed $3,500, the Plan Administrator
shall direct the Trustee (or Custodian, if applicable) to make a
distribution to the Beneficiary in a single lump sum in lieu of all
other forms of distribution from the Plan.
B. Value of Individual Account Exceeds $3,500 - If the value of a Par-
ticipant's Individual Account derived from Employee and Employer
Contributions exceeds $3,500 the preretirement survivor annuity
requirements of Section 6.05 shall apply unless waived in accordance
with that Section or unless the safe harbor rules of Section 6.05(F)
apply.
C. Other Forms of Distribution to Beneficiary - If the value of a 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
requirements of Section 6.06, request in writing that the
Participant's Individual Account be paid to him as follows: (1) in a
lump sum; or (2) in installment payments over a period not to exceed
the life expectancy of such Beneficiary.
6.05 JOINT AND SURVIVOR ANNUITY REQUIREMENTS
A. The provisions of this Section shall apply to any Participant who is
credited with at least one Hour of Eligibility Service with the
Employer on or after August 23, 1984, and such other participants as
provided in Section 6.05(G).
<PAGE>
B. Qualified Joint and Survivor Annuity - Unless an optional form of
benefit is selected pursuant to a qualified election within the 90-
day period ending on the annuity starting date, a married 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
<PAGE>
account balance will be paid in the form of a life annuity. The
Participant may elect to have such annuity distributed upon
attainment of the earliest retirement age under the Plan.
C. Qualified Preretirement Survivor Annuity - Unless an 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
distributed within a reasonable period after the Participant's death.
D. Definitions
1. Election Period - The period which begins on the first day of the
Plan Year in which the Participant attains age 35 and ends on the
date of the Participant's death. 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
separation.
Pre-age 35 waiver - A Participant who will not yet attain age 35
as of the end of any current Plan Year may make special qualified
election to waive the qualified preretirement survivor annuity for
the period beginning on the date of such election and ending on
the first day of the Plan Year in which the Participant will
attain age 35. Such election shall not be valid unless the
Participant receives a written explanation of the qualified 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
reinstated as of the first day of the Plan Year in which the
Participant attains age 35. Any new waiver on or after such date
shall be subject to the full requirements of this Section 6.05.
2. Earliest Retirement Age - The earliest date on which, under the
Plan, the Participant could elect to receive retirement benefits.
3. Qualified Election - A waiver of a qualified joint and survivor
annuity or a qualified preretirement survivor annuity. Any waiver
of a qualified joint and survivor annuity or a qualified 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
<PAGE>
beneficiaries or any contingent beneficiaries, which may not be
changed without spousal consent (or the spouse expressly permits
designations by the Participant without any further spousal
consent); (c) the spouse's consent acknowledges the effect of the
election; and (d) the spouse's consent is witnessed by a plan
representative or notary public. Additionally, a Participant's
waiver of the qualified joint and survivor annuity shall not be
effective unless the election designates a form of benefit payment
which may not be changed without spousal consent (or the spouse
expressly permits designations by the Participant without any
further spousal consent). If it is established to the satisfaction
of a plan representative that there is no spouse or that the
spouse cannot be located, a waiver will be deemed a qualified
election.
Any consent by a spouse obtained under this provision (or
establishment that the consent of a spouse may not be obtained)
shall be effective only with respect to such spouse. A consent
that permits designations by the Participant without any
requirement of further consent by such spouse must acknowledge
that the spouse has the right to limit consent to a specific
Beneficiary, and a specific form of benefit where applicable, and
that the spouse voluntarily elects to relinquish either or both of
such rights. A revocation of a prior waiver may be made by a
Participant without the consent of the spouse at any time before
the commencement of benefits. The number of revocations shall not
be limited. No consent obtained under this provision shall be
valid unless the Participant has received notice as provided in
Section 6.05(E) below.
4. Qualified Joint and Survivor Annuity - An immediate annuity for
the life of the Participant with a survivor annuity for the life
of the spouse which is not less than 50% and not more than 100% of
the amount of the annuity which is payable during the joint lives
of the Participant and the spouse and which is the amount of
beneficiary 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
<PAGE>
414(p) of the Code.
6. Annuity Starting Date - The first day of the first period for
which an amount is paid as an annuity or any other form.
7. Vested Account Balance - The aggregate value of the Participant's
Vested account balances derived from Employer and Employee
contributions (including rollovers), whether Vested before or upon
death, including the proceeds of insurance contracts, if any, on
the Participant's life. The provisions of this Section 6.05 shall
apply to a Participant who is Vested in amounts attributable to
Employer Contributions, Employee contributions (or both) at the
time of death or distribution.
E. Notice Requirements
1. In the case of a qualified joint and survivor annuity, the Plan
Administrator shall no less than 30 days and not more than 90 days
prior to the annuity starting date provide each Participant a
written explanation of: (a) the terms and conditions of a
qualified joint and survivor annuity; (b) the Participant's right
to make and the effect of an election to waive the qualified joint
and survivor annuity form of benefit; (c) the rights of a 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
Participant within the applicable period for such Participant a
written explanation of the qualified preretirement survivor
annuity in such terms and in such manner as would be comparable to
the explanation provided for meeting the requirements of Section
6.05(E)(1) applicable to a qualified joint and survivor annuity.
<PAGE>
The applicable period for a Participant is whichever of the
following periods ends last: (a) the period beginning with the
first day of the Plan Year in which the Participant attains age 32
and ending with the close of the Plan Year preceding the Plan Year
in which the Participant attains age 35; (b) a reasonable period
ending after the individual becomes a Participant; (c) a
reasonable period ending after Section 6.05(E)(3) ceases to apply
to the Participant; (d) a reasonable period ending after this
Section 6.05 first applies to the Participant. Notwithstanding the
foregoing, notice must be provided within a reasonable period
ending
<PAGE>
after separation from service in the case of a Participant who
separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable
period ending after the enumerated events described in (b), (c)
and (d) is the end of the two-year period beginning one year prior
to the date the applicable event occurs, and ending one year after
that date. In the case of a Participant who separates from service
before the Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year prior to
separation and ending one year after separation. If such a
Participant thereafter returns to employment with the Employer,
the applicable period for such Participant shall be redetermined.
3. Notwithstanding the other requirements of this Section 6.05(E),
the respective notices prescribed by this Section 6.05(E), need
not be given to a Participant if (a) the Plan "fully subsidizes"
the costs of a qualified joint and survivor annuity or qualified
preretirement survivor annuity, and (b) the Plan does not allow
the Participant to waive the qualified joint and survivor annuity
or qualified preretirement survivor annuity and does not allow a
married Participant to designate a nonspouse beneficiary. For
purposes of this Section 6.05(E)(3), a plan fully subsidizes the
costs of a benefit if no increase in cost, or decrease in benefits
to the Participant may result from the Participants failure to
elect another benefit.
F. Safe Harbor Rules
1. If the Employer so indicates in the Adoption Agreement, this
Section 6.05(F) shall apply to a Participant in a profit sharing
plan, and shall always apply to any distribution, made on or after
the first day of the first Plan Year beginning after December 31,
1988, from or under a separate account attributable solely to
accumulated deductible employee contributions, as defined in
Section 72(o)(5)(B) of the Code, and maintained on behalf of a
Participant in a money purchase pension plan, (including a target
benefit plan) if the following conditions are satisfied:
a. the Participant does not or cannot elect payments in the form
of a life annuity; and
b. on the death of a participant, the Participant's Vested
account balance will be paid to the Participant's surviving
spouse, but if there is no surviving spouse, or if the sur-
<PAGE>
viving spouse has consented in a manner conforming to a
qualified election, then to the Participant's designated
beneficiary. The surviving spouse may elect to have
distribution of the Vested account balance commence within
the 90-day period following the date of the Participant's
death. The account balance shall be adjusted for gains or
losses occurring after the Participant's death in accordance
with the provisions of the Plan governing the adjustment of
account balances for other types of distributions. This
Section 6.05(F) shall not be operative with respect to a
Participant in a profit sharing plan if the plan is a direct
or indirect transferee of a defined benefit plan, money
purchase plan, a target benefit plan, stock bonus, or profit
sharing plan which is subject to the survivor annuity
requirements of Section 401(a)(11) and Section 417 of the
code. If this Section 6.05(F) is operative, then the
provisions of this Section 6.05 other than Section 6.05(G)
shall be inoperative.
2. The Participant may waive the spousal death benefit described in
this Section 6.05(F) at any time provided that no such waiver
shall be effective unless it satisfies the conditions of Section
6.05(D)(3) (other than the notification requirement referred to
therein) that would apply to the Participant's waiver of the
qualified preretirement survivor annuity.
3. For purposes of this Section 6.05(F), Vested account balance shall
mean, in the case of a money purchase pension plan or a target
benefit plan, the Participant's separate account balance
attributable solely to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the
Code. In the case of a profit sharing plan, Vested account balance
shall have the same meaning as provided in Section 6.05(D)(7).
G. Transitional Rules
1. Any living Participant not receiving benefits on August 23, 1984,
who would otherwise not receive the benefits prescribed by the
previous subsections of this Section 6.05 must be given the
opportunity to elect to have the prior subsections of this Section
apply if such Participant is credited with at least one Hour of
Service under this Plan or a predecessor plan in a Plan Year
beginning on or after January 1, 1976, and such Participant had at
least 10 Years of Vesting Service when he or she separated from
service.
<PAGE>
2. Any living Participant not receiving benefits on August 23, 1984,
who was credited with at least one Hour of Service under this Plan
or a predecessor plan on or after September 2, 1974, and who is
not otherwise credited with any service in a Plan Year beginning
on or after January 1, 1976, must be given the opportunity to have
his or her benefits paid in accordance with Section 6.05(G)(4).
3. The respective opportunities to elect (as described in Section
6.05(G)(1) and (2) above) must be afforded to the appropriate
Participants during the period commencing on August 23, 1984, and
ending on the date benefits would otherwise commence to said
Participants.
4. Any Participant who has elected pursuant to Section 6.05(G)(2) and
any Participant who does not elect under Section 6.05(G)(1) or who
meets the requirements of Section 6.05(G)(1) except that such
Participant does not have at least 10 Years of Vesting Service
when he or she separates from service, shall have his or her
benefits distributed in accordance with all of the following
requirements if benefits would have been payable in the form of a
life annuity:
a. Automatic Joint and Survivor Annuity - If benefits in the form
of a life annuity become payable to a married Participant who:
1. begins to receive payments under the Plan on or after Normal
Retirement Age; or
2. dies on or after Normal Retirement Age while still working
for the Employer; or
3. begins to receive payments on or after the qualified early
retirement age; or
<PAGE>
4. separates from service on or after attaining Normal
Retirement Age (or the qualified early retirement age) and
after satisfying the eligibility requirements for the
payment of benefits under the Plan and thereafter dies
before beginning to receive such benefits;
then such benefits will be received under this Plan in the
form of a qualified joint and survivor annuity, unless the
Participant has elected otherwise during the election
period. The election period must begin at least 6 months
before the Participant attains qualified early retirement
age and ends not more than 90 days before the commencement
of
<PAGE>
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
inconsistent provisions of this Plan. Unless otherwise specified,
the provisions of this Section 6.06 apply to calendar years
beginning after December 31, 1984.
2. All distributions required under this Section 6.06 shall be deter-
<PAGE>
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
required 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
<PAGE>
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
applicable divisor determined from the table set forth in Q&A-4
of Section 1.401(a)(9)-2 of the Income Tax Regulations.
Distributions after the death of the Participant shall be
distributed using the applicable life expectancy in Section
6.05(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
beginning date occurs, must be made on or before December 31 of
that distribution calendar year.
2. Other Forms - If the Participant's benefit is distributed in the form
of an annuity purchased from an insurance company, distributions
thereunder shall be made in accordance with the requirements of
Section 401(a)(9) of the Code and the regulations thereunder.
E. Death Distribution Provisions
1. Distribution Beginning Before Death - If the Participant dies after
distribution of his or her interest has begun, the remaining portion
of such interest will continue to be distributed at least as rapidly
as under the method of distribution being used prior to the 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
distributions in accordance with (a) or (b) below:
a. if any portion of the Participant's interest is payable to a
designated Beneficiary, distributions may be made over the life
or over a period certain not greater than the life expectancy of
the designated Beneficiary commencing on or before December 31
of the calendar year immediately following the calendar year in
which the Participant died;
<PAGE>
b. if the designated Beneficiary is the Participant's surviving
spouse, the date distributions are required to begin in
accordance with (a) above shall not be earlier than the later of
(1) December 31 of the calendar year immediately following the
calendar year in which the Participant dies or (2) December 31
of the calendar year in which the Participant would have
attained age 70 1/2.
If the Participant has not made an election pursuant to this
Section 6.05(E)(2) by the time of his or her death, the Par-
ticipant's designated Beneficiary must elect the method of
distribution no later than the earlier of (1) December 31 of the
calendar year in which distributions would be required to begin
under this Section 6.05(E)(2), or (2) December 31 of the
calendar year which contains the fifth anniversary of the date
of death of the Participant. If the Participant has no
designated Beneficiary, or if the designated Beneficiary does
not elect a method of distribution, distribution of the
Participant's entire interest must be completed by December 31
of the calendar year containing the fifth anniversary of the
Participant's death.
3. For purposes of Section 6.06(E)(2) above, if the surviving spouse
dies after the Participant, but before payments to such spouse begin,
the provisions of Section 6.06(E)(2), with the exception of paragraph
(b) therein, shall be applied as if the surviving spouse were the
Participant.
4. For purposes of this Section 6.06(E), any amount paid to a child of
the Participant will be treated as if it had been paid to the
surviving spouse if the amount becomes payable to the surviving
spouse when the child reaches the age of majority.
5. For purposes of this Section 6.06(E), distribution of a Participant's
interest is considered to begin on the Participant's required
beginning date (or, if Section 6.06(E)(3) above is applicable, the
date distribution is required to begin to the surviving spouse
pursuant to Section 6.06(E)(2) above). If distribution in the form of
an annuity irrevocably commences to the Participant before the
required beginning date, the date distribution is considered to begin
is the date distribution actually commences.
F. Definitions
1. Applicable Life Expectancy - The life expectancy (or joint and last
survivor expectancy) calculated using the attained age of the Parti-
<PAGE>
cipant (or designated Beneficiary) as of the Participant's (or
designated Beneficiary's) birthday in the applicable calendar year
reduced by one for each calendar year which has elapsed since the
date life expectancy was first calculated. If life expectancy is
being recalculated, the applicable life expectancy shall be the life
expectancy as so recalculated. The applicable calendar year shall be
the first distribution calendar year, and if life expectancy is being
recalculated such succeeding calendar year.
2. Designated Beneficiary - The individual who is designated as the
Beneficiary under the Plan in accordance with Section 401(a)(9) of
the Code and the regulations thereunder.
3. Distribution Calendar Year - A calendar year for which a minimum
distribution is required. For distributions beginning before the Par-
ticipant's death, the first distribution calendar year is the
calendar year immediately preceding the calendar year which contains
the Participant's required beginning date. For distributions
beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are
required to begin pursuant to Section 6.05(E) above.
4. Life Expectancy - Life expectancy and joint and last survivor
expectancy are computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or spouse, in the case
of distributions described in Section 6.05(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 recalculated.
5. Participant's Benefit
a. The account balance as of the last valuation date in the
valuation calendar year (the calendar year immediately preceding
the distribution calendar year) increased by the amount of any
Contributions or Forfeitures allocated to the account balance as
of dates in the valuation calendar year after the valuation date
and decreased by distributions made in the valuation calendar
year after the valuation date.
<PAGE>
b. Exception for second distribution calendar year. For purposes
<PAGE>
of paragraph (a) above, if any portion of the minimum
distribution for the first distribution calendar year is made in
the second distribution calendar year on or before the required
beginning date, the amount of the minimum distribution made in
the second distribution calendar year shall be treated as if it
had been made in the immediately preceding distribution calendar
year.
6. Required Beginning Date
a. General Rule - The required beginning date of a Participant is
the first day of April of the calendar year following the
calendar year in which the Participant attains age 70 1/2.
b. Transitional Rules - The required beginning date of a
Participant who attains age 70 1/2 before January 1, 1988, shall
be determined in accordance with (1) or (2) below:
(1) Non 5% Owners - The required beginning date of a
Participant who is not a 5% owner is the first day of April
of the calendar year following the calendar year in which
the later of retirement or attainment of age 70 1/2 occurs.
(2) 5% Owners - The required beginning date of a Participant
who is a 5% owner during any year beginning after December
31, 1979, is the first day of April following the later of:
(a) the calendar year in which the Participant attains age
70 1/2, or
(b) the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a
5% owner, or the calendar year in which the Participant
retires.
The required beginning date of a Participant who is not
a 5% owner who attains age 70 1/2 during 1988 and who
has not retired as of January 1, 1989, is April 1,
1990.
(c) 5% Owner - A Participant is treated as a 5% owner for
purposes of this Section 6.06(F)(6) if such Participant
is a 5% owner as defined in Section 416(i) of the Code
(determined in accordance with Section 416 but without
regard to whether the Plan is top-heavy) at any time
<PAGE>
during the Plan Year ending with or within the calendar
year in which such owner attains age 66 1/2 or any
subsequent Plan Year.
(d) Once distributions have begun to a 5% owner under this
Section 6.06(F)(6) they must continue to be
distributed, even if the Participant ceases to be a 5%
owner in a subsequent year.
G. Transitional Rule
1. Notwithstanding the other requirements of this Section 6.06 and
subject to the requirements of Section 6.05, Joint and Survivor
Annuity Requirements, distribution on behalf of any Employee,
including a 5% owner, may be made in accordance with all of the
following requirements (regardless of when such distribution
commences):
a. The distribution by the Fund is one which would not have
disqualified such Fund under Section 401(a)(9) of the Code as in
effect prior to amendment by the Deficit Reduction Act of 1984.
b. The distribution is in accordance with a method of distribution
designated by the Employee whose interest in the Fund is being
distributed or, if the Employee is deceased, by a Beneficiary of
such Employee.
c. Such designation was in writing, was signed by the Employee or the
Beneficiary, and was made before January 1, 1984.
d. The Employee had accrued a benefit under the Plan as of December
31, 1983.
e. The method of distribution designated by the Employee or the
Beneficiary specifies the time at which distribution will
commence, the period over which distributions will be made, and in
the case of any distribution upon the Employee's death, the
Beneficiaries of the Employee listed in order of priority.
2. A distribution upon death will not be covered by this transitional
rule unless the information in the designation contains the required
information described above with respect to the distributions to be
made upon the death of the Employee.
3. For any distribution which commences before January 1, 1984, but con-
tinues after December 31, 1983, the Employee, or the Beneficiary, to
<PAGE>
whom such distribution is being made, will be presumed to have
designated the method of distribution under which the distribution is
being made if the method of distribution was specified in writing and
the distribution satisfies the requirements in Sections 6.06(G)(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
distributions are required to begin, the Plan must distribute by the
end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which would
have been required to have been distributed to satisfy Section
401(a)(9) of the Code and the regulations thereunder, but for the
Section 242 (b)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the minimum
distribution incidental benefit requirements in Section 1.401(a)(9)-2
of the Income Tax Regulations. Any changes in the designation will be
considered to be a revocation of the designation. However, the mere
substitution or addition of another Beneficiary (one not named in the
designation) under the designation will not be considered to be a
revocation of the designation, so long as such substitution or
addition does not alter the period over which distributions are to be
made under the designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in which an amount
is transferred or rolled over from one plan to another plan, the
rules in Q&A J-2 and Q&A J-3 shall apply.
6.07 ANNUITY CONTRACTS
Any annuity contract distributed under the Plan (if permitted or required
by this Section 6) must be nontransferable. The terms of any annuity
contract purchased and distributed by the Plan to a Participant or spouse
shall comply with the requirements of the Plan.
<PAGE>
6.08 LOANS TO PARTICIPANTS
If the Adoption Agreement so indicates, a Participant may receive a loan
from the Fund, subject to the following rules:
A. Loans shall be made available to all Participants on a reasonably
equivalent basis.
B. Loans shall not be made available to Highly Compensated Employees (as
defined in Section 414(q) of the Code) in an amount greater than the
amount made available to other Employees.
<PAGE>
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
consent shall be required if the account balance is used for
renegotiation, extension, renewal, or other revision of the loan.
F. In the event of default, foreclosure on the note and attachment of 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)
corporation who owns (or is considered as owning within the meaning of
Section 318(a)(1) of the Code), on any day during the taxable year of
such corporation, more than 5% of the outstanding stock of the
corporation.
If a valid spousal consent has been obtained in accordance with
6.08(E), then, notwithstanding any other provisions of this Plan, the
portion of the Participant's Vested Individual Account used as a
security interest held by the Plan by reason of a loan outstanding to
the Participant shall be taken into account for purposes of determining
the amount of the account balance payable at the time of death or
distribution, but only if the reduction is used as repayment of the
loan. If less than 100% of the Participant's Vested Individual Account
(determined without regard to the preceding sentence) is payable to the
surviving spouse, then the account balance shall be adjusted by first
reducing the Vested Individual Account by the amount of the security
used as repayment of the loan, and then determining the benefit payable
to the surviving spouse.
No loan to any Participant can be made to the extent that such loan
when added to the outstanding balance of all other loans to the
Participant would exceed the lesser of (a) $50,000 reduced by the
excess (if any) of the highest outstanding balance of loans during the
one year
<PAGE>
period ending on the day before the loan is made, over the outstanding
balance of loans from the Plan on the date the loan is made, or (b) 50%
of the present value of the nonforfeitable Individual Account of the
Participant or, if greater, the total Individual Account up to $10,000.
For the purpose of the above limitation, all loans from all plans of
the Employer and other members of a group of employers described in
Sections 414(b), 414(c), and 414(m) of the Code are aggregated.
Furthermore, any loan shall by its terms require that repayment
(principal and interest) be amortized in level payments, not less
frequently than quarterly, over a period not extending beyond 5 years
from the date of the loan, unless such loan is used to acquire a
dwelling unit which within a reasonable time (determined at the time
the loan is made) will be used as the principal residence of the
Participant. An assignment or pledge of any portion of the
Participant's interest in the Plan and a loan, pledge, or assignment
with respect to any insurance contract purchased under the Plan, will
be treated as a loan under this paragraph.
The Plan Administrator shall administer the loan program in accordance
with a written document. Such written document shall include, at a
minimum, the following: (i) the identity of the person or positions
authorized to administer the Participant loan program; (ii) the
procedure for applying for loans; (iii) the basis on which loans will
be approved or denied; (iv) limitations (if any) on the types and
amounts of loans offered; (v) the procedure under the program for
determining a reasonable rate of interest; (vi) the types of collateral
which may secure a Participant loan; and (vii) the events constituting
default and the steps that will be taken to preserve Plan assets in the
event of such default.
6.09 DISTRIBUTION IN KIND
The Plan Administrator may cause any distribution under this Plan to be
made either in a form actually held in the Fund, or in cash by converting
assets other than cash into cash, or in any combination of the two
foregoing ways.
6.10 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS
A. Direct Rollover Option - This Section applies to distributions made on
or after January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the manner prescribed
by the Plan Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
<PAGE>
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
distribution does not include:
a. any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period
of ten years or more;
b. any distribution to the extent such distribution is required 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
individual 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
individual retirement annuity.
3. Distributee - A distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is
the alternate payee under a qualified domestic relations order, as
defined in Section 414(p) of the Code, are distributees with regard
to the interest of the spouse or former spouse.
4. Direct rollover - A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
SECTION SEVEN CLAIMS PROCEDURE
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS
<PAGE>
A Participant or Beneficiary who desires to make a claim for the Vested
portion of the Participant's Individual Account shall file a written
request with the Plan Administrator on a form to be furnished to him by
the Plan Administrator for such purpose. The request shall set forth the
basis of the claim. The Plan Administrator is authorized to conduct such
examinations as may be necessary to facilitate the payment of any benefits
to which the Participant or Beneficiary may be entitled under the terms of
the Plan.
7.02 DENIAL OF CLAIM
Whenever a claim for a Plan distribution by any Participant or Beneficiary
has been wholly or partially denied, the Plan Administrator must furnish
such Participant or Beneficiary written notice of the denial within 60
days of the date the original claim was filed. This notice shall set forth
the specific reasons for the denial, specific reference to pertinent Plan
provisions on which the denial is based, a description of any additional
information or material needed to perfect the claim, an explanation of why
such additional information or material is necessary and an explanation of
the procedures for appeal.
7.03 REMEDIES AVAILABLE
The Participant or Beneficiary shall have 60 days from receipt of the
denial notice in which to make written application for review by the Plan
Administrator. The Participant or Beneficiary may request that the review
be in the nature of a hearing. The Participant or Beneficiary shall have
the right to representation, to review pertinent documents and to submit
comments in writing. The Plan Administrator shall issue a decision on such
review within 60 days after receipt of an application for review as
provided for in Section 7.02. Upon a decision unfavorable to the
Participant or Beneficiary, such Participant or Beneficiary shall be
entitled to bring such actions in law or equity as may be necessary or
appropriate to protect or clarify his right to benefits under this Plan.
SECTION EIGHT PLAN ADMINISTRATOR
8.01 EMPLOYER IS PLAN ADMINISTRATOR
A. The Employer shall be the Plan Administrator unless the managing body
of the Employer designates a person or persons other than the Employer
as the Plan Administrator and so notifies the Prototype Sponsor and the
Trustee (or Custodian, if applicable). The Employer shall also be the
Plan Administrator if the person or persons so designated cease to be
the Plan Administrator.
B. If the managing body of the Employer designates a person or persons
other than the Employer as Plan Administrator, such person or persons
<PAGE>
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
nondiscriminatory manner and shall be consistent with the intent
that the Plan shall continue to be deemed a qualified plan under the
terms of Section 401(a) of the Code, as amended from time-to-time,
and shall comply with the terms of ERISA, as amended from
time-to-time;
2. To determine all questions relating to the eligibility of Employees
to become or remain Participants hereunder;
3. To compute the amounts necessary or desirable to be contributed to
the Plan;
4. To compute the amount and kind of benefits to which a Participant or
Beneficiary shall be entitled under the Plan and to direct the
Trustee (or Custodian, if applicable) with respect to all
disbursements under the Plan, and, when requested by the Trustee (or
Custodian), to furnish the Trustee (or Custodian) with instructions,
in writing, on matters pertaining to the Plan and the Trustee (or
Custodian) may rely and act thereon;
<PAGE>
5. To maintain all records necessary for the administration of the
Plan;
6. To be responsible for preparing and filing such disclosure and tax
forms as may be required from time-to-time by the Secretary of Labor
or the Secretary of the Treasury; and
<PAGE>
7. To furnish each Employee, Participant or Beneficiary such notices,
information and reports under such circumstances as may be required
by law.
D. The Plan Administrator shall have all of the powers necessary or
appropriate to accomplish his duties under the Plan, including, but not
limited to, the following:
1. To appoint and retain such persons as may be necessary to carry out
the functions of the Plan Administrator;
2. To appoint and retain counsel, specialists or other persons as the
Plan Administrator deems necessary or advisable in the 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
inconsistency in such manner and to such extent as shall be deemed
necessary or advisable to carry out the purpose of the Plan.
8.03 EXPENSES AND COMPENSATION
All reasonable expenses of administration including, but not limited to,
those involved in retaining necessary professional assistance may be paid
from the assets of the Fund. Alternatively, the Employer may, in its
discretion, pay such expenses. The Employer shall furnish the Plan
Administrator with such clerical and other assistance as the Plan
Administrator may need in the performance of his duties.
8.04 INFORMATION FROM EMPLOYER
To enable the Plan Administrator to perform his duties, the Employer shall
<PAGE>
supply full and timely information to the Plan Administrator (or his
designated agents) on all matters relating to the Compensation of all
Participants, their regular employment, retirement, death, Disability or
Termination of Employment, and such other pertinent facts as the Plan
Administrator (or his agents) may require. The Plan Administrator shall
advise the Trustee (or Custodian, if applicable) of such of the foregoing
facts as may be pertinent to the Trustee's (or Custodian's) duties under
the Plan. The Plan Administrator (or his agents) is entitled to rely on
such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
SECTION NINE AMENDMENT AND TERMINATION
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN
A. The Employer, by adopting the Plan, expressly delegates to the
Prototype Sponsor the power, but 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
understood that the Prototype Sponsor shall be under no obligation to
amend the Plan documents and the Employer expressly waives any rights
or claims against the Prototype Sponsor for not exercising this power
to amend. For purposes of Prototype Sponsor amendments, the mass 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
individually designed plan. The right of the Prototype Sponsor to cause
the Plan to be amended shall terminate should the Plan cease to conform
as a prototype plan as provided in this or any other section.
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN
<PAGE>
The Employer may (1) change the choice of options in the Adoption
Agreement, (2) add overriding language in the Adoption Agreement when such
language is necessary to satisfy Section 415 or Section 416 of the Code
because of the required aggregation of multiple plans, and (3) add certain
model amendments published by the Internal Revenue Service which
specifically provide that their adoption will not cause the Plan to be
treated as individually designed. An Employer that amends the Plan for any
other reason, including a waiver of the minimum funding requirement under
Section 412(d) of the Code, will no longer participate in this prototype
plan and will be considered to have an individually designed plan.
An Employer who wishes to amend the Plan to change the options it has
chosen in the Adoption Agreement must complete and deliver a new Adoption
Agreement to the Prototype Sponsor and Trustee (or Custodian, if
applicable). Such amendment shall become effective upon execution by the
Employer and Trustee (or Custodian).
The Employer further reserves the right to replace the Plan in its
entirety by adopting another retirement plan which the Employer designates
as a replacement plan.
9.03 LIMITATION ON POWER TO AMEND
No amendment to the Plan shall be effective to the extent that it has the
effect of decreasing a Participant's accrued benefit. Notwithstanding the
preceding sentence, a Participant's Individual Account may be reduced to
the extent permitted under Section 412(c)(8) of the Code. For purposes of
this paragraph, a plan amendment which has the effect of decreasing a 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
Contributions will not be less than the percentage computed under the Plan
without regard to such amendment.
<PAGE>
9.04 AMENDMENT OF VESTING SCHEDULE
If the Plan's vesting schedule is amended, or the Plan is amended in any
way that directly or indirectly affects the computation of the 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.
<PAGE>
For Participants who do not have at least 1 Hour of Service in any Plan
Year beginning after December 31, 1988, the preceding sentence shall be
applied by substituting "5 Years of Vesting Service" for "3 Years of
Vesting Service" where such language appears.
The Period during which the election may be made shall commence with the
date the amendment is adopted or deemed to be made and shall end the later
of:
A. 60 days after the amendment is adopted;
B. 60 days after the amendment becomes effective; or
C. 60 days after the Participant is issued written notice of the amendment
by the Employer or Plan Administrator.
9.05 PERMANENCY
The Employer expects to continue this Plan and make the necessary
contributions thereto indefinitely, but such continuance and payment is
not assumed as a contractual obligation. Neither the Adoption Agreement
nor the Plan nor any amendment or modification thereof nor the making of
contributions hereunder shall be construed as giving any Participant or
any person whomsoever any legal or equitable right against the Employer,
the Trustee (or Custodian, if applicable) the Plan Administrator or the
Prototype Sponsor except as specifically provided herein, or as provided
by law.
9.06 METHOD AND PROCEDURE FOR TERMINATION
The Plan may be terminated by the Employer at any time by appropriate
action of its managing body. Such termination shall be effective on the
date specified by the Employer. The Plan shall terminate if the Employer
shall be dissolved, terminated, or declared bankrupt. Written notice of
the termination and effective date thereof shall be given to the Trustee
(or Custodian), Plan Administrator, Prototype Sponsor, Participants and
Beneficiaries of deceased Participants, and the required filings (such as
the Form 5500 series and others) must be made with the Internal Revenue
Service and any other regulatory body as required by current laws and
regulations. Until all of the assets have been distributed from the Fund,
the Employer must keep the Plan in compliance with current laws and
regulations by (a) making appropriate amendments to the Plan and (b)
taking such other measures as may be required.
9.07 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER
Notwithstanding the preceding Section 9.06, a successor of the Employer
may continue the Plan and be substituted in the place of the present
Employer. The successor and the present Employer (or, if deceased, the
executor of the estate of a deceased Self-Employed Individual who was the
<PAGE>
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,
consolidation, or transfer (if the Plan had then terminated) which are
equal to or greater than the benefits he would have been entitled to
receive immediately before the merger, consolidation, or transfer (if the
Plan had then terminated). The Trustee (or Custodian) 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
<PAGE>
aims. No fiduciary shall cause the Plan to engage in any transaction
known as a "prohibited transaction" under ERISA.
10.06 GENERAL UNDERTAKING OF ALL PARTIES
All parties to this Plan and all persons claiming any interest whatsoever
hereunder agree to perform any and all acts and execute any and all
documents and papers which may be necessary or desirable for the carrying
out of this Plan and any of its provisions.
<PAGE>
10.07 AGREEMENT BINDS HEIRS, ETC.
This Plan shall be binding upon the heirs, executors, administrators,
successors and assigns, as those terms shall apply to any and all parties
hereto, present and future.
10.08 DETERMINATION OF TOP-HEAVY STATUS
A. For any Plan Year beginning after December 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
<PAGE>
gross income under Section 125, Section 402(a)(8), Section 402(h) or
Section 403(b) of the Code. The determination period is the Plan Year
containing the determination date and the 4 preceding Plan Years.
The determination of who is a Key Employee will be made in accordance
with Section 416(i)(1) of the Code and the regulations thereunder.
C. Top-heavy ratio
1. If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Employer
has not maintained any defined benefit plan which during the 5-year
period ending on the determination date(s) has or has had accrued
benefits, the top-heavy ratio for this Plan alone or for the
required or permissive aggregation group as appropriate is a
fraction, the numerator of which is the sum of the account balances
of all Key Employees as of the determination date(s) (including any
part of any account balance distributed in the 5-year period ending
on the determination date(s)), and the denominator of which is the
sum of all account balances (including any part of any account
balance distributed in the 5-year period ending on the determination
date(s)), both computed in accordance with Section 416 of the Code
and the regulations thereunder. Both the numerator and the
denominator of the top-heavy ratio are increased to reflect any
contribution not actually made as of the determination date, but
which is required to be taken into account on that date under
Section 416 of the Code and the regulations thereunder.
2. If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Employer
maintains or has maintained one or more defined benefit plans which
during the 5-year period ending on the determination date(s) has or
has had any accrued benefits, the top-heavy ratio for any required
or permissive aggregation group as appropriate is a fraction, the
numerator of which is the sum of account balances under the
aggregated defined contribution plan or plans for all Key Employees,
determined in accordance with (1) above, and the present value of
accrued benefits under the aggregated defined benefit plan or plans
for all Key Employees as of the determination date(s), and the
denominator of which is the sum of the account balances under the
aggregated defined contribution plan or plans for all Participants,
determined in accordance with (1) above, and the present value of
accrued benefits under the defined benefit plan or plans for all
Participants as of the determination date(s), all determined in
accordance with Section 416 of the Code and the regulations there-
<PAGE>
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
balances and accrued benefits of a Participant (a) who is not a Key
Employee but who was a Key Employee in a Prior Year, or (b) who has
not been credited with at least one Hour of Service with any
employer maintaining the plan at any time during the 5-year period
ending on the determination date will be disregarded. The
calculation of the top-heavy ratio, and the extent to which
distributions, rollovers, and transfers are taken into account will
be made in accordance with Section 416 of the Code and the
regulations thereunder. Deductible employee contributions will not
be taken into account for purposes of computing the top-heavy ratio.
When aggregating plans the value of account balances and accrued
benefits will be calculated with reference to the determination
dates that fall within the same calendar year.
The accrued benefit of a Participant other than a Key Employee shall
be determined under (a) the method, if any, that uniformly applies
for accrual purposes under all defined benefit plans maintained by
the Employer, or (b) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted
under the fractional rule of Section 411(b)(1)(C) of the Code.
4. Permissive aggregation group: The required aggregation group of
plans plus any other plan or plans of the Employer which, when
considered as a group with the required aggregation group, would
continue to satisfy the requirements of Sections 401(a)(4) and 410
of the Code.
<PAGE>
5. Required aggregation group: (a) Each qualified plan of the Employer
in which at least one Key Employee participates or participated at
any time during the determination period (regardless of whether the
Plan has terminated), and (b) any other qualified plan of the
Employer which enables a plan described in (a) to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
<PAGE>
6. Determination date: For any Plan Year subsequent to the first Plan
Year, the last day of the preceding Plan Year. For the first Plan
Year of the Plan, the last day of that year.
7. Valuation date: For purposes of calculating the top-heavy ratio,
the valuation date shall be the last day of each Plan Year.
8. Present value: For purposes of establishing the "present value" of
benefits under a defined benefit plan to compute the top-heavy
ratio, any benefit shall be discounted only for mortality and
interest based on the interest rate and mortality table specified
for this purpose in the defined benefit plan.
10.09 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES
If this Plan provides contributions or benefits for one or more Owner-
Employees who control both the business for which this Plan is established
and one or more other trades or businesses, this Plan and the plan
established for other trades or businesses must, when looked at as a
single plan, satisfy Sections 401(a) and (d) of the Code for the employees
of those trades or businesses.
If the Plan provides contributions or benefits for one or more Owner-
Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan
which satisfies Sections 401(a) and (d) of the Code and which provides
contributions and benefits not less favorable than provided for
Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two or
more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
employees under the plan of the trade or business which is controlled must
be as favorable as those provided for him under the most favorable plan of
the trade or business which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or
more Owner-Employees, will be considered to control a trade or business if
the Owner-Employee, or two or more Owner-Employees, together:
A. own the entire interest in a unincorporated trade or business, or
B. in the case of a partnership, own more than 50% of either the capital
interest or the profit interest in the partnership. For purposes of
the preceding sentence, an Owner-Employee, or two or more Owner-Employ-
ees, shall be treated as owning any interest in a partnership which is
<PAGE>
owned, directly or indirectly, by a partnership which such Owner-
Employee, or such two or more Owner-Employees, are considered to
control within the meaning of the preceding sentence.
10.10 INALIENABILITY OF BENEFITS
No benefit or interest available hereunder will be subject to assignment
or alienation, either voluntarily or involuntarily. The preceding sentence
shall also apply to the creation, assignment, or recognition of a right to
any benefit payable with respect to a Participant pursuant to a domestic
relations order, unless such order is determined to be a qualified
domestic relations order, as defined in Section 414(p) of the Code.
Generally, a domestic relations order cannot be a qualified domestic
relations order until January 1, 1985. However, in the case of a domestic
relations order entered before such date, the Plan Administrator:
(1) shall treat such order as a qualified domestic relations order if
such Plan Administrator is paying benefits pursuant to such order on
such date, and
(2) may treat any other such order entered before such date as a
qualified domestic relations order even if such order does not meet
the requirements of Section 414(p) of the Code.
#709 (1/94) 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:
<PAGE>
- ------------
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.
<PAGE>
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.
#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
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 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
<PAGE>
Plan Year up to the integration level, plus
Step 2. An amount equal to ___% (not to exceed the base
contribution percentage by more than the lesser of:
(1) the base contribution percentage, or (2) the
money purchase maximum disparity rate as described
in Section 3.01(b)(3) of the Plan) of such
Participant's Compensation for the Plan Year in
excess of the integration level.
The integration level shall be (Choose one):
Option 1: [ ] The Taxable Wage Base
Option 2: [ ] $________ (a dollar amount less than the Taxable Wage Base)
Option 3: [ ] ______% of the Taxable Wage Base
NOTE: If no box is checked, the integration level shall be the Taxable
Wage Base.
SECTION 5. VESTING Complete Parts A and B
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 (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.
<PAGE>
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 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
(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
<PAGE>
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 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
<PAGE>
Sponsor________________________________________________
Address_______________________________________________________________
- ---
Telephone
Number_________________________________________________________
SECTION 14. LIMITATION ON ALLOCATIONS - More Than One Plan If you maintain or
ever maintained another qualified plan (other than a paired standardized
profit sharing plan using Basic Plan Document No. 03) in which any
Participant in this Plan is (or was) a Participant or could become a
Participant, you must complete this section. You must also complete this
section if you maintain a welfare benefit fund, as defined in Section
419(e) of the Code, or an individual medical account, as defined in Section
415(l)(2) of the Code, under which amounts are treated as annual additions
with respect to any Participant in this Plan.
Part A. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a 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
<PAGE>
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:
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<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
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
information about the owner:
Social Security No._________________Date Business
Established_________________
Date of Birth_______________________Marital
Status____________________________
Home
Address_______________________________________________________________
- ----
EFFECTIVE DATES Check and complete Option A or B
Option A. [ ] This is the initial adoption of a money purchase pension plan
by the Employer.
The Effective Date of this Plan is ______________________, 19____.
NOTE: The effective date is usually the first day of the Plan Year
in which this Adoption Agreement is signed.
Option B. [ ] This is an amendment and restatement of an existing
money purchase pension plan (a prior plan) NOTE: The effective
date is usually the first day of the Plan Year in which this
Adoption Agreement is signed.
The Prior Plan was initially effective on _________________, 19_____.
The Effective Date of this amendment and restatement is _____, 19___.
<PAGE>
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
contribute 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
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_________________________
<PAGE>
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
employees as defined in Section 419A(d)(3) of the Code or an individual medical
account, as defined in Section 415(l)(2) of the Code) in addition to this Plan
(other than a paired standardized 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
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.
#726(12/90) 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
<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 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
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.
Part C. The limitation year is the following 12-consecutive month period:_____
- ---------------------------------------
#726(12/90) 1990 Universal Pensions, Inc., Brainerd, MN 56401
Investor Service Center, Inc.
Toll-free 1-888-503-FUND (3863)
- --------------------------------------------------------------------------------
IRA Information Kit
Regular o Rollover o Roth o SEP o SAR-SEP
<PAGE>
Table of Contents
Questions and Answers about IRAs........................................... 1
How to Get Started......................................................... 3
Application for Regular, Rollover
and Roth IRAs, SEPs, and SAR-SEPs.......................................... 5
IRA Transfer, Direct Rollover & Conversion Form............................ 7
Authorization to Add or Convert to a Roth IRA or Other IRA................. 9
Disclosure Statement....................................................... 11
Account Custodial Agreement................................................ 23
<PAGE>
Questions and Answers about IRAs
What's new in the world of IRAs?
An Individual Retirement Account ("IRA") has always provided an attractive
means to save money for the future on a tax-advantaged basis. Recent changes to
Federal tax law have now made the IRA an even more flexible investment and
savings vehicle. Among the new changes is the creation of the Roth Individual
Retirement Account ("Roth IRA"), which is available for use after January 1,
1998. Under a Roth IRA, the earnings and interest on an individual's
nondeductible contributions grow without being taxed, and distributions may be
tax-free under certain circumstances. Most taxpayers (except for those with very
high income levels) will be eligible to contribute to a Roth IRA. A Roth IRA can
be used instead of a Regular IRA, to replace an existing Regular IRA, or
complement a Regular IRA you wish to continue maintaining.
Taxpayers with adjusted gross income of up to $100,000 are eligible to
convert existing IRAs into Roth IRAs. The details on conversion are found in the
description of Roth IRAs in this Kit.
Congress has also made significant changes to Regular IRAs. First, Congress
increased the income levels at which IRA holders who participate in
employer-sponsored retirement plans can make deductible Regular IRA
contributions. Also, the rules for deductible contributions by an IRA holder
whose spouse is a participant in an employer-sponsored retirement plan have been
liberalized. Second, the 10% penalty tax for premature withdrawals (before age
59 1/2) will no longer apply in the case of withdrawals to pay certain higher
education expenses or certain first-time homebuyer expenses.
What's in this Kit?
In this Kit you will find detailed information about Roth IRAs and about the
changes that have been made to Regular IRAs. You will also find all you need to
establish and maintain a Regular, Roth IRA, SEP IRA, SAR-SEP IRA, or to convert
all or part of an existing Regular IRA to a Roth IRA.
The beginning of this Kit contains the instructions and forms you will need
to open a new Regular or Roth IRA, to transfer from another IRA to an Investor
Service Center IRA, or to convert a Regular IRA to a Roth IRA.
The next section of this Kit contains our IRA Disclosure Statement. The
Disclosure Statement is divided into three parts:
o Part One describes the basic rules and benefits which are specifically
applicable to your Regular IRA.
o Part Two describes the basic rules and benefits which are specifically
applicable to your Roth IRA. o Part Three describe rules and information
applicable to all IRAs.
The last section of this Kit contains the IRA Custodial Agreement. The
Custodial Agreement is also divided into three parts:
o Part One contains provisions specifically applicable to Regular IRAs.
o Part Two contains provisions specifically applicable to Roth IRAs.
o Part Three contains provisions applicable to all IRAs (Regular and Roth).
What's the difference between a Regular IRA and a Roth IRA?
With a Regular IRA, an individual can contribute up to $2,000 per year and
may be able to deduct the contribution from taxable income, reducing income
taxes. Taxes on investment growth and dividends are deferred until the money is
withdrawn. Withdrawals are taxed as additional ordinary income when received.
Nondeductible contributions, if any, are withdrawn tax-free. Withdrawals before
age 59 1/2 are assessed a 10%
<PAGE>
penalty in addition to income tax, unless an exception applies.
With a Roth IRA, the contribution limits are essentially the same as Regular
IRAs, but there is no tax deduction for contributions. All dividends and
investment growth in the account are tax-free. Most important with a Roth IRA:
there is no income tax on qualified withdrawals from your Roth IRA.
Additionally, unlike a Regular IRA, there is no prohibition on making
contributions to Roth IRAs after turning age 70 1/2, and there's no requirement
that you begin making minimum withdrawals at that age.
The following chart highlights some of the major differences between a
Regular IRA and a Roth IRA:
<TABLE>
<CAPTION>
Characteristics Regular IRA Roth IRA
- --------------- ---------------------------------- -----------------------------------
<S> <C> <C>
Eligibility o Individuals (and their spouses) o Individuals (and their spouses) who receive
who receive compensation compensation
o Individuals age 70 1/2 and over o Individuals age 70 1/2 and over may
may contribute contribute
Tax Treatment of
Contributions o Subject to limitations, contributions o No deduction permitted for amounts
are deductible contributed
Contribution of Limits o Individuals may contribute up o Individuals may generally
to $2000 annually (or 100% of contribute up to $2000 (or 100% of
compensation, if less) compensation, if less)
o Deductibility depends on income level o Ability to contribute phases out at income
for individuals who are active participants levels of $95,000 to $110,000(individual
in an employer-sponsored retirement plan taxpayer) and $150,000 to $160,000
(married taxpayers)
o Overall limit for contributions to all IRAs
(Regular and Roth combined) is $2,000
annually (or 100% of compensation, if less)
Earnings o Capital appreciation and dividends are not o Capital appreciation and dividends are not
taxed in your IRA taxed in your IRA
Rollover/Conversions o Individual may rollover tax free to o Rollovers from other Roth IRA's or Regular
Regular IRA amounts held in IRA's only
employer-sponsored retirement
arrangements (401(k), SEP IRA, etc.) o Amounts rolled over (or converted) from
another Regular IRA are subject to
income tax in the year rolled over or converted
o Tax on amounts rolled over or converted in 1998
is spread over four year period (1998-2001)
Withdrawals o Total (contributions + earnings) o Not taxable as long as a qualified distribution
taxable as income in year withdrawn - generally, account open for 5 years, and age 59 1/2
(except for any prior non-deductible
contributions)
o Minimum withdrawals must begin after o Minimum withdrawals not required after
age 70 1/2 age 70 1/2
</TABLE>
<PAGE>
Is a Roth or a Regular IRA right for me?
We cannot act as your legal or tax advisor and so we cannot tell you which
kind of IRA is right for you. The information contained in this Kit is intended
to provide you with the basic information and material you will need if you
decide whether a Regular or Roth IRA is better for you, or if you want to
convert an existing Regular IRA to a Roth IRA. We suggest that you consult with
your accountant, lawyer or other tax advisor, or with a qualified financial
planner, to determine whether you should open a Regular or Roth IRA or convert
any or all of an existing Regular IRA to a Roth IRA. Your tax advisor can also
advise you as to the state tax consequences that may affect whether a Regular or
Roth IRA is right for you.
What about SEP IRAs and SAR-SEP IRAs?
The Investor Service Center Regular IRA may be used in connection with a
simplified employee pension (SEP) or SEP Employer Salary Reduction (SAR-SEP)
plan maintained by your employer. To establish a Regular IRA as part of your
Employer's SEP plan, complete the IRA Application for a Regular IRA, indicating
in the proper box that the IRA is part of a SEP plan. A Roth IRA should not be
used in connection with a SEP plan.
What are the legal matters applicable to this Kit?
The Disclosure Statement in this Kit provides you with the basic information
that you should know about Investor Service Center Regular IRAs and Roth IRAs.
The Disclosure Statement provides general information about the governing rules
for these IRAs and the benefits and features offered through each type of IRA.
However, the Application and the Custodial Agreement are the primary documents
controlling the terms and conditions of your personal Investor Service Center
Regular or Roth IRA, and these shall govern in the case of any difference with
the Disclosure Statement.
Read carefully the applicable sections of the IRA Disclosure Statement
contained in this Kit, the Regular or Roth Individual Retirement Custodial
Account document (as applicable), the IRA Application, and the prospectus(es)
for any Fund(s) you are considering. Consult your lawyer or other tax adviser if
you have any questions about how opening a Regular IRA or Roth IRA will affect
your financial and tax situation. To establish more than one type of IRA, make a
copy of the enclosed IRA Application for each type of IRA you wish to open.
"You" or "your" when used throughout this Kit refer to the person for whom
the Investor Service Center Regular or Roth IRA is established. A "Roth IRA" is
either an Investor Service Center Roth IRA or any Roth IRA established by any
other financial institution. A "Regular IRA" is any non-Roth IRA offered by
Investor Service Center or any other financial institution.
The minimum investment to establish an Investor Service Center IRA or other
retirement plan is $1,000. 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 Investor Service Center Automatic Investment Program - see
Part 3 of the IRA Application. There are no set up fees for any Investor Service
Center Retirement Plans. Subject to change on 30 days' notice, the plan
custodian charges Investor Service Center 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 Investor Service Center Automatic
Investment Program.
More questions? Call toll-free 1-888-503-FUND(3863)
<PAGE>
How to Get Started
To complete the IRA Applications, please read the following. Questions? Please
call 1-888-503-FUND (3863) to speak to an Investor Service Center
Representative.
1. Print the registration information where requested in Part 1.
2. Check the circle in Part 2 to specify the fund investment and the type of
IRA you are opening.
o If making the initial investment with a contribution, enclose a check drawn to
the order of Investor Service Center in the amount of the contribution. Be sure
to indicate whether this is a contribution for last year or for the current
year. Third party checks cannot be accepted.
o If this is a Direct Transfer from another IRA custodian or trustee, check the
appropriate circle to indicate whether IRA assets were originally from a Regular
IRA to which you have made annual contributions, or originally from a Rollover
IRA that contains only assets from a qualified plan or 403(b) arrangement. Also,
complete and sign the IRA Transfer, Direct Rollover & Conversion form.
o If this is a Direct Rollover from an employer sponsored qualified plan or
403(b) arrangement, check the appropriate circle. Complete and sign the IRA
Transfer, Direct Rollover & Conversion Form.
o If applicable, check the circle for a 60-Day Rollover. A 60-Day Rollover is
one where your IRA assets with another custodian were wholly distributed to you
and within 60 days you are rolling the assets over to an Investor Service Center
IRA.
o For a Roth IRA, check the circle in Part 2 to specify the type of Roth IRA you
are opening and provide the requested information.
o If this is a Roth IRA to which you expect to make contributions each year,
enclose a check drawn to the order of Investor Service Center in the amount of
your first contribution. Third party checks cannot be accepted. Only annual
contributions may be accepted in a Roth Contribution IRA. Roth IRAs became
available only starting January 1, 1998, so you cannot make a contribution for
tax year 1997.
o If you are converting an existing Investor Service Center Regular IRA to a
Roth IRA, check the appropriate circle. Complete and attach the IRA Transfer,
Direct Rollover and Conversion form and indicate your current IRA account number
and how much you are converting. Conversion of an existing Regular IRA will
result in inclusion of taxable amounts in the existing Regular IRA on your
income tax return. Note: If a conversion, rollover or transfer from a Regular
IRA to a Roth IRA is being made, only amounts converted, rolled over or
transferred during the same tax year will be accepted in a single Roth IRA. A
separate Roth IRA must be established to hold such amounts from a different tax
year. Annual contributions may never be deposited in a Roth IRA holding such
converted, rolled over or transferred amounts.
o If you want to convert your existing Regular IRA with Investor Service Center
or with another custodian or trustee, check the appropriate circle. A rollover
or transfer from an existing Regular IRA to a Roth IRA means that the taxable
amount in the existing Regular IRA will be treated as additional income on your
income tax return.
o If you are making a Direct Transfer from another Roth IRA with a different
trustee or custodian or a 60-Day Rollover, check the appropriate circle. Put the
requested information where indicated.
o For an IRA that will be used to receive employer contributions under an
employer's simplified employee pension (or "SEP") plan or under a grandfathered
salary reduction SEP plan (or "SAR-SEP"), check the appropriate circle in Part
2.
3. To take advantage of regular monthly investing, complete Part 3.
4. In Part 4, indicate your Primary Beneficiary(ies) and Contingent
Beneficiary(ies). Spousal consent is required if a beneficiary is other than
your spouse.
5. Sign and date the IRA Application in Part 5 at the end. If the Depositor is a
minor under the laws of the Depositor's state of residence, a parent or guardian
must sign the Adoption Agreement. Until the Depositor reaches the age of
majority, the parent or guardian will exercise the powers and duties of the
Depositor. (If guardian, provide copy of letters of appointment.)
If you are transferring assets or rolling over from an existing IRA to this
IRA, or converting a Regular IRA to a Roth IRA, please be sure to complete and
attach the IRA Transfer, Direct Rollover & Conversion form.
Send your completed forms and checks to: Investor Service Center, Inc., P.O. Box
419789, Kansas City MO 64141-6789
<PAGE>
<PAGE>
IRA APPLICATION
Use this IRA Application to open a new IRA, Rollover IRA, Roth IRA, Roth
Conversion IRA, SEP IRA, and/or SAR-SEP IRA. To open a SIMPLE IRA or Education
IRA, call 1-888-503-FUND (3863). To establish more than one type of IRA, make a
copy of this IRA Application for each type of IRA you wish to open. Return the
completed IRA Application(s) in the enclosed envelope or mail to: Investor
Service Center, Box 419789, Kansas City, MO 64141-6789.
1. Registration If you need assistance in completing this IRA Application,
please call 1-888-503-FUND (3863).
First Name Middle Initial Last Name Social Security Number (required)
Mailing Address (Street and Apartment Number or Box Number)
City and State Zip
Birth Date (Month, Day, Year)
Home Telephone Number Work Telephone Number E-mail Address
Legal Residential Address (if different from Mailing Address)
City and State Zip
2. Initial Investment ($1,000 Minimum) Note: Minimums are waived for
participants in the Investor
Service Center Bank Transfer Plan (see Section 3). If you are transferring or
converting an existing IRA, please enclose the "Authorization for IRA Transfer,
Direct Rollover & Conversion" form.
Check the Fund you are investing in.
o Midas Fund
o Rockwood Fund
o Bull & Bear Dollar Reserves
o Bull & Bear Special Equities Fund
o Bull & Bear U.S. and Overseas Fund
o Bull & Bear Gold Investors
- ---------------------------------------------------------------
Regular IRA
o Deductible or non-deductible contribution for tax year 199( )
o Direct Transfer* from an existing o Regular IRA o Rollover IRA**
o Direct Rollover from an employer-sponsored plan*
o 60-Day Rollover from an existing o Regular IRA o Rollover IRA**
Amount: $
- ---------------------------------------------------------------
Roth Contribution IRA (Only annual contributions may be accepted in a Roth
Contribution IRA.)
o Non-deductible contribution for tax year 199( )
o Direct Transfer from Roth Contribution IRA, established on _____________*
o 60-Day Rollover from Roth Contribution IRA, established on _____________
Amount: $
- ---------------------------------------------------------------
Roth Conversion IRA
o Convert my existing Investor Service Center Regular IRA to a Roth
Conversion IRA*
o Convert my existing Regular IRA with another custodian to an Investor
Service Center Roth Conversion IRA*
o Direct Transfer from existing Roth Conversion IRA, established on __________*
o 60-Day Rollover from existing Roth Conversion IRA, established on __________
Amount: $
- ---------------------------------------------------------------
SEP IRA
o SEP Employer (or self employed) contribution
o Direct Transfer from existing SEP IRA*
o 60-Day Rollover from a SEP IRA Amount: $
- ---------------------------------------------------------------
SAR-SEP IRA plan established before 1997
o SEP Employee Salary Reduction
o Direct Transfer from existing SAR-SEP IRA*
o 60-Day Rollover from a SAR-SEP IRA Amount: $
* Complete and enclose IRA Transfer, Direct Rollover & Conversion Form.
** A Rollover IRA is an IRA originally set up with a distribution from an
employer-sponsored program.
<PAGE>
3. Investor Service Center Bank Transfer Plan Lets you automatically purchase
shares of the Investor Service Center mutual fund you specify each month by
transferring the dollar amount you specify from your bank account. Please attach
a voided check to this IRA Application showing the bank name, address, and
account number.
From my bank account, please invest automatically on the t10th t15th t20th day
of each month the following amount into my Investor Service Center IRA.
Amount: $
- ----------------------------------------------------------------------
Fund Name* $100 Minimum
*If no Investor Service Center mutual fund is specified, the investment will be
made in the money market fund, Bull & Bear Dollar Reserves.
4. IRA Beneficiary Designation "I hereby designate each person named below as a
beneficiary
of my IRA in the manner set forth below." If designating beneficiaries other
than a spouse please obtain the spouse's consent. "I consent to (1) the naming
of another person as primary beneficiary to receive more than half of this IRA's
assets, and/or (2) the naming of myself as primary beneficiary and others as
contingent beneficiaries. I give any interest in these assets to my spouse, to
the extent necessary to accomplish each beneficiary designation made below."
- ------------------------------------------------------------------
Spouse's Signature Date
Primary Beneficiary(ies):
First Name Middle Initial Last Name Share %* Birth Date (Month, Day, Year)
Relationship
First Name Middle Initial Last Name Share %* Birth Date (Month, Day, Year)
Relationship
*Shares for all primary beneficiaries combined must add up to 100%. Please do
not indicate fractional percentages. "If more than one person is named and no
percentages are indicated, payment shall be made in equal shares to my primary
beneficiary(ies) who survive me. If a percentage is indicated and a primary
beneficiary does not survive me, the percentage of that beneficiary's
designated share shall be divided equally among the surviving primary
beneficiary(ies). If no primary beneficiary is living at the time of my death, I
hereby specify that the balance be distributed in the same manner to my
contingent beneficiary(ies) listed below."
Contingent Beneficiary(ies):
First Name Middle Initial Last Name Share %* Birth Date (Month, Day, Year)
Relationship
First Name Middle Initial Last Name Share %* Birth Date (Month, Day, Year)
Relationship
*Shares for all contingent beneficiaries combined must add up to 100%. Please do
not indicate fractional percentages. Note: If beneficiary is a trust, please
indicate the trust's name and address, the date of the trust, and the name(s)
of the trustee(s). "I understand that if I choose not to designate any
beneficiary, my beneficiary will be my estate. I am aware that this beneficiary
designation will remain in effect until I deliver to Investor Service Center
another beneficiary designation with a later date."
<PAGE>
5. Signature Please sign and date below.
" I hereby adopt the Investor Service Center IRA Custodial Agreement and
Disclosure Statement as may be amended from time to time (the Investor Service
Center IRA") and hereby appoint the Custodian named therein, as may be
designated or redesignated from time to time (the "Custodian"). I have received
and read the prospectus(es) of the Fund(s) in which I am investing and the
Investor Service Center IRA Agreement. I agree that none of the Custodian,
Investor Service Center, Inc. ("ISC") nor the Fund(s) will be liable for acting
in good faith upon instructions it receives and believes genuine under
reasonable procedures designed to prevent unauthorized transactions. I
understand all telephone conversations with ISC representatives are recorded and
hereby consent to such recording. If I am opening this IRA with a distribution
from an employer-sponsored retirement plan, I certify that such distribution
qualifies for rollover treatment and irrevocably elect to treat it as a Rollover
contribution. I understand the annual IRA fiduciary fee of $10, pre-age 591/2
distribution fee of $10, and plan termination fee of $20 per IRA may be
separately billed or collected by redeeming sufficient shares from my account.
ISC or the Custodian may change this fee schedule from time to time, as provided
in the Investor Service Center IRA. By signing below, I hereby consent to the
terms of the Investor Service Center IRA and to the beneficiary(ies) I have
designated above."
My Signature (If a minor, parent or guardian must sign) Date
THANK YOU FOR INVESTING WITH INVESTOR SERVICE CENTER!
Investors Fiduciary Trust Company will accept appointment as Custodian of the
Depositor's Account, which becomes binding upon the Custodian when the Depositor
receives a confirmation of the purchase of the Fund shares indicated above. The
confirmation also will serve as notification of Investors Fiduciary Trust
Company's acceptance of appointment as Custodian of the Depositor's Account.
Investors Fiduciary Trust Company, Custodian
Signature
<PAGE>
IRA TRANSFER, DIRECT ROLLOVER & CONVERSION FORM
Use this form to transfer an IRA with another custodian to Investor Service
Center, to make a direct rollover from a qualified retirement plan or 403(b) to
an Investor Service Center IRA, or to convert a Regular IRA to an Investor
Service Center Roth IRA. Make sure you attach a copy of your existing IRA
account statement and an Investor Service Center IRA Application and/or
Authorization to Add an IRA form if you do not have an existing Investor Service
Center IRA of the type necessary to receive the assets. Return this completed
Form in the enclosed envelope or mail to: Investor Service Center, Box 419789,
Kansas City, MO 64141-6789.
1. Registration If you need assistance in completing this Form, please call
1-888-503-FUND (3863).
First Name Middle Initial Last Name
Mailing Address (Street and Apartment Number or Box Number)
City and State Zip
Social Security Number (required) Birth Date (Month, Day, Year)
Home Telephone Number Work Telephone Number
2. Tell Us About Your Existing IRA Please attach a recent IRA account statement
or provide the
information requested below. If you do not have an existing Investor Service
Center IRA of the type receiving the IRA assets, please also attach an Investor
Service Center IRA Application and/or Authorization to Add an IRA.
Type of Account: o Regular IRA o Rollover IRA (if transferring funds originally
in an employer-sponsored plan)
o Roth Contribution IRA o Roth Conversion IRA o SEP-IRA
o SAR-SEP IRA(for plans established prior to 1997)
Where It Is Currently Located:
Name of Current Custodian
Address of Current Custodian City and State Zip
Name and Telephone Number of Current Custodian or Service Organization
How It Is Currently Invested:
Mutual Fund or Bank Name Account Number
CD Date of Maturity (Month, Day, Year)+ Other(Specify)
+ If you liquidate a CD prior to maturity, you may incur a penalty. Send us this
IRA Transfer Form at least three weeks prior to the CD's maturity.
If your CD matures in less than three weeks, call 1-888-503-FUND (3863) for
procedures.
3. Tell Us How to Invest Your Transfer Proceeds Please check one of the
following:
o I am opening a new Investor Service Center IRA. Attached is my completed IRA
Application and/or Authorization to Add an IRA.
o I already have an Investor Service Center IRA of the type necessary to
receive the assets:
Investor Service Center IRA Account Number
Important Note: If Rollover and Regular IRA assets are combined in the same
account you will forfeit the right to roll over your Rollover IRA to another
qualified plan in the future, which may have tax implications.
<PAGE>
4. Authorization to Transfer Your IRA to Investor Service Center
Please transfer-in-kind or withdraw assets from my existing account in the
following manner:
A) o Liquidate o all o part $ ________________ of the account listed in Section
2 and transfer any proceeds to my Investor Service Center IRA o immediately
o at maturity.
B) o Transfer-in-kind my Investor Service Center Fund shares held in the account
listed in Section 2 above to my Investor Service Center IRA.
I have received and read the prospectus for the Fund(s) in which I am
investing. If I am over 701/2, I attest that none of the amount to be
transferred will include the required minimum distribution for the current year
pursuant to Section 401(a)(9) of the Internal Revenue Code. I certify to the
present IRA custodian or trustee that the undersigned has established a
successor Individual Retirement Custodial Account meeting the requirements of
Internal Revenue Code Section 408(a) or 408A (as the case may be) to which
assets will be transferred, and certifies to Investors Fiduciary Trust Company
that the IRA from which assets are being transferred meets the requirements of
Internal Revenue Code Section 408(a) or 408A (as the case may be).
Signature Date
SIGNATURE GUARANTEE (only if required by current custodian or trustee)
Name of Bank or Dealer Firm
Signature of Officer and Title
Investors Fiduciary Trust Company will accept appointment as Custodian of the
Depositor's Account, which becomes binding upon the Custodian when the Depositor
receives a confirmation of the purchase of the Fund shares indicated above. The
confirmation also will serve as notification of Investors Fiduciary Trust
Company's acceptance of appointment as Custodian of the Depositor's Account.
Investors Fiduciary Trust Company, Custodian
Signature
<PAGE>
AUTHORIZATION TO ADD AN IRA
If you already have one type of IRA with Investor Service Center, you can use
this form to open another type of IRA with Investor Service Center. For example,
if you already have a deductible-type Regular IRA with Investor Service Center,
use this form to establish a new Roth-type IRA with Investor Service Center. If
you want to establish more than one additional type, i.e., a Roth and a SEP-IRA,
make a copy of this form, and return one completed copy for each additional type
of IRA you wish to open. Return this completed Authorization in the enclosed
envelope or mail to: Investor Service Center, Box 419789, Kansas City, MO
64141-6789.
1. Request for an Additional IRA Do not use this form to open a SIMPLE IRA. To
open a SIMPLE IRA, for information on how to make future changes to your IRA, or
if you need assistance in completing this form, please call 1-888-503-FUND
(3863).
Please open an additional Individual Retirement Account (IRA) for which I
authorize the identical account, address, accountholder birthdate, social
security number, and beneficiary information as given for the existing account
listed below. I direct that the initial investment indicated below be made with
the same mutual fund(s) (and if more than one fund, in the same percentage
allocation) as is the IRA account number listed below, unless I have checked the
following box o, in which case 100% should be invested in the following mutual
fund: ______________.
Existing Account Information:
Existing IRA Account Number Social Security Number Day Telephone #
- ----------------------------------------------------------------------
2. Initial Investment ($1,000 Minimum) Note: Minimums are waived for
participants in the Investor
Service Center Bank Transfer Plan (see Section 3). If you are transferring or
converting an existing IRA, please enclose the "Authorization for IRA Transfer,
Direct Rollover & Conversion" form.
- --------------------------------------------
Regular IRA
o Deductible or non-deductible contribution for tax year 199( )
o Direct Transfer* from an existing o Regular IRA o Rollover IRA**
o Direct Rollover from an employer-sponsored plan*
o 60-Day Rollover from an existing o Regular IRA o Rollover IRA**
Amount: $
- --------------------------------------------
Roth Contribution IRA (Only annual contributions may be accepted in a Roth
Contribution IRA.)
o Non-deductible contribution for tax year 199( )
o Direct Transfer from Roth Contribution IRA, established on ____________*
o 60-Day Rollover from Roth Contribution IRA, established on ______________
Amount: $
- ---------------------------------------------
Roth Conversion IRA
o Convert my existing Investor Service Center Regular IRA
to a Roth Conversion IRA*
o Convert my existing Regular IRA with another custodian to an Investor
Service Center Roth Conversion IRA*
o Direct Transfer from existing Roth Conversion IRA, established on___________*
o 60-Day Rollover from existing Roth Conversion IRA, established on__________
Amount: $
- ----------------------------------------------
SEP IRA
o SEP Employer (or self employed) contribution
o Direct Transfer from existing SEP IRA*
o 60-Day Rollover from a SEP IRA Amount: $
- ----------------------------------------------
SAR-SEP IRA plan established before 1997
oSEP Employee Salary Reduction
o Direct Transfer from existing SAR-SEP IRA*
o 60-Day Rollover from a SAR-SEP IRA Amount: $
- -----------------------------------------------
* Complete and enclose IRA Transfer, Direct Rollover & Conversion Form.
** A Rollover IRA is an IRA originally set up with a distribution from an
employer-sponsored program.
<PAGE>
3. Investor Service Center Bank Transfer Plan Lets you automatically purchase
shares of the Investor Service Center mutual fund you specify each month by
transferring the dollar amount you specify from your bank account. Please attach
a voided check to this IRA Application showing the bank name, address, and
account number.
From my bank account, please invest automatically on the o10th o15th o20th day
of each month the following amount into my Investor Service Center IRA.
Amount: $
- -----------------------------------------------------------------
Fund Name* $100 Minimum
*If no Investor Service Center mutual fund is specified, the investment will be
made in the money market fund, Bull & Bear Dollar Reserves.
4. Signature Please sign and date below.
" I hereby adopt the Investor Service Center IRA Custodial Agreement and
Disclosure Statement as may be amended from time to time (the "Investor Service
Center IRA") and hereby appoint the Custodian named therein, as may be
designated or redesignated from time to time (the "Custodian"). I have received
and read the prospectus(es) of the Fund(s) in which I am investing and the
Investor Service Center IRA Agreement. I agree that none of the Custodian,
Investor Service Center, Inc. ("ISC") nor the Fund(s) will be liable for acting
in good faith upon instructions it receives and believes genuine under
reasonable procedures designed to prevent unauthorized transactions. I
understand all telephone conversations with ISC representatives are recorded and
hereby consent to such recording. If I am opening this IRA with a distribution
from an employer-sponsored retirement plan, I certify that such distribution
qualifies for rollover treatment and irrevocably elect to treat it as a Rollover
contribution. I understand the annual IRA fiduciary fee of $10, pre-age 591/2
distribution fee of $10, and plan termination fee of $20 per IRA may be
separately billed or collected by redeeming sufficient shares from my account.
ISC or the Custodian may change this fee schedule from time to time, as provided
in the Investor Service Center IRA. By signing below, I hereby consent to the
terms of the Investor Service Center IRA and to the beneficiary(ies) I have
designated above."
- ----------------------------------------------------
My Signature Date
If the Depositor is a minor under the laws of the Depositor's state of
residence, a parent or guardian must sign the Adoption Agreement. Until the
Depositor reaches the age of majority, the parent or guardian will exercise the
powers and duties of the Depositor. (If guardian, provide copy of letters of
appointment )
Signature of Parent or Guardian Date
Investors Fiduciary Trust Company will accept appointment as Custodian of the
Depositor's Account, which becomes binding upon the Custodian when the Depositor
receives a confirmation of the purchase of the Fund shares indicated above. The
confirmation also will serve as notification of Investors Fiduciary Trust
Company's acceptance of appointment as Custodian of the Depositor's Account.
Investors Fiduciary Trust Company, Custodian
Signature
<PAGE>
Disclosure Statement
Part One: Description of Regular IRAs
INTRODUCTION
Part One of the Disclosure Statement describes the rules applicable to
Regular IRAs beginning January 1, 1998. IRAs described in these pages are called
"Regular IRAs" to distinguish them from the new "Roth IRAs" first available
starting in 1998. Roth IRAs are described in Part Two of this Disclosure
Statement.
For Regular IRA contributions for 1997 (including contributions made up to
April 15, 1998 but designated as contributions for 1997), there are different
rules for determining the deductibility of your contribution on your federal tax
return. For contributions for 1997, the "active participant" limits on
deductibility (described below) apply if either spouse is an active participant
in an employer-sponsored plan. Also, the adjusted gross income ("AGI") levels
for partially deductible or nondeductible Regular IRA contributions (described
below) are lower for 1997 ($25,000 for single taxpayers, with no deduction if
your AGI is above $35,000; $40,000 for married taxpayers filing jointly, with no
deduction if your AGI is above $50,000). Also, the exceptions to the 10% early
withdrawal penalty for withdrawals to pay certain higher education or first-time
homebuyer expenses do not apply to withdrawals in 1997.
This Part One of the Disclosure Statement describes Regular IRAs. It does
not describe Roth IRAs, a new type of IRA available starting in 1998.
Contributions to a Roth IRA are not deductible (regardless of your AGI), but
withdrawals that meet certain requirements are not subject to federal income
tax, so that dividends and investment growth on amounts held in the Roth IRA can
escape federal income tax. Please see Part Two of this Disclosure Statement to
learn more about Roth IRAs.
Regular IRAs described in this Disclosure Statement may be used as part of
a simplified employee pension (SEP) plan maintained by your employer. Under a
SEP your employer may make contributions to your Regular IRA, and these
contributions may exceed the normal limits on Regular IRA contributions. This
Disclosure Statement does not describe IRAs established in connection with a
SIMPLE IRA program maintained by your employer. Employers provide special
explanatory materials for accounts established as part of a SIMPLE IRA program.
Regular IRAs may be used in connection with a SIMPLE IRA program, but for the
first two years of participation a special SIMPLE IRA (not a Regular IRA) is
required.
YOUR REGULAR IRA
This Part One contains information about your Regular Individual Retirement
Custodial Account with Investor Service Center. A Regular IRA gives you several
tax benefits. Earnings on the assets held in your Regular IRA are not subject to
federal income tax until withdrawn by you. You may be able to deduct all or part
of your Regular IRA contribution on your federal income tax return. State income
tax treatment of your Regular IRA may differ from federal treatment; ask your
state tax department or your personal tax advisor for details.
Be sure to read Part Three of this Disclosure Statement for important
additional information, including information on how to revoke your Regular IRA,
investments and prohibited transactions, fees and expenses, and certain tax
requirements.
ELIGIBILITY
What are the eligibility requirements for a Regular IRA?
You are eligible to establish and contribute to a Regular IRA for a year if:
o You received compensation (or earned income if you are self employed) during
the year for personal services you rendered. If you received taxable alimony,
this is treated like compensation for IRA purposes.
o You did not reach age 70 1/2 during the year.
Can I contribute to a Regular IRA for my Spouse?
For each year before the year when your spouse attains age 70 1/2, you can
contribute to a separate Regular IRA for your spouse, regardless of whether your
spouse had any compensation or earned income in that year. This is called a
"spousal IRA." To make a contribution to a Regular IRA for your spouse, you must
file a joint tax return for the year with your spouse. For a spousal IRA, your
spouse must set up a different Regular IRA, separate from yours, to which you
contribute.
CONTRIBUTIONS
When can I make contributions to a Regular IRA?
You may make a contribution to your existing Regular IRA or establish a new
Regular IRA for a taxable year by the due date (not including any extensions)
for your federal income tax return for the year. Usually this is April 15 of the
following year.
How much can I contribute to my Regular IRA?
For each year when you are eligible (see above), you can contribute up to
the lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed). However, under the tax laws, all or a portion of your
contribution may not be deductible.
If you and your spouse have spousal Regular IRAs, each spouse may
contribute up to $2,000 to his or her IRA for a year as long as the combined
compensation of both spouses for the year (as shown on your joint income tax
return) is at least $4,000. If the combined compensation of both spouses is less
than $4,000, the spouse with the higher amount of compensation may contribute up
to that spouse's compensation amount, or $2,000 if less. The spouse with the
lower compensation amount may contribute any amount up to that spouse's
compensation plus any excess of the other spouse's compensation over the other
spouse's IRA contribution. However, the maximum contribution to either spouse's
Regular IRA is $2,000 for the year.
<PAGE>
If you (or your spouse) establish a new Roth IRA and make contributions to
both your Regular IRA and a Roth IRA, the combined limit on contributions to
both your (or your spouse's) Regular IRA and Roth IRA for a single calendar year
is $2,000.
How do I know if my contribution is tax deductible?
The deductibility of your contribution depends upon whether you are an
active participant in any employer-sponsored retirement plan. If you are not an
active participant, the entire contribution to your Regular IRA is deductible.
If you are an active participant in an employer-sponsored plan, your
Regular IRA contribution may still be completely or partly deductible on your
tax return. This depends on the amount of your income (see below). Similarly,
the deductibility of a contribution to a Regular IRA for your spouse depends
upon whether your spouse is an active participant in any employer-sponsored
retirement plan. If your spouse is not an active participant, the contribution
to your spouse's Regular IRA will be deductible. If your spouse is an active
participant, the Regular IRA contribution will be completely, partly or not
deductible depending upon your combined income.
An exception to the preceding rules applies to high-income married
taxpayers, where one spouse is an active participant in an employer-sponsored
retirement plan and the other spouse is not. A contribution to the non-active
participant spouse's Regular IRA will be only partly deductible at an adjusted
gross income level on the joint tax return of $150,000, and the deductibility
will be phased out as described below over the next $10,000 so that there will
be no deduction at all with an adjusted gross income level of $160,000 or
higher.
How do I determine my or my spouse's "active participant" status?
Your (or your spouse's) Form W-2 should indicate if you (or your spouse)
were an active participant in an employer-sponsored retirement plan for a year.
If you have a question, you should ask your employer or the plan administrator.
In addition, regardless of income level, your spouse's "active participant"
status will not affect the deductibility of your contributions to your Regular
IRA if you and your spouse file separate tax returns for the taxable year and
you lived apart at all times during the taxable year.
What are the deduction restrictions for active participants?
If you (or your spouse) are an active participant in an employer plan
during a year, the contribution to your Regular IRA (or your spouse's Regular
IRA) may be completely, partly or not deductible depending upon your filing
status and your amount of adjusted gross income ("AGI"). If AGI is any amount up
to the lower limit, the contribution is deductible. If your AGI falls between
the lower limit and the upper limit, the contribution is partly deductible. If
your AGI falls above the upper limit, the contribution is not deductible.
FOR ACTIVE PARTICIPANTS - 1998
If You Are Single If You Are Married Then Your Regular IRA
Filing Jointly Contribution Is
- ------------------ ------------------ ---------------------
Up to Lower Limit Up toLower Limit Fully Deductible
($30,000 for 1998) ($50,000 for 1998)
More than Lower Limit More than Lower Limit Partly Deductible
but less than but less than
Upper Limit ($40,000 Upper Limit ($60,000
for 1998) for 1998)
Upper Limit or more Upper Limit or more Not Deductible
TABLE OF FUTURE LOWER AND UPPER LIMITS
The Lower Limit and the Upper Limit will change for 1999 and later years, as
shown in the following table. Substitute the correct Lower Limit and Upper Limit
in the table above to determine deductibility in any particular year. (Note: if
you are married but filing separate returns, your Lower Limit is always zero and
your Upper Limit is always $10,000).
YEAR SINGLE MARRIED FILING JOINTLY
- ----- -------------------------- ---------------------------
Lower Limit Upper Limit Lower Limit Upper Limit
1999 $31,000 $41,000 $51,000 $61,000
2000 $32,000 $42,000 $52,000 $62,000
2001 $33,000 $43,000 $53,000 $63,000
2002 $34,000 $44,000 $54,000 $64,000
2003 $40,000 $50,000 $60,000 $70,000
2004 $45,000 $55,000 $65,000 $75,000
2005 $50,000 $60,000 $70,000 $80,000
2006 $50,000 $60,000 $75,000 $85,000
2007 and later $50,000 $60,000 $80,000 $100,000
<PAGE>
How do I calculate my deduction if I fall in the "partly deductible" range?
If your AGI falls in the partly deductible range, you must calculate the
portion of your contribution that is deductible. To do this, multiply your
contribution by a fraction. The numerator is the amount by which your AGI
exceeds the lower limit (for 1998: $30,000 if single, or $50,000 if married
filing jointly). The denominator is $10,000 (note that the denominator for
married joint filers is $20,000 starting in 2007). Subtract this from your
contribution and then round down to the nearest $10. The deductible amount is
the greater of the amount calculated or $200 (provided you contributed at least
$200). If your contribution was less than $200, then the entire contribution is
deductible.
For example, assume that you make a $2,000 contribution to your Regular IRA
in 1998, a year in which you are an active participant in your employer's
retirement plan. Also assume that your AGI is $57,555 and you are married,
filing jointly. You would calculate the deductible portion of your contribution
this way:
1. The amount by which your AGI exceeds the lower limit of the partly
deductible range: ($57,555 _ $50,000) = $7,555
2. Divide this by $10,000: $7,555 = 0.7555
$10,000
3. Multiply this by your contribution limit:
0.7555 x $2,000 = $1,511
4. Subtract this from your contribution:
$2,000 - $1,551 = $489
5. Round this down to the nearest $10: $489 ----- $480
6. Your deductible contribution is the greater of this amount, $480, or $200
Even though part or all of your contribution is not deductible, you may
still contribute to your Regular IRA (and your spouse may contribute to your
spouse's Regular IRA) up to the limit on contributions. When you file your tax
return for the year, you must designate the amount of non-deductible
contributions to your Regular IRA for the year. See IRS Form 8606.
How do I determine my AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
What happens if I contribute more than allowed to my regular IRA?
The maximum contribution you can make to a Regular IRA generally is $2,000
or 100% of compensation or earned income, whichever is less. Any amount
contributed to the IRA above the maximum is considered an "excess contribution."
The excess is calculated using your contribution limit, not the deductible
limit. An excess contribution is subject to excise tax of 6% for each year it
remains in the IRA.
How can I correct an excess contribution?
Excess contributions may be corrected without paying a 6% penalty. To do
so, you must withdraw the excess and any earnings on the excess before the due
date (including extensions) for filing your federal income tax return for the
year for which you made the excess contribution. A deduction should not be taken
for any excess contribution. The earnings must be included in your income for
the tax year for which the contribution was made and may be subject to a 10%
premature withdrawal tax if you have not reached age 59 1/2.
What happens if I don't correct the excess contribution by the tax return due
date?
Any excess contribution not withdrawn by the tax return due date (including
any extensions) for the year for which the contribution was made will be subject
to the 6% excise tax. There will be an additional 6% excise tax for each
subsequent year the excess remains in your account.
Under limited circumstances, you may correct an excess contribution after
tax filing time by withdrawing the excess contribution (leaving the earnings in
the account). This withdrawal will not be includable in income nor will it be
subject to any premature withdrawal penalty if (1) your contributions to all
Regular IRAs do not exceed $2,000 and (2) you did not take a deduction for the
excess amount (or you file an amended return (Form 1040X) which removes the
excess deduction).
How are excess contributions treated if none of the preceding rules apply?
Unless an excess contribution qualifies for the special treatment outlined
above, the excess contribution and any earnings on it withdrawn after tax filing
time will be includable in taxable income and may be subject to a 10% premature
withdrawal penalty. No deduction will be allowed for the excess contribution
for the year in which it is made.
Excess contributions may be corrected in a subsequent year to the extent
that you contribute less than your maximum amount. As the prior excess
contribution is reduced or eliminated, the 6% excise tax will become
correspondingly reduced or eliminated for subsequent tax years. Also, you may be
able to take an income tax deduction for the amount of excess that was reduced
or eliminated, depending on whether you would be able to take a deduction if you
had instead contributed the same amount.
<PAGE>
Are the earnings on my regular IRA funds taxed?
Any dividends on or growth of the investments held in your Regular IRA are
generally exempt from federal income taxes and will not be taxed until withdrawn
by you, unless the tax exempt status of your Regular IRA is revoked (this is
described in Part Three of this Disclosure Statement).
TRANSFERS/ROLLOVERS
Can I transfer or roll over a distribution I receive from my employer's
retirement plan into a regular IRA?
Almost all distributions from employer plans or 403(b) arrangements (for
employees of tax-exempt employers) are eligible for transfer or rollover to a
Regular IRA. The main exceptions are
o payments over the lifetime or life expectancy of the participant (or
participant and a designated beneficiary),
o installment payments for a period of 10 years or more,
o required distributions (generally the rules require distributions starting
at age 70 1/2 or for certain employees starting at
retirement, if later), and
o payments of employee after-tax contributions.
If you are eligible to receive a distribution from a tax qualified
retirement plan as a result of, for example, termination of employment, plan
discontinuance, or retirement, all or part of the distribution may be
transferred directly into your Regular IRA. This is a called a "Direct
Rollover." Or, you may receive the distribution and make a regular rollover to
your Regular IRA within 60 days, called a "60-Day Rollover." By making a Direct
Rollover or a 60-Day Rollover, you can defer income taxes on the amount rolled
over until you subsequently make withdrawals from your IRA.
The maximum amount you may roll over is the amount of employer
contributions and earnings distributed. You may not roll over any after-tax
employee contributions you made to the employer retirement plan. If you are over
age 70 1/2 and are required to take minimum distributions under the tax laws,
you may not roll over any amount required to be distributed to you under the
minimum distribution rules. Also, if you are receiving periodic payments over
your or your and your designated beneficiary's life expectancy or for a period
of at least 10 years, you may not roll over these payments. A rollover to a
regular IRA must be completed within 60 days after the distribution from the
employer retirement plan to be valid.
A qualified plan administrator or 403(b) sponsor must withhold 20% of your
distribution for federal income taxes unless you elect a Direct Rollover. Your
plan or 403(b) sponsor is required to provide you with information about Direct
and 60-Day Rollovers and withholding taxes before you receive your distribution
and must comply with your directions to make a Direct Rollover.
The rules governing rollovers are complicated. Be sure to consult your tax
advisor or the IRS if you have a question about rollovers.
Once I have rolled over a plan distribution into a Regular IRA, can I
subsequently roll over into another employer's qualified retirement plan?
Yes. Part or all of an eligible distribution received from a qualified plan
may be transferred from the Regular IRA holding it to another qualified plan.
However, the IRA must have no assets other than those which were previously
distributed to you from the qualified plan. Specifically, the IRA cannot contain
any contributions by you (or your spouse). Also, the new qualified plan must
accept rollovers. Similar rules apply to Regular IRAs established with rollovers
from 403(b) arrangements.
Can I make a 60-Day Rollover from my Regular IRA to another Regular IRA?
You may make a rollover from one Regular IRA to another Regular IRA you
have or you establish to receive the rollover. Such a rollover must be completed
within 60 days after the withdrawal from your first Regular IRA. After making a
60-Day Rollover from one Regular IRA to another, you must wait a full year (365
days) before you can make another such rollover. (However, you can instruct a
Regular IRA custodian to transfer amounts directly to another Regular IRA
custodian; called a Direct Transfer, it does not count as a rollover.)
What happens if I combine rollover contributions with my normal contributions in
one IRA?
If you wish to make both a normal annual contribution and a rollover
contribution, you may wish to open two separate Regular IRAs by completing two
IRA Applications. You should consult a tax advisor before making your annual
contribution to the IRA you established with rollover contributions (or make a
rollover contribution to the IRA to which you make your annual contributions).
This is because combining your annual contributions and rollover contributions
originating from an employer plan distribution would prohibit the future
rollover out of the IRA into another qualified plan. If despite this, you still
wish to combine a rollover contribution and the IRA holding your annual
contributions, you should establish the account as a Regular IRA on the IRA
Application (not a Rollover IRA or Direct Rollover IRA) and make the
contributions to that account.
How do rollovers affect my contribution or deduction limits?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, rollovers are not deductible and they do not affect your
deduction limits as described above.
What about converting my regular IRA to a Roth IRA?
The rules for converting a Regular IRA to a new Roth IRA, or making a
rollover from a Regular IRA to a new Roth IRA, are described in Part Two below.
WITHDRAWALS
When can I make withdrawals from my Regular IRA?
You may withdraw from your Regular IRA at any time. However, withdrawals
before age 59 1/2 may be subject to a 10% penalty tax in addition to regular
income taxes (see below).
When must I start making withdrawals?
If you have not withdrawn your entire IRA by the April 1 following the year
in which you reach 70 1/2, you must make minimum withdrawals in order to avoid
penalty taxes. The rule allowing certain employees to postpone distributions
from an employer qualified plan until actual retirement (even if this is after
age 70 1/2) does not apply to Regular IRAs.
The minimum withdrawal amount is determined by dividing the balance in your
Regular IRA (or IRAs) by your life expectancy or the combined life expectancy of
you and your designated beneficiary. The minimum withdrawal rules are complex.
Consult your tax advisor for assistance. The penalty tax is 50% of the
difference between the minimum withdrawal amount and your actual withdrawals
during a year. The IRS may waive or reduce the penalty tax if you can show that
your failure to make the required minimum withdrawals was due to reasonable
cause and you are taking reasonable steps to remedy the problem.
How are withdrawals from my Regular IRA taxed?
Amounts withdrawn by you are includable in your gross income in the taxable
year that you receive them, and are taxable as ordinary income. Lump sum
withdrawals from a Regular IRA are not eligible for averaging treatment
currently available to certain lump sum distributions from qualified employer
retirement plans.
<PAGE>
Since the purpose of a Regular IRA is to accumulate funds for retirement,
your receipt or use of any portion of your Regular IRA before you attain age 59
1/2 generally will be considered as an early withdrawal and subject to a 10%
penalty tax.
The 10% penalty tax for early withdrawal will not apply if:
o The distribution was a result of your death or disability.
o The purpose of the withdrawal is to pay certain higher education expenses for
yourself or your spouse, child, or grandchild. Qualifying expenses include
tuition, fees, books, supplies and equipment required for attendance at a
post-secondary educational institution. Room and board expenses may qualify if
the student is attending at least half-time.
o The withdrawal is used to pay
eligible first-time homebuyer expenses. These are the costs of purchasing,
building or rebuilding a principal residence (including customary settlement,
financing or closing costs). The purchaser may be you, your spouse, or a child,
grandchild, parent or grandparent of you or your spouse. An individual is
considered a "first-time homebuyer" if the individual (or the individual's
spouse, if married) did not have an ownership interest in a principal residence
during the two-year period immediately preceding the acquisition in question.
The withdrawal must be used for eligible expenses within 120 days after the
withdrawal. (If there is an unexpected delay, or cancellation of the home
acquisition, a withdrawal may be redeposited as a rollover). There is a lifetime
limit on eligible first-time homebuyer expenses of $10,000 per individual.
o The distribution is one of a scheduled series of substantially equal periodic
payments for your life or life expectancy (or the joint lives or life
expectancies of you and your beneficiary). If there is an adjustment to the
scheduled series of payments, the 10% penalty tax may apply. The 10% penalty
will not apply if you make no change in the series of payments until the end of
five years or until you reach age 59 1/2, whichever is later. If you make a
change before then, the penalty will apply. For example, if you begin receiving
payments at age 50 under a withdrawal program providing for substantially equal
payments over your life expectancy, and at age 58 you elect to receive the
remaining amount in your Regular IRA in a lump-sum, the 10% penalty tax will
apply to the lump sum and to the amounts previously paid to you before age 59
1/2.
o The distribution does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid during a year
are deductible if they are greater than 7 1/2% of your adjusted gross income for
that year).
o The distribution does not exceed the amount you paid for health insurance
coverage for yourself, your spouse and dependents. This exception applies only
if you have been unemployed and received federal or state unemployment
compensation payments for at least 12 weeks; this exception applies to
distributions during the year in which you received the unemployment
compensation and during the following year, but not to any distributions
received after you have been reemployed for at least 60 days.
How are nondeductible contributions taxed when they are withdrawn?
A withdrawal of nondeductible contributions (not including earnings) will
be tax-free. However, if you made both deductible and nondeductible
contributions to your Regular IRA, then each distribution will be treated as
partly a return of your nondeductible contributions (not taxable) and partly a
distribution of deductible contributions and earnings (taxable). The nontaxable
amount is the portion of the amount withdrawn which bears the same ratio as your
total nondeductible Regular IRA contributions bear to the total balance of all
your Regular IRAs (including rollover IRAs and SEPs, but not including Roth
IRAs).
For example, assume that you made the following Regular IRA contributions:
Year Deductible Nondeductible
1995 $2,000
1996 $2,000
1997 $1,000 $1,000
1998 ______ $1,000
$5,000 $2,000
====== ======
In addition assume that your Regular IRA has total investment earnings
through 1998 of $1,000. During 1998 you withdraw $500. Your total account
balance as of 12/31/98 is $7,500 as shown below.
Deductible Contributions $5,000
Nondeductible Contributions $2,000
Earnings on IRA $1,000
Less 1998 Withdrawal $ 500
Total Account Balance as of 12/31/98 $7,500
======
To determine the nontaxable portion of your 1998 withdrawal, the total 1998
withdrawal ($500) must be multiplied by a fraction. The numerator of the
fraction is the total of all nondeductible contributions remaining in the
account before the 1998 withdrawal ($2,000). The denominator is the total
account balance as of 12-31-98 ($7,500) plus the 1998 withdrawal ($500) or
$8,000. The calculation is:
Total Remaining
Nondeductible Contributions $2,000
--------------------------- ------ X $500 = $125
Total Account Balance $8,000
Thus, $125 of the $500 withdrawal in 1998 will not be included in your
taxable income. The remaining $375 will be taxable for 1998. In addition, for
future calculations the remaining nondeductible contribution total will be
$2,000 minus $125, or $1,875.
A loss in your Regular IRA investment may be deductible. You should consult
your tax advisor for further details on the appropriate calculation for this
deduction if applicable.
Is there a penalty tax on certain large withdrawals or accumulations in my IRA?
Earlier tax laws imposed a "success" penalty equal to 15% of withdrawals
from all retirement accounts (including IRAs, 401(k) or other employer
retirement plans, 403(b) arrangements and others) in a year exceeding a
specified amount (initially $150,000 per year). Also, there was a 15% estate tax
penalty on excess accumulations remaining in IRAs and other tax-favored
arrangements upon your death. These 15% penalty taxes have been repealed.
Important: Please see Part Three below which contains important information
applicable to all Investor Service Center IRAs.
<PAGE>
Part Two: Description of Roth IRAs
INTRODUCTION
This Part Two of the Disclosure Statement describes the rules generally
applicable to Roth IRAs beginning January 1, 1998. Roth IRAs are a new kind
of IRA available for the first time in 1998. Contributions to a Roth IRA for
1997 are not permitted.
Contributions to a Roth IRA are not tax-deductible, but withdrawals that meet
certain requirements are not subject to federal income taxes. This makes the
dividends on and growth of the investments held in your Roth IRA tax-free for
federal income tax purposes if the requirements are met.
Regular IRAs, which have existed since 1975, are still available.
Contributions to a Regular IRA may be tax-deductible. Earnings and gains on
amounts while held in a Regular IRA are tax-deferred. Withdrawals are subject to
federal income tax (except for prior after-tax contributions which may be
recovered without additional federal income tax).
This Part Two does not describe Regular IRAs. If you wish to review
information about Regular IRAs, please see Part One of this Disclosure
Statement. Be sure to read Part Three of this Disclosure Statement for important
additional information, including information on how to revoke your Roth IRA,
investments and prohibited transactions, fees and expenses and certain tax
requirements. This Disclosure Statement also does not describe IRAs established
in connection with a SIMPLE IRA program or a Simplified Employee Pension (SEP)
plan maintained by your employer. Roth IRAs may not be used in connection with a
SIMPLE IRA program or a SEP plan.
YOUR ROTH IRA
Your Roth IRA gives you several tax benefits. While contributions to a Roth
IRA are not deductible, dividends on and growth of the assets held in your Roth
IRA are not subject to federal income tax. Withdrawals by you from your Roth IRA
are excluded from your income for federal income tax purposes if certain
requirements (described below) are met. State income tax treatment of your Roth
IRA may differ from federal treatment; ask your state tax department or your
personal tax advisor for details.
ELIGIBILITY
What are the eligibility requirements for a Roth IRA?
Starting with 1998, you are eligible to establish and contribute to a Roth
IRA for a year if you received compensation (or earned income if you are self
employed) during the year for personal services you rendered. If you received
taxable alimony, this is treated like compensation for IRA purposes. In contrast
to a Regular IRA, with a Roth IRA you may continue making contributions after
you reach age 70 1/2.
Can I contribute to a Roth IRA for my spouse?
Starting with 1998, if you meet the eligibility requirements you can not
only contribute to your own Roth IRA, but also to a separate Roth IRA for your
spouse out of your compensation or earned income, regardless of whether your
spouse had any compensation or earned income in that year. This is called a
"spousal Roth IRA." To make a contribution to a Roth IRA for your spouse, you
must file a joint tax return for the year with your spouse. For a spousal Roth
IRA, your spouse must set up a different Roth IRA, separate from yours, to which
you contribute.
Of course, if your spouse has compensation or earned income, your spouse can
establish his or her own Roth IRA and make contributions to it in accordance
with the rules and limits described in this Part Two of the Disclosure
Statement.
CONTRIBUTIONS
When can I make contributions to a Roth IRA?
You may make a contribution to your Roth IRA or establish a new Roth IRA for
a taxable year by the due date (not including any extensions) for your federal
income tax return for the year. Usually this is April 15 of the following year.
For example, you will have until April 15, 1999 to establish and make a
contribution to a Roth IRA for 1998.
Caution: Since Roth IRAs are available starting January 1, 1998, you may
not make a contribution by April 15, 1998 to a Roth IRA for 1997.
How much can I contribute to my Roth IRA?
For each year when you are eligible (see above), you can contribute up to
the lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed). For taxpayers with high income levels, the contribution limits
may be reduced (see below).
Your Roth IRA limit is reduced by any contributions for the same year to a
Regular IRA. For example, assuming you have at least $2,000 in compensation or
earned income, if you contribute $500 to your Regular IRA for 1998, your maximum
Roth IRA contribution for 1998 will be $1,500.
If you and your spouse have spousal Roth IRAs, each spouse may contribute up
to $2,000 to his or her Roth IRA for a year as long as the combined compensation
of both spouses for the year (as shown on your joint income tax return) is at
least $4,000. If the combined compensation of both spouses is less than $4,000,
the spouse with the higher amount of compensation may contribute up to that
spouse's compensation amount, or $2,000 if less. The spouse with the lower
compensation amount may contribute any amount up to that spouse's compensation
plus any excess of the other spouse's compensation over the other spouse's Roth
IRA contribution. However, the maximum contribution to either spouse's Roth IRA
is $2,000 for the year.
The spousal Roth IRA limits are reduced by any contributions for the same
calendar year to a Regular IRA maintained by you or your spouse.
Annual contributions may be made only to a Roth IRA annual contribution
account which does not contain converted or transferred funds from a Regular
IRA.
Are contributions to a Roth IRA tax deductible?
Contributions to a Roth IRA are not deductible. This is a major difference
between Roth IRAs and Regular IRAs. Contributions to a Regular IRA may be
deductible on your federal income tax return depending on whether or not you are
an active participant in an employer-sponsored plan and on your income level.
Are the earnings on my Roth IRA assets taxed?
Any dividends on or growth of investments held in your Roth IRA are
generally exempt from federal income taxes and will not be taxed until withdrawn
by you, unless the tax exempt status of your Roth IRA is revoked. If the
withdrawal qualifies as a tax-free withdrawal (see below), amounts reflecting
earnings or growth of assets in your Roth IRA will not be subject to federal
income tax.
<PAGE>
Which is better, a Roth IRA or a Regular IRA?
This will depend upon your individual situation. A Roth IRA may be better if
you are an active participant in an employer-sponsored plan and your adjusted
gross income is too high to make a deductible IRA contribution (but not too high
to make a Roth IRA contribution). Also, the benefits of a Roth IRA vs. a Regular
IRA may depend upon a number of other factors including: your current income tax
bracket vs. your expected income tax bracket when you make withdrawals from your
IRA, whether you expect to be able to make nontaxable withdrawals from your Roth
IRA (see below), how long you expect to leave your contributions in the IRA, how
much you expect the IRA to earn in the meantime, and possible future tax law
changes.
Consult a qualified tax or financial advisor for assistance on this
question.
Are there any restrictions on contributions to my Roth IRA?
Taxpayers with very high income levels may not be able to contribute to a
Roth IRA at all, or their contribution may be limited to an amount less than
$2,000. This depends upon your filing status and the amount of your adjusted
gross income (AGI). The following table shows how the contribution limits are
restricted:
ROTH IRA CONTRIBUTION LIMITS
If you are a If you are Married
Single Taxpayer with Filing Jointly with Then you may make
Adjusted Gross Income (AGI) Adjusted Gross Income (AGI)
- --------------------------- --------------------------- -----------------
Up to $95,000 Up to $150,000 Full Contribution
More than $95,000 More than $150,000 Reduced Contribution
but less than but less than (see explanation
$110,000 $160,000 below)
$110,000 and up $160,000 and up Zero(no Contribution)
Note: If you are a married taxpayer filing separately, your maximum Roth IRA
contribution limit phases out over the first $15,000 of adjusted gross income.
If your AGI is $15,000 or more, you may not contribute to a Roth IRA for the
year. Pending legislation in Congress may reduce this number from $15,000 to
$10,000. Consult your tax advisor or the IRS for the latest developments.
- -------------------------------------------------------------------------
Explanation of "Reduced Contribution"
If your AGI falls in the reduced contribution range, you must calculate your
contribution limit. To do this, multiply your normal contribution limit ($2,000
or your compensation, if less) by a fraction. The numerator is the amount by
which your AGI exceeds the lower limit of the reduced contribution range
($95,000 if single, or $150,000 if married filing jointly). The denominator is
$15,000 (single taxpayers) or $10,000 (married filing jointly). Subtract this
from your normal limit and then round down to the nearest $10.
The contribution limit is the greater of the amount calculated or $200.
For example, assume that your AGI for the year is $157,555 and you are
married, filing jointly. You would calculate your Roth IRA contribution limit
this way:
1. The amount by which your AGI exceeds the lower limit of the reduced
contribution deductible range:
$157,555 - $150,000 = $7,555
2. Divide this by $10,000: $7,555
--------
$10,000 = 0.7555
3. Multiply this by $2,000 (or your compensation for the year, if less):
0.7555 x $2,000 = $1,511
4. Subtract this from your $2,000 limit:
$2,000 - $1,551 = $489
5. Round this down to the nearest $10 = $480
6. Your contribution limit is the greater of this amount or $200.
Remember, your Roth IRA contribution limit of $2,000 is reduced by any
contributions for the same year to a Regular IRA. If you fall in the reduced
contribution range, the reduction formula applies to the Roth IRA contribution
limit left after subtracting your contribution for the year to a Regular IRA.
How do I determine my AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
There are two additional rules when calculating AGI for purposes of Roth IRA
contribution limits. First, if you are making a deductible contribution for the
year to a Regular IRA, your AGI is reduced by the amount of the deduction.
Second, if you are converting a Regular IRA to a Roth IRA in a year (see below),
the amount includable in your income as a result of the conversion is not
considered AGI when computing your Roth IRA contribution limit for the year.
(Note: a bill pending in Congress might affect the first rule -- consult your
tax advisor or the IRS for the latest developments.)
What happens if I contribute more than allowed to my Roth IRA?
The maximum contribution you can make to a Roth IRA generally is $2,000 or
100% of compensation or earned income, whichever is less. As noted above, your
maximum is reduced by the amount of any contribution to a Regular IRA for the
same year and may be further reduced if you have high AGI. Any amount
contributed to the Roth IRA above the maximum is considered an "excess
contribution." An excess contribution is subject to excise tax of 6% for each
year it remains in the Roth IRA.
<PAGE>
How can I correct an excess contribution?
Excess contributions may be corrected without paying a 6% penalty. To do so,
you must withdraw the excess and any earnings on the excess before the due date
(including extensions) for filing your federal income tax return for the year
for which you made the excess contribution. The earnings must be included in
your income for the tax year for which the contribution was made and may be
subject to a 10% premature withdrawal tax if you have not reached age 59 1/2
(unless an exception to the 10% penalty tax applies).
What happens if I don't correct the excess contribution by the tax return due
date?
Any excess contribution not withdrawn by the tax return due date (including
any extensions) for the year for which the contribution was made will be subject
to the 6% excise tax. There will be an additional 6% excise tax for each
subsequent year the excess remains in your account.
For subsequent years, you may reduce the excess contributions in your
account by making a withdrawal equal to the excess. Earnings need not be
withdrawn. To the extent that no earnings are withdrawn, the withdrawal will not
be subject to income taxes or possible penalties for premature withdrawals
before age 59 1/2. Excess contributions may also be corrected in a subsequent
year to the extent that you contribute less than your Roth IRA contribution
limit for the subsequent year. As the prior excess contribution is reduced or
eliminated, the 6% excise tax will become correspondingly reduced or eliminated
for subsequent tax years.
CONVERSION OF EXISTING REGULAR IRA
Can I convert an existing Regular IRA into a Roth IRA?
Yes, starting in 1998 you can convert an existing Regular IRA into a Roth
IRA if you meet the adjusted gross income (AGI) limits described below.
Conversion may be accomplished either by establishing a Roth IRA and then
transferring the amount in your Regular IRA you wish to convert to the new Roth
IRA. Or, if you want to convert an existing Regular IRA with Investors Fiduciary
Trust Company as custodian to a Roth IRA, you may give us directions to convert.
You are eligible to convert a Regular IRA to a Roth IRA if, for the year of
the conversion, your AGI is $100,000 or less. The same limit applies to married
and single taxpayers, and the limit is not indexed to cost-of-living increases.
Married taxpayers are eligible to convert a Regular IRA to a Roth IRA only if
they file a joint income tax return; married taxpayers filing separately are not
eligible to convert. Note: No contributions other than Roth IRA conversion
contributions made during the same tax year may be deposited in a single Roth
IRA conversion account.
Caution: You should be extremely cautious in converting an existing IRA into
a Roth IRA early in a year if there is any possibility that your AGI for the
year will exceed $100,000. Although a bill pending in Congress would permit you
to transfer amounts back to your Regular IRA if your AGI exceeds $100,000, under
the current rules, if you have already converted during a year and you turn out
to have more than $100,000 of AGI, there may be adverse tax results for you.
Consult your tax advisor or the IRS for the latest developments.
What are the tax results from converting?
The taxable amount in your Regular IRA you convert to a Roth IRA will be
considered taxable income on your federal income tax return for the year of the
conversion. All amounts in a Regular IRA are taxable except for your prior
non-deductible contributions to the Regular IRA.
If you make the conversion during 1998, the taxable income is spread over
four years. In other words, you would include one quarter of the taxable amount
on your federal income tax return for 1998, 1999, 2000 and 2001.
Should I convert my Regular IRA to a Roth IRA?
Only you can answer this question, in consultation with your tax or
financial advisors. A number of factors, including the following, may be
relevant. Conversion may be advantageous if you expect to leave the converted
funds on deposit in your Roth IRA for at least five years and to be able to
withdraw the funds under circumstances that will not be taxable (see below). The
benefits of converting will also depend on whether you expect to be in the same
tax bracket when you withdraw from your Roth IRA as you are now. Also,
conversion is based upon an assumption that Congress will not change the tax
rules for withdrawals from Roth IRAs in the future, but this cannot be
guaranteed.
TRANSFERS/ROLLOVERS
Can I transfer or roll over a distribution I receive from my employer's
retirement plan into a Roth IRA?
Distributions from qualified employer-sponsored retirement plans or
403(b) arrangements (for employees of tax-exempt
employers) are not eligible for rollover or direct transfer to a Roth IRA.
However, in certain circumstances it may be possible to make a direct rollover
of an eligible distribution to a Regular IRA and then to convert the Regular IRA
to a Roth IRA (see above). Consult your tax or financial advisor for further
information on this possibility.
Can I make a rollover from my Roth IRA to another Roth IRA?
You may make a rollover from one Roth IRA to another Roth IRA you have or
you establish to receive the rollover. Such a rollover must be completed within
60 days after the withdrawal from your first Roth IRA. After making a rollover
from one Roth IRA to another, you must wait a full year (365 days) before you
can make another such rollover. (However, you can instruct a Roth IRA custodian
to transfer amounts directly to another Roth IRA custodian; such a direct
transfer does not count as a rollover.)
How do rollovers affect my Roth IRA contribution limits?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, you may make a rollover from one Roth IRA to another even
during a year when you are not eligible to contribute to a Roth IRA (for
example, because your AGI for that year is too high).
WITHDRAWALS
When can I make withdrawals from my Roth IRA?
You may withdraw from your Roth IRA at any time. If the withdrawal meets the
requirements discussed below, it is tax-free. This means that you pay no federal
income tax even though the withdrawal includes earnings or gains on your
contributions while they were held in your Roth IRA.
<PAGE>
When must I start making withdrawals?
There are no rules on when you must start making withdrawals from your Roth
IRA or on minimum required withdrawal amounts for any particular year during
your lifetime. Unlike Regular IRAs, you are not required to start making
withdrawals from a Roth IRA by the April 1 following the year in which you reach
age 70 1/2.
After your death, there are IRS rules on the timing and amount of
distributions. In general, the amount in your Roth IRA must be distributed by
the end of the fifth year after your death. However, distributions to a
designated beneficiary that begin by the end of the year following the year of
your death and that are paid over the life expectancy of the beneficiary satisfy
the rules. Also, if your surviving spouse is your designated beneficiary, the
spouse may defer the start of distributions until you would have reached age 70
1/2 had you lived.
What are the requirements for a tax-free withdrawal?
To be tax-free, a withdrawal from your Roth IRA must meet two requirements.
First, the Roth IRA must have been open for 5 or more years before the
withdrawal. Second, at least one of the following conditions must be satisfied:
o You are age 59 1/2 or older when you make the withdrawal.
o The withdrawal is made by your beneficiary after you die.
o You are disabled (as defined in IRS rules) when you make the withdrawal.
o You are using the withdrawal to cover eligible first time homebuyer expenses.
These are the costs of purchasing, building or rebuilding a principal residence
(including customary settlement, financing or closing costs). The purchaser may
be you, your spouse or a child, grandchild, parent or grandparent of you
or your spouse. An individual is considered a "first-time homebuyer" if
the individual (or the
individual's spouse, if married) did not have an ownership interest in a
principal residence during the two-year period immediately preceding the
acquisition in question. The withdrawal must be used for eligible expenses
within 120 days after the withdrawal (if there is an unexpected delay, or
cancellation of the home acquisition, a withdrawal may be redeposited as a
rollover).
There is a lifetime limit on eligible first-time homebuyer expenses of
$10,000 per individual.
For a Roth IRA that you set up with amounts rolled over or converted from a
Regular IRA, the 5 year period begins with the year in which the conversion or
rollover was made. (Note: a bill pending in Congress might affect this rule --
consult your tax advisor or the IRS for the latest developments.) For a Roth IRA
that you started with a normal contribution, the 5 year period starts with the
year for which you make the initial normal contribution.
How Are withdrawals from my Roth IRA taxed if the tax-free requirements are not
met?
If the qualified withdrawal requirements are not met, a withdrawal
consisting of your own prior contribution amounts to your Roth IRA will not be
considered taxable income in the year you receive it, nor will the 10% penalty
apply. To the extent that the nonqualified withdrawal consists of dividends or
gains while your contributions were held in your Roth IRA, the withdrawal is
includable in your gross income in the taxable year you receive it, and may be
subject to the 10% withdrawal penalty. All amounts withdrawn from your Roth IRA
are considered withdrawals of your contributions until you have withdrawn the
entire amount you have contributed. After that, all amounts withdrawn are
considered taxable withdrawals of dividends and gains.
Note that, for purposes of determining what portion of any distribution is
includable in income, all of your Roth IRA accounts are considered as one single
account. Amounts withdrawn from any one Roth IRA account are deemed to be
withdrawn from contributions first. Since all your Roth IRAs are considered to
be one account for this purpose, withdrawals from Roth IRA accounts are not
considered to be from earnings or interest until an amount equal to all
contributions made to all of an individual's Roth IRA accounts is withdrawn. The
following example illustrates this:
A single individual contributes $1,000 a year to his Investor Service Center
Roth IRA account and $1,000 a year to a non-Investor Service Center Roth IRA
account over a period of ten years. At the end of 10 years, his account balances
are as follows:
Principal
Contributions Earnings
------------- --------
Investor Service
Center Roth IRA $10,000 $10,000
Non-Investor Service
Center Roth IRA $10,000 $10,000
Total $20,000 $20,000
======= =======
At the end of 10 years, this person has $40,000 in both Roth IRA accounts,
of which $20,000 represents his contributions (aggregated) and $20,000
represents his earnings (aggregated). This individual, who is 40, withdraws
$15,000 from his non-Investor Service Center Roth IRA (not a qualified
withdrawal). We look to the aggregate amount of all principal contributions in
this case $20,000 - to determine if the withdrawal is from contributions, and
thus non-taxable. In this example, there is no ($0) taxable income as a result
of this withdrawal because the $15,000 withdrawal is less than the total amount
of aggregated contributions ($20,000). If this individual then withdrew $15,000
from his Investor Service Center Roth IRA, $5,000 would not be taxable (the
remaining aggregate contributions) and $10,000 would be treated as taxable
income for the year of the withdrawal, subject to regular income taxes and the
10% premature withdrawal penalty (unless an exception applies).
<PAGE>
Note: If passed, a bill currently pending in Congress will change the rules
and the results discussed above. Under the proposed legislation, in general,
separate Roth IRAs established for annual contributions and conversions for
separate years are not aggregated as explained above to determine the tax on
withdrawals. See your tax advisor for more information and the latest
developments.
Taxable withdrawals of dividends and gains from a Roth IRA are treated as
ordinary income. Withdrawals of taxable amounts from
a Roth IRA are not eligible for averaging treatment currently available to
certain lump sum distributions from qualified employer-sponsored retirement
plans, nor are such withdrawals eligible for taxable gains tax treatment.
Your receipt of any taxable withdrawal from your Roth IRA before you attain
age 59 1/2 generally will be considered as an early withdrawal and subject to a
10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if any of the
following exceptions applies:
o The withdrawal was a result of your death or disability.
o The withdrawal is one of a scheduled series of substantially equal periodic
payments for your life or life expectancy (or the joint lives or life
expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments, the 10%
penalty tax will apply. For example, if you begin receiving payments at age 50
under a withdrawal program providing for substantially equal payments over your
life expectancy, and at age 58 you elect to withdraw the remaining amount in
your Roth IRA in a lump-sum, the 10% penalty tax will apply to the lump sum and
to the amounts previously paid to you before age 59 1/2 to the extent they were
includable in your taxable income.
o The withdrawal is used to pay eligible higher education expenses. These are
expenses for tuition, fees, books, and supplies required to attend an
institution for post-secondary education. Room and board expenses are also
eligible for a student attending at least half-time. The student may be you,
your spouse, or your child or grandchild. However, expenses that are paid for
with a scholarship or other educational assistance payment are not eligible
expenses.
o The withdrawal is used to cover eligible first time homebuyer expenses (as
described above in the discussion of tax-free withdrawals).
o The withdrawal does not exceed the amount of your deductible medical expenses
for the year (generally speaking, medical expenses paid during a year are
deductible if they are greater than 7 1/2% of your adjusted gross income for
that year).
o The withdrawal does not exceed the amount you paid for health insurance
coverage for yourself, your spouse and dependents. This exception applies only
if you have been unemployed and received federal or state unemployment
compensation payments for at least 12 weeks; this exception applies to
distributions during the year in which you received the unemployment
compensation and during the following year, but not to any distributions
received after you have been reemployed for at least 60 days.
What about the 15 percent penalty tax?
The rule imposing a 15% penalty tax on very large withdrawals from
tax-favored arrangements (including IRAs, 403(b) arrangements and qualified
employer-sponsored plans), or on excess amounts remaining in such tax-favored
arrangements at your death, has been repealed. This 15% tax no longer applies.
Important: The discussion of the tax rules for Roth IRAs in this Disclosure
Statement is based upon the best available information. However, Roth IRAs are
new under the tax laws, and the IRS has not issued regulations or rulings on the
operation and tax treatment of Roth IRA accounts. Also, if enacted, legislation
now pending in Congress will change some of the rules. Therefore, you should
consult your tax advisor for the latest developments or for advice about how
maintaining a Roth IRA will affect your personal tax or financial situation.
Also, please see Part Three below which contains important information
applicable to all Investor Service Center IRAs.
Part Three: Rules for All IRAs (Regular and Roth)
GENERAL INFORMATION
What are the basic IRA requirements?
All IRAs must meet certain requirements. Contributions generally must be
made in cash (which may be paid by check.) The IRA trustee or custodian must be
a bank or other person who has been approved by the Secretary of the Treasury.
Your contributions may not be invested in life insurance or collectible or be
commingled with other property except in a common trust or investment fund. Your
interest in the account must be nonforfeitable at all times. You may obtain
further information on IRAs from any district office of the Internal Revenue
Service.
May I revoke my IRA?
You may revoke a newly established Regular or Roth IRA at any time within
seven days after the date on which you receive this Disclosure Statement. A
Regular or Roth IRA established more than seven days after the date of your
receipt of this Disclosure Statement may not be revoked.
To revoke your Regular or Roth IRA, mail or deliver a written notice of
revocation to the Custodian at the address which appears at the end of this
Disclosure Statement. Mailed notice will be deemed given on the date that it is
postmarked (or, if sent by certified or registered mail, on the date of
certification or registration). If you revoke your Regular or Roth IRA within
the seven-day period, you are entitled to a return of the entire amount you
originally contributed into your Regular or Roth IRA, without adjustment for
such items as sales charges, administrative expenses or fluctuations in market
value.
INVESTMENTS
How are my IRA contributions invested?
You control the investment and reinvestment of contributions to your Regular
or Roth IRA. Investments must be in one or more of the Fund(s) available from
time to time as listed in the IRA Application for your Regular or Roth IRA or in
an investment selection form provided with your IRA Application or from Investor
Service Center. You direct the investment of your IRA by giving your investment
instructions to Investor Service Center. Since you control the investment of
your Regular or Roth IRA, you are responsible for any losses; neither the
Custodian nor Investor Service Center has any responsibility for any loss or
diminution in value occasioned by your exercise of investment control.
Transactions for your Regular or Roth IRA will generally be at the applicable
public offering price or net asset value for shares of the Fund(s) involved next
established after Investor Service Center receives proper investment
instructions from you; consult the current prospectus for the Fund(s) involved
for additional information.
Before making any investment, read carefully the current prospectus for any
Fund you are considering as an investment for your Regular IRA or Roth IRA. The
prospectus will contain information about the Fund's investment objectives and
policies, as well as any minimum initial investment or minimum balance
requirements and any sales, redemption or other charges.
Because you control the selection of investments for your Regular or Roth
IRA and because mutual fund shares fluctuate in value, the growth in value of
your Regular or Roth IRA cannot be guaranteed or projected.
<PAGE>
Are there any restrictions on the use of my IRA assets?
The tax-exempt status of your Regular or Roth IRA will be revoked if you
engage in any of the prohibited transactions listed in Section 4975 of the tax
code. Upon such revocation, your Regular or Roth IRA is treated as distributing
its assets to you. The taxable portion of the amount in your IRA will be subject
to income tax (unless, in the case of a Roth IRA, the requirements for a
tax-free withdrawal are satisfied). Also, you may be subject to a 10% penalty
tax on the taxable amount as a premature withdrawal if you have not yet reached
the age of 59 1/2.
Any investment in a collectible (for example, rare stamps) by your Regular
or Roth IRA is treated as a withdrawal; the only exception involves certain
types of government-sponsored coins or certain types of precious metal bullion.
What is a prohibited transaction?
Generally, a prohibited transaction is any improper use of the assets in
your Regular or Roth IRA. Some examples of prohibited transactions are:
o Direct or indirect sale or exchange of property between you and your Regular
or Roth IRA.
o Transfer of any property from your Regular or Roth IRA to yourself or from
yourself to your Regular or Roth IRA.
Your Regular or Roth IRA could lose its tax exempt status if you use all or
part of your interest in your Regular or Roth IRA as security for a loan or
borrow any money from your Regular or Roth IRA. Any portion of your Regular or
Roth IRA used as security for a loan will be treated as a distribution in the
year in which the money is borrowed. This amount may be taxable and you may also
be subject to the 10% premature withdrawal penalty on the taxable amount.
FEES AND EXPENSES
The annual fiduciary fee charged by the Custodian for maintaining either a
Regular IRA or a Roth IRA is listed in the IRA Application. Fees may be paid by
you directly, or the Custodian may deduct them from your Regular or Roth IRA.
Fees may be changed upon 30 days written notice to you. The full annual
fiduciary fee will be charged for any calendar year during which you have a
Regular or Roth IRA with Investor Service Center. This fee is not prorated for
periods of less than one full year. If provided for in this Disclosure Statement
or the IRA Application, termination fees are charged when your account is closed
whether the assets are distributed to you or transferred to a successor
custodian or trustee. The Custodian may charge you for its reasonable expenses
for services not covered by its fee schedule.There may be sales or other charges
associated with the purchase or redemption of shares of a Fund in which your
Regular IRA or Roth IRA is invested. Before investing, be sure to read carefully
the current prospectus of any Fund you are considering as an investment for your
Regular IRA or Roth IRA for a description of applicable charges.
TAX MATTERS
What IRA reports does the Custodian issue?
The Custodian will report all withdrawals to the IRS and the recipient on
the appropriate form. For reporting purposes, a direct transfer of assets to a
successor custodian or trustee is not considered a withdrawal.
The Custodian will report to the IRS the year-end value of your account and
the amount of any rollover (including conversions of a Regular IRA to a Roth
IRA) or regular contribution made during a calendar year, as well as the tax
year for which a contribution is made. Unless the Custodian receives an
indication from you to the contrary, it will treat any amount as a contribution
for the tax year in which it is received. It is most important that a
contribution between January and April 15th for the prior year be clearly
designated as such.
What tax information must I report to the IRS?
You must file Form 5329 with the IRS for each taxable year for which you
made an excess contribution or you take a premature withdrawal that is subject
to the 10% penalty tax, or you withdraw less than the minimum amount required
from your Regular IRA. If your beneficiary fails to make required minimum
withdrawals from your Regular or Roth IRA after your death, your beneficiary may
be subject to an excise tax and be required to file Form 5329.
For Regular IRAs, you must also report each nondeductible contribution to
the IRS by designating it a nondeductible contribution on your tax return. Use
Form 8606. In addition, for any year in which you make a nondeductible
contribution or take a withdrawal, you must include additional information on
your tax return. The information required includes: (1) the amount of your
nondeductible contributions for that year; (2) the amount of withdrawals from
Regular IRAs in that year; (3) the amount by which your total nondeductible
contributions for all the years exceed the total amount of your distributions
previously excluded from gross income; and (4) the total value of all your
Regular IRAs as of the end of the year. If you fail to report any of this
information, the IRS will assume that all your contributions were deductible.
This will result in the taxation of the portion of your withdrawals that should
be treated as a nontaxable return of your nondeductible contributions.
Which withdrawals are subject to withholding?
Roth IRA
Federal income tax will be withheld at a flat rate of 10% of any taxable
withdrawal from your Roth IRA, unless you elect not to have tax withheld.
Withdrawals from a Roth IRA are not subject to the mandatory 20% income tax
withholding that applies to most distributions from qualified plans or 403(b)
accounts that are not directly rolled over to another plan or IRA.
Regular IRA
Federal income tax will be withheld at a flat rate of 10% from any
withdrawal from your Regular IRA, unless you elect not to have tax withheld.
Withdrawals from a Regular IRA are not subject to the mandatory 20% income tax
withholding that applies to most distributions from qualified plans or 403(b)
accounts that are not directly rolled over to another plan or IRA.
<PAGE>
ACCOUNT TERMINATION
You may terminate your Regular IRA or Roth IRA at any time after its
establishment by sending a completed withdrawal form (or other withdrawal
instructions in a form acceptable to the Custodian), or a transfer authorization
form, to: Investor Service Center, P.O.
Box 418789, Kansas City, MO 64141-6789.
Your Regular IRA or Roth IRA with Investor Service Center will terminate
upon the first to occur of the following:
o The date your properly executed withdrawal form or instructions (as described
above) withdrawing your total Regular IRA or Roth IRA balance is received and
accepted by the Custodian or, if later, the termination date specified in the
withdrawal form.
o The date the Regular IRA or Roth IRA ceases to qualify under the tax code.
This will be deemed a termination.
o The transfer of the Regular IRA or Roth IRA to another custodian/trustee.
o The rollover of the amounts in the Regular IRA or Roth IRA to another
custodian/trustee.
Any outstanding fees must be received prior to such a termination of your
account.
The amount you receive from your IRA upon termination of the account will be
treated as a withdrawal, and thus the rules relating to Regular IRA or Roth IRA
withdrawals will apply. For example, if the IRA is terminated before you reach
age 59 1/2, the 10% early withdrawal penalty may apply to the taxable amount you
receive.
IRA DOCUMENTS
Regular IRA
The terms contained in Articles I to VII of Part One of the Investor Service
Center Individual Retirement Custodial Account document have been promulgated by
the IRS in Form 5305-A for use in establishing a Regular IRA Custodial Account
that meets the requirements of Code Section 408(a) for a valid Regular IRA. This
IRS approval relates only to the form of Articles I to VII and is not an
approval of the merits of the Regular IRA or of any investment permitted by the
Regular IRA.
Roth IRA
The terms contained in Articles I to VII of Part Two of the Investor Service
Center Individual Retirement Account Custodial Agreement have been promulgated
by the IRS in Form 5305-RA for use in establishing a Roth IRA Custodial Account
that meets the requirements of Code Section 408A for a valid Roth IRA. This IRS
approval relates only to the form of Articles I to VII and is not an approval of
the merits of the Roth IRA or of any investment permitted by the Roth IRA.
Based on legal advice relating to current tax laws and IRS meetings, the
Custodian believes that the use of a Individual Retirement Account Information
Kit such as this, containing information and documents for both a Regular IRA or
a Roth IRA, will be acceptable to the IRS. However, if the IRS makes a ruling,
or if Congress enacts legislation, regarding the use of different documentation,
to the extent it become aware of such documentation and can be reasonably
prepare such documentation, Investor Service Center will seek to forward to you
new documentation for your Regular IRA or a Roth IRA (as appropriate) for you to
read and, if necessary, an appropriate new IRA Application to sign, although
there can be no assurance of this. By adopting a Regular IRA or a Roth IRA using
these materials, you acknowledge this possibility and agree to this procedure if
necessary. In all cases, to the extent permitted, Investor Service Center will
treat your IRA as being opened on the date your account was opened using the IRA
Application in this Kit.
ADDITIONAL INFORMATION
For additional information, please call 1-800-345-0051 or write to Investor
Service Center, Inc., P.O. Box 419789, Kansas City, MO 64141-6789.
<PAGE>
Custodial Agreement
Part One: Provisions Applicable to Regular IRAs
The following provisions of Articles I to VII are in the form promulgated by the
Internal Revenue Service in Form 5305-A for use in establishing an individual
retirement custodial account.
Article I.
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or an
employer contribution to a simplified employee pension plan as described in
section 408(k).
Article II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold, silver, and platinum
coins, coins issued under the laws of any state, and certain bullion.
Article IV.
1. Notwithstanding any provisions of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be made
in accordance with the following requirements and shall otherwise comply with
section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin
to the Depositor under paragraph 3, or to the surviving spouse under paragraph
4, other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the Depositor
and the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or
begin to be, distributed by the Depositor's required beginning date, the April 1
following the calendar year end in which the Depositor reaches age 70 1/2. By
that date, the Depositor may elect, in a manner acceptable to the Custodian, to
have the balance in the custodial account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor expectancy of the
Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is
distributed to him or her, the entire remaining interest will be distributed as
follows:
(a) If the Depositor dies on or after distribution of his or her interest
has begun, distribution must continue to be made in accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the Depositor or,
if the Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Depositor's death, or (ii)Be distributed in equal or
substantially equal payments over the life or life expectancy of the
designated beneficiary or
beneficiaries starting by December 31 of the year following the year of the
Depositor's death. If, however, the beneficiary is the Depositor's surviving
spouse, then this distribution is not required to begin before December 31 of
the year in which the Depositor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has irrevocably
commenced, distributions are treated as having begun on the Depositor's required
beginning date, even though payments may actually have been made before that
date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in the
account.
5. In the case of distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual payment for
each year, divide the Depositor's entire interest in the custodial account as of
the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor expectancy of
the Depositor and the Depositor's designated beneficiary, or the life expectancy
of the designated beneficiary, whichever applies.) In the case of distributions
under paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and designated
beneficiary as of their birthdays in the year the Depositor reaches age 70 1/2.
In the case of a distribution in accordance with paragraph 4(b)(ii), determine
life expectancy using the attained age of the designated beneficiary as of the
beneficiary's birthday in the year distributions are required to commence.
<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 as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be made
with the consent of the persons whose signatures appear on the IRA Application.
PART TWO: PROVISIONS APPLICABLE TO ROTH IRA'S
The following provisions of Articles I to VII are in the form promulgated by
the Internal Revenue Service in Form 5305-RA for use in establishing a Roth
Individual Retirement Custodial Account.
Article I
1. If this Roth IRA is not designated as a Roth Conversion IRA, then, except
in the case of a rollover contribution described in section 408A(e), the
Custodian will accept only cash contributions and only up to a maximum amount of
$2,000 for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no contributions
other than IRA Conversion Contributions made during the same tax year will be
accepted.
Article IA
The $2,000 limit described in Article I is gradually reduced to $0 between
certain levels of adjusted gross income (AGI). For a single Depositor, the
$2,000 annual contribution is phased out between AGI of $95,000 and $110,000;
for a married Depositor who files jointly, between AGI of $150,000 and $160,000;
and for a married Depositor who files separately, between $0 and $10,000. In
case of a conversion, the Custodian will not accept IRA Conversion Contributions
in a tax year if the Depositor's AGI for that tax year exceeds $100,000 or if
the Depositor is married and files a separate return. Adjusted gross income is
defined in section 408A(c)(3) and does not include IRA Conversion Contributions.
Article II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3), which provides an exception for certain gold, silver, and platinum
coins, coins issued under the laws of any state, and certain bullion.
Article IV
1. If the Depositor dies before his or her entire interest is distributed to
him or her and the Depositor's surviving spouse is not the sole beneficiary, the
entire remaining interest will, at the election of the Depositor or, if the
Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth
anniversary of the Depositor's death, or (b) Be distributed over the life
expectancy of the designated beneficiary starting no later than December 31
of the year following
the year of the Depositor's death.
If distributions do not begin by the date described in (b), distribution
method (a) will apply.
2. In the case of distribution method 1(b) above, to determine the minimum
annual payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the preceding
year by the life expectancy of the designated beneficiary using the attained age
of the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence and subtract 1 for each subsequent year.
3. If the Depositor's spouse is the sole beneficiary on the Depositor's date
of death, such spouse will then be treated as the Depositor.
<PAGE>
Article V
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under sections 408(i) and
408A(d)(3)(E), and Regulations section 1.408-5 and 1.408-6, and under guidance
published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor as prescribed by the Internal Revenue Service.
Article VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV and this sentence will be controlling. Any
additional articles that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
Article VII
This agreement will be amended from time to time to comply with the
provisions of the Code, related regulations, and other published guidance. Other
amendments may be made with the consent of the persons whose signatures appear
below.
Part Three: Provisions Applicable to Both Regular IRAs and Roth IRAs
Article VIII.
1. As used in this Article VIII the following terms have the following
meanings:
"Account" or "Custodial Account" means the individual retirement account
established using the terms of either Part One or Part Two and, in either event,
Part Three of this Investor Service Center Individual Retirement Account
Custodial Agreement and the IRA Application signed by the Depositor. The Account
may be a Regular Individual Retirement Account or a Roth Individual Retirement
Account, as specified by the Depositor. See Section 24 below.
"Custodian" means Investors Fiduciary Trust Company.
"Fund" means any registered investment company which is advised, sponsored
or distributed by Sponsor; provided, however, that such a mutual fund or
registered investment company must be legally offered for sale in the state of
the Depositor's residence.
"Distributor" means the entity which has a contract with the Fund(s) to
serve as distributor of the shares of such Fund(s). In any case where there is
no Distributor, the duties assigned hereunder to the Distributor may be
performed by the Fund(s) or by an entity that has a contract to perform
management or investment advisory services for the Fund(s).
"IRA Provider" means the Custodian, Fund, Distributor, Sonsor, and/or
Service Company, as the content requires, which shall be interpreted for their
protection and benefit.
"Service Company" means any entity employed by the Custodian or the
Distributor, including the transfer agent for the Fund(s), to perform various
administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned
hereunder to the Service Company will be performed by the Distributor (if any)
or by an entity specified in the second preceding paragraph.
"Sponsor" means Investor Service Center, Inc. or other fund entity that is
making Fund(s) available under this Agreement and has the power to appoint a
successor Custodian.
2. The Depositor may revoke the Custodial Account established hereunder by
mailing or delivering a written notice of revocation to the Custodian within
seven days after the Depositor receives the Disclosure Statement related to the
Custodial Account. Mailed notice is treated as given to the Custodian on date of
the postmark (or on the date of Post Office certification or registration in the
case of notice sent by certified or registered mail). Upon timely revocation,
the Depositor's initial contribution will be returned, without adjustment for
administrative expenses, commissions or sales charges, fluctuations in market
value or other changes. By signing the IRA Application, the Depositor certifies
that the Depositor received the Disclosure Statement related to the Custodial
Account at least seven days before the Depositor signed the IRA Application to
establish the Custodial Account, and the IRA Provider may rely upon such
certification.
3. All contributions to the Custodial Account shall be invested and
reinvested in full and fractional shares of one or more Funds. Such investments
shall be made in such proportions and/or in such amounts as Depositor from time
to time in the IRA Application or by other written notice to the Service Company
(in such form as may be acceptable to the Service Company) may direct. The
Service
Company shall be responsible for promptly transmitting all investment directions
by the Depositor for the purchase or sale of shares of one or more Funds
hereunder to the Funds' transfer agent for execution. However, if investment
directions with respect to the investment of any contribution hereunder are not
received from the Depositor as required or, if received, are unclear or
incomplete in the opinion of the Service Company, the contribution will be
returned to the Depositor, or will be held uninvested (or invested in a money
market fund if available) pending clarification or completion by the Depositor,
in either case without liability for interest or for loss of income or
appreciation. If any other directions or other orders by the Depositor with
respect to the sale or purchase of shares of one or more Funds for the Custodial
Account are unclear or incomplete in the opinion of the Service Company, the
Service Company will refrain from carrying out such investment directions or
from executing any such sale or purchase, without liability for loss of income
or for appreciation or depreciation of any asset, pending receipt of
clarification or completion from the Depositor. All investment directions by
Depositor will be subject to any minimum initial or additional investment or
minimum balance rules applicable to a Fund as described in its prospectus. All
dividends and capital gains or other distributions received on the shares of any
Fund held in the Depositor's Account shall be (unless received in additional
shares) reinvested in full and fractional shares of such
Fund (or of any other Fund offered by the Sponsor, if so directed).
4. Subject to the minimum initial or additional investment, minimum balance
and other exchange rules applicable to a Fund, the Depositor may at any time
direct the Service Company to exchange all or a specified portion of the shares
of a Fund in the Depositor's Account for shares and fractional shares of one or
more other Funds. The Depositor shall give such directions by written notice
acceptable to the Service Company, and the Service Company will process such
directions as soon as practicable after receipt thereof (subject to the second
paragraph of Section 3 of this Article VIII).
<PAGE>
5. Any purchase or redemption of shares of a Fund for or from the
Depositor's Account will be effected at the public offering price or net asset
value of such Fund (as described in the then effective prospectus for such Fund)
next established after the Service Company has transmitted the Depositor's
investment directions to the transfer agent for the Fund(s). Any purchase,
exchange, transfer or redemption of shares of a Fund for or from the Depositor's
Account will be subject to any applicable sales, redemption or other charge as
described in the then effective prospectus for such Fund.
6. The Service Company shall maintain adequate records of all purchases or
sales of shares of one or more Funds for the Depositor's Custodial Account. Any
account maintained in connection herewith shall be in the name of the Custodian
for the benefit of the Depositor. All assets of the Custodial Account shall be
registered in the name of the Custodian or of a suitable nominee. The books and
records of the Custodian shall show that all such investments are part of the
Custodial Account. The Custodian shall maintain or cause to be maintained
adequate records reflecting transactions of the Custodial Account. In the
discretion of the Custodian, records maintained by the Service Company with
respect to the Account hereunder will be deemed to satisfy the Custodian's
recordkeeping responsibilities therefor. The Service Company agrees to furnish
the Custodian with any information the Custodian requires to carry out the
Custodian's recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to the
Custodial Account will have any responsibility for rendering advice with respect
to the investment and reinvestment of Depositor's Custodial Account, nor shall
such parties be liable for any loss or diminution in value which results from
Depositor's exercise of investment control over his Custodial Account. Depositor
shall have and exercise exclusive responsibility for and control over the
investment of the assets of his Custodial Account, and neither Custodian nor any
other such party shall have any duty to question his directions in that regard
or to advise him regarding the purchase, retention or sale of shares of one or
more Funds for the Custodial Account.
8. The Depositor may in writing appoint an investment advisor with respect
to the Custodial Account on a form acceptable to the Custodian and the Service
Company. The investment advisor's appointment will be in effect until written
notice to the contrary is received by the Custodian and the Service Company.
While an investment advisor's appointment is in effect, the investment advisor
may issue investment directions or may issue orders for the sale or purchase of
shares of one or more Funds to the IRA Provider, and the IRA Provider will be
fully protected and indemnified by the Depositor in carrying out such investment
directions or orders to the same extent as if they had been given by the
Depositor. The Depositor's appointment of any investment advisor will also be
deemed to be instructions to the IRA Provider to pay such investment advisor's
fees to the investment advisor from the Custodial Account hereunder without
additional authorization by the Depositor or the Custodian.
9. Distribution of the assets of the Custodial Account shall be made at
such time and in such form as Depositor (or the Beneficiary if Depositor is
deceased) shall elect by written order to the IRA Provider. Depositor
acknowledges that any distribution of a taxable amount from the Custodial
Account (except for distribution on account of Depositor's disability or death,
return of an "excess contribution" referred to in Code Section 4973, or a
"rollover" from this Custodial Account) made earlier than age 59 1/2 may subject
Depositor to an "additional tax on early distributions" under Code Section 72(t)
unless an exception to such additional tax is applicable. For that purpose,
Depositor will be considered disabled if Depositor can prove, as provided in
Code Section 72(m)(7), that Depositor is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or be of long continued and
indefinite duration. It is the responsibility of the Depositor (or the
Beneficiary) by appropriate distribution instructions to the IRA Provider to
insure that any applicable distribution requirements of Code Section 401(a)(9)
and Article IV above are met. If the Depositor (or Beneficiary) does not direct
the IRA Provider to make distributions from the Custodial Account by the time
that such distributions are required to commence in
<PAGE>
accordance with such distribution requirements, the IRA Provider shall assume
that the Depositor (or Beneficiary) is meeting the minimum distribution
requirements from another individual retirement arrangement maintained by the
Depositor (or Beneficiary) and the IRA Provider shall be fully protected and
indemnified by the depositor in so doing. The Depositor (or the Depositor's
surviving spouse) may elect to comply with the distribution requirements in
Article IV using the recalculation of life expectancy method, or may elect that
the life expectancy of the Depositor and/or the Depositor's surviving spouse, as
applicable, will not be recalculated; any such election may be in such form as
the Depositor (or surviving spouse) provides (including the calculation of
minimum distribution amounts in accordance with a method that does not provide
for recalculation of the life expectancy of one or both of the Depositor and
surviving spouse and instructions for withdrawals to the IRA Provider in
accordance with such method). Notwithstanding paragraph 2 of Article IV, unless
an election to have life expectancies recalculated annually is made by the time
distributions are required to begin, life expectancies shall not be
recalculated. Neither the IRA Provider nor any other party providing services to
the Custodial Account assumes any responsibility for the tax treatment of any
distribution from the Custodial Account; such responsibility rests solely with
the person ordering the distribution.
10. IRA Provider assumes (and shall have) no responsibility to make any
distribution except upon the written order of Depositor (or Beneficiary if
Depositor is deceased) containing such information as the IRA Provider may
reasonably request. Also, before making any distribution or honoring any
assignment of the Custodial Account, IRA Provider 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 Ira Provider, but Ira Provider shall not be
responsible for complying with any order or instruction which appears on its
face to be genuine, or for refusing to comply if not satisfied it is genuine,
and Ira Provider has no duty of further inquiry. Any distributions from the
Account may be mailed, first-class postage prepaid, to the last known address of
the person who is to receive such distribution, as shown on the Ira Provider's
records, and such distribution shall to the extent thereof completely discharge
the Ira Provider's liability for such payment.
11. (a) The term "Beneficiary" means the person or persons designated as
such by the "designating person" (as defined below) on a form acceptable to the
Ira provider for use in connection with the Custodial Account, signed by the
designating person, and filed with the IRA Provider. The form may name
individuals, trusts, estates, or other entities as either primary or contingent
beneficiaries. However, if the designation does not effectively dispose of the
entire Custodial Account as of the time distribution is to commence, the term
"Beneficiary" shall then mean the designating person's estate with respect to
the assets of the Custodial Account not disposed of by the designation form. The
form last accepted by the IRA Provider before such distribution is to commence,
provided it was received by the IRA Provider (or deposited in the U.S. Mail or
with a reputable delivery service) during the designating person's lifetime,
shall be controlling and, whether or not fully dispositive of the Custodial
Account, thereupon shall revoke all such forms previously filed by that person.
The term "designating person" means Depositor during his/her lifetime; after
Depositor's death, it also means Depositor's spouse, but only if the spouse
elects to treat the Custodial Account as the spouse's own Custodial Account in
accordance with applicable provisions of the Code.
(b) When and after distributions from the Custodial Account to Depositor's
Beneficiary commence, all rights and obligations assigned to Depositor hereunder
shall inure to, and be enjoyed and exercised by, Beneficiary instead of
Depositor.
12. (a) The Depositor agrees to provide information to the IRA Provider at
such time and in such manner as may be necessary for the IRA Provider to prepare
any reports required under Section 408(i) or Section 408A(d)(3)(E) of the Code
and the regulations thereunder or otherwise.
(b) The IRA Provider will submit reports to the Internal Revenue Service
and the Depositor at such time and manner and containing such information as is
prescribed by the Internal Revenue Service.
(c) The Depositor, IRA Provider shall furnish to each other such
information relevant to the Custodial Account as may be required under the Code
and any regulations issued or forms adopted by the Treasury Department
thereunder or as may otherwise be necessary for the administration of the
Custodial Account.
(d) The Depositor shall file any reports to the Internal Revenue Service
which are required of him by law (including Form 5329), and the IRA Provider
shall not have any duty to advise Depositor concerning or monitor Depositor's
compliance with such requirement.
13. (a) Depositor retains the right to amend this Custodial Account
document in any respect at any time, effective on a stated date which shall be
at least 60 days after giving written notice of the amendment (including its
exact terms) to IRA Provider by registered or certified mail, unless IRA
Provider waives notice as to such amendment. If the IRA Provider does not wish
to continue serving as such under this Custodial Account document as so amended,
it may resign in accordance with Section 17 below.
<PAGE>
(b) Depositor delegates to the IRA Provider the Depositor's right so to
amend, provided (i) the IRA Provider does not change the investments available
under this Custodial Agreement and (ii) the IRA Provider amends in the same
manner all agreements comparable to this one, having the same IRA Provider,
permitting comparable investments, and under which such power has been delegated
to it; this includes the power to amend retroactively if necessary or
appropriate in the opinion of the IRA Provider in order to conform this
Custodial Account to pertinent provisions of the Code and other laws or
successor provisions of law, or to obtain a governmental ruling that such
requirements are met, to adopt a prototype or master form of agreement in
substitution for this Agreement, or as otherwise may be advisable in the opinion
of the IRA Provider. Such an amendment by the IRA Provider shall be
communicated in writing to Depositor, and Depositor shall be deemed to have
consented thereto unless, within 10 days after such communication to Depositor
is mailed, Depositor either (i) gives IRA Provider a written order for a
complete distribution or transfer of the Custodial Account, or (ii) removes the
IRA Provider and appoints a successor under Section 17 below. Pending the
adoption of any amendment necessary or desirable to conform this Custodial
Account document to the requirements of any amendment to any applicable
provision of the Internal Revenue Code or regulations or rulings thereunder, the
IRA Provider and the Service Company may operate the Depositor's Custodial
Account in accordance with such requirements to the extent that the IRA Provider
and/or the Service Company deem necessary to preserve the tax benefits of the
Account.
(c) Notwithstanding the provisions of subsections (a) and (b) above, no
amendment shall increase the responsibilities or duties of IRA Provider without
its prior written consent.
(d) This Section 13 shall not be construed to restrict the IRA Provider's
right to substitute fee schedules in the manner provided by Section 16 below,
and no such substitution shall be deemed to be an amendment of this Agreement.
14. (a) Custodian shall terminate the Custodial Account if this Agreement
is terminated or if, within 30 days (or such longer time as Custodian may agree)
after resignation or removal of Custodian under Section 17, Depositor or
Sponsor, as the case may be, has not appointed a successor which has accepted
such appointment. Termination of the Custodial Account shall be effected by
distributing all assets thereof in a single payment in cash or in kind to
Depositor, subject to Custodian's right to reserve funds as provided in Section
17.
(b) Upon termination of the Custodial Account, this custodial account
document shall have no further force and effect (except for Sections 15(f),
17(b) and (c) hereof which shall survive the termination of the Custodial
Account and this document), and Custodian shall be relieved from all further
liability hereunder or with respect to the Custodial Account and all assets
thereof so distributed.
15. (a) In its discretion, the IRA Provider may appoint one or more
contractors or service providers to carry out any of their functions and may
compensate them from the Custodial Account for expenses attendant to those
functions. In the event of such appointment, all rights and privileges of the
IRA Provider under this Agreement shall pass through to such contractors or
service providers who shall be entitled to enforce them as if a named party.
(b) The IRA Provider shall be responsible for receiving all instructions,
notices, forms and remittances from Depositor and for dealing with or forwarding
the same to the transfer agent for the Fund(s).
(c) The parties do not intend to confer any fiduciary duties on IRA
Provider (or any other party providing services to the Custodial Account), and
none shall be implied. Neither shall be liable (or assumes any responsibility)
for the collection of contributions, the proper amount, time or tax treatment of
any contribution to the Custodial Account or the propriety of any contributions
under this Agreement, or the purpose, time, amount (including any minimum
distribution amounts), tax treatment or propriety of any distribution hereunder,
which matters are the sole responsibility of Depositor and Depositor's
Beneficiary.
(d) Not later than 60 days after the close of each calendar year (or after
the IRA Provider's resignation or removal), the IRA Provider or Service Company
shall file with Depositor a written report or reports reflecting the
transactions effected by it during such period and the assets of the Custodial
Account at its close. Upon the expiration of 60 days after such a report is sent
to Depositor (or Beneficiary), the IRA Provider and their affiliates shall be
forever released and discharged from all liability and accountability to anyone
with respect to transactions shown in or reflected by such report and shall be
indemnified by Depositor in connection therewith except with respect to any such
acts or transactions as to which Depositor shall have filed written objections
with the IRA Provider within such 60 day period.
(e) The Service Company shall deliver, or cause to be delivered, to
Depositor all notices, prospectuses, financial statements and other reports to
shareholders, proxies and proxy soliciting materials relating to the shares of
the Funds(s) credited to the Custodial Account. No shares shall be voted, and no
other action shall be taken pursuant to such documents, except upon receipt of
adequate written instructions from Depositor.
(f) Depositor shall always fully indemnify the IRA Provider and their
affiliates and save them harmless from any and all liability whatsoever which
may arise either (i) in connection with this Agreement and the matters which it
contemplates, except that which arises directly out of the IRA Provider's or
their affiliate's, bad faith, gross negligence or willful misconduct, (ii) with
respect to making or failing to make any distribution, other than for failure to
make distribution in accordance with an order therefor which is in full
compliance with Section 10, or (iii) actions taken or omitted in good faith by
such parties. None of the IRA Providers shall be obligated or expected to
commence or defend any legal action or proceeding in connection with this
Agreement or such matters unless agreed upon by that party and Depositor, and
unless fully indemnified for so doing to that party's satisfaction.
(g) The IRA Providers shall each be responsible solely for performance of
those duties expressly assigned to it in this Agreement, and neither assumes any
responsibility as to duties assigned to anyone else hereunder or by operation of
law.
(h) The IRA Provider may each conclusively rely upon and shall be protected
in acting upon any written order from Depositor or Beneficiary, or any
investment advisor appointed under Section 8, or any other notice, request,
consent, certificate or other instrument or paper believed by it to be genuine
and to have been properly executed, and so long as it acts in good faith, in
taking or omitting to take any other action in reliance thereon. In addition,
IRA Provider will carry out the requirements of any apparently valid court order
relating to the Custodial Account and will incur no liability or responsibility
for so doing.
16. (a) The Depositor, in consideration of the services received under this
Agreement, shall pay the fees specified on the applicable fee schedule. The fee
schedule originally applicable shall be the one specified in the IRA Application
or Disclosure Statement, as applicable. The Sponsor may substitute a different
fee schedule at any time upon 30 days' notice to Depositor. The Depositor shall
also pay reasonable fees for any services not contemplated by any applicable fee
schedule and either deemed by the IRA Provider to be necessary or desirable or
requested by Depositor.
<PAGE>
(b) Any income, gift, estate and inheritance taxes and other taxes of any
kind whatsoever, including transfer taxes incurred in connection with the
investment or reinvestment of the assets of the Custodial Account, that may be
levied or assessed in respect to such assets, and all other administrative
expenses incurred by the IRA Provider in the performance of its duties
(including fees for legal services rendered to it in connection with the
Custodial Account) shall be charged to the Custodial Account. If the IRA
Provider is required to pay any such amount, the Depositor (or Beneficiary)
shall promptly upon notice thereof reimburse the IRA Provider.
(c) All such fees and taxes and other administrative expenses charged to
the Custodial Account shall be collected either from the amount of any
contribution or distribution to or from the Account, or (at the option of the
person entitled to collect such amounts) to the extent possible under the
circumstances by the conversion into cash of sufficient shares of one or more
Funds held in the Custodial Account (without liability for any loss incurred
thereby). Notwithstanding the foregoing, the IRA Provider may make demand upon
the Depositor for payment of the amount of such fees, taxes and other
administrative expenses. Fees which remain outstanding after 60 days may be
subject to a collection charge.
17. (a) Upon 30 days' prior written notice to the Custodian, Depositor or
Sponsor, as the case may be, may remove it from its office hereunder. Such
notice, to be effective, shall designate a successor custodian and shall be
accompanied by the successor's written acceptance. The Custodian also may at any
time resign upon 30 days' prior written notice to Sponsor, whereupon the Sponsor
shall notify the Depositor (or Beneficiary) and shall appoint a successor to the
Custodian. In connection with its resignation hereunder, the Custodian may, but
is not required to, designate a successor custodian by written notice to the
Sponsor or Depositor (or Beneficiary), and the Sponsor or Depositor (or
Beneficiary) will be deemed to have consented to such successor unless the
Sponsor or Depositor (or Beneficiary) designates a different successor custodian
and provides written notice thereof together with such a different successor's
written acceptance by such date as the Custodian specifies in its original
notice to the Sponsor or Depositor (or Beneficiary) (provided that the Sponsor
or Depositor (or Beneficiary) will have a minimum of 30 days to designate a
different successor).
(b) The successor custodian shall be a bank, insured credit union, or other
person satisfactory to the Secretary of the Treasury under Code Section
408(a)(2). Upon receipt by Custodian of written acceptance by its successor of
such successor's appointment, Custodian shall transfer and pay over to such
successor the assets of the Custodial Account and all records (or copies
thereof) of Custodian pertaining thereto, provided that the successor custodian
agrees not to dispose of any such records without the Custodian's consent.
Custodian is authorized, however, to reserve such sum of money or property as it
may deem advisable for payment of all its fees, compensation, costs, and
expenses, or for payment of any other liabilities constituting a charge on or
against the assets of the Custodial Account or on or against the IRA Provider,
with any balance of such reserve remaining after the payment of all such items
to be paid over to the successor custodian.
(c) No IRA Provider shall be liable for the acts or omissions of its
predecessor or its successor.
18. References herein to the "Internal Revenue Code" or "Code" and sections
thereof shall mean the same as amended from time to time, including successors
to such sections.
19. Except where otherwise specifically required in this Agreement, any
notice from IRA Provider to any person provided for in this Agreement shall be
effective if sent by first-class mail to such person at that person's last
address on the IRA Provider's records.
20. Depositor or Depositor's Beneficiary shall not have the right or power
to anticipate any part of the Custodial Account or to sell, assign, transfer,
pledge or hypothecate any part thereof. The Custodial Account shall not be
liable for the debts of Depositor or Depositor's Beneficiary or subject to any
seizure, attachment, execution or other legal process in respect thereof except
to the extent required by law. At no time shall it be possible for any part of
the assets of the Custodial Account to be used for or diverted to purposes other
than for the exclusive benefit of the Depositor or his/her Beneficiary except to
the extent required by law.
21. When accepted by the Custodian, this Agreement is accepted in and shall
be construed and administered in accordance with the laws of the state where the
principal offices of the Custodian are located. Any action involving the
Custodian brought by any other party must be brought in a state or federal court
in such state.
If in the IRA Application, Depositor designates that the Custodial Account
is a Regular IRA, this Agreement is intended to qualify under Code Section
408(a) as an individual retirement Custodial Account and to entitle Depositor to
the retirement savings deduction under Code Section 219 if available. If in the
IRA ApplicationDepositor designates that the Custodial Account is a Roth IRA,
this Agreement is intended to qualify under Code Section 408A as a Roth
individual retirement Custodial Account and to entitle Depositor to the tax-free
withdrawal of amounts from the Custodial Account to the extent permitted in such
Code section. If any provision hereof is subject to more than one interpretation
or any term used herein is subject to more than one construction, such ambiguity
shall be resolved in favor of that interpretation or construction which is
consistent with the intent expressed in whichever of the two preceding sentences
is applicable. However, the IRA Provider shall not be responsible for whether or
not such intentions are achieved through use of this Agreement, and Depositor is
referred to Depositor's attorney for any such assurances.
22. Depositor should seek advice from Depositor's attorney regarding the
legal consequences (including but not limited to federal and state tax matters)
of entering into this Agreement, contributing to the Custodial Account, and
ordering IRA Provider to make distributions from the Account. Depositor
acknowledges that IRA Provider (and any company associated therewith) are
prohibited by law from rendering such advice.
<PAGE>
23. If any provision of any document governing the Custodial Account
provides for notice, instructions or other communications from one party to
another in writing, to the extent provided for in the procedures of the IRA
Provider or any other party, any such notice, instructions or other
communications may be given by telephonic, computer, other electronic or other
means, and the requirement for written notice will be deemed satisfied.
24. The legal documents governing the Custodial Account are as follows:
(a) If in the IRA Applicationthe Depositor designated the Custodial Account
as a Regular IRA under Code Section 408(a), the provisions of Part One and Part
Three of this Agreement and the provisions of the IRA Applicationare the legal
documents governing the Depositor's Custodial Account.
(b) If in the IRA Applicationthe Depositor designated the Custodial Account
as a Roth IRA under Code Section 408A, the provisions of Part Two and Part Three
of this Agreement and the provisions of the IRA Application are the legal
documents governing the Depositor's Custodial Account.
(c) In the IRA Application the Depositor must designate the Custodian
Account as either a Roth IRA or a Regular IRA, and a separate account will be
established for such IRA. One Custodial Account may not serve as a Roth IRA and
a Regular IRA (through the use of subaccounts or otherwise).
25. Articles I through VII of Part One of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-A. It is anticipated
that, if and when the Internal Revenue Service promulgates changes to Form
5305-A, the IRA Provider will amend this Agreement correspondingly.
Articles I through VII of Part Two of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-RA. It is anticipated
that, if and when the Internal Revenue Service promulgates changes to Form
5305-RA, the IRA Provider will amend this Agreement correspondingly. The
Internal Revenue Service has endorsed the use of documentation permitting a
Depositor to establish either a Regular IRA or Roth IRA (but not both using a
single IRA Application), and this Kit complies with the requirements of the IRS
guidance for such use. If the Internal Revenue Service subsequently determines
that such an approach is not permissible, or that the use of a "combined" IRA
Application does not establish a valid Regular IRA or a Roth IRA (as the case
may be), the IRA Provider will seek to furnish the Depositor with replacement
documents and the Depositor will if necessary sign such replacement documents.
Depositor acknowledge and agrees to such procedures and to cooperate with IRA
Provider to preserve the intended tax treatment of the Account.
26. If the Depositor maintains an Individual Retirement Account under Code
section 408(a), Depositor may convert or transfer such other IRA to a Roth IRA
under Code section 408A using the terms of this Agreement and the IRA
Application by completing and executing the IRA Application and giving suitable
directions to the IRA Provider and the custodian or trustee of such other IRA.
Alternatively, the Depositor may convert or transfer such other IRA to a Roth
IRA by use of a reply card or by telephonic, computer or electronic means in
accordance with procedures adopted by the IRA Provider intended to meet the
requirements of Code section 408A, and the Depositor will be deemed to have
executed the IRA Application and adopted the provisions of this Agreement and
the IRA Application in accordance with such procedures.
27. The Depositor acknowledges that he or she has received and read the
current prospectus for each Fund in which his or her Account is invested and the
Individual Retirement Account Disclosure Statement related to the Account. The
Depositor represents under penalties of perjury that his or her Social Security
number (or other Taxpayer Identification Number) as stated in the IRA
Application is correct.
<PAGE>
IRAK-1/98
IMPORTANT INFORMATION ABOUT YOUR INVESTOR SERVICE CENTER 403(B)(7) ACCOUNT
Dear Investor Service Center 403(b)(7) Account Holder:
Recent legislation makes some changes in the tax law rules for the 403(b)(7)
custodial accounts. The main changes for 403(b)(7) accounts are as follows:
Previously, an employee could make only one salary reduction agreement (or one
modification to an existing salary reduction agreement) in a calendar year. Now,
an employee may (subject to any reasonable limitations imposed by his employer)
change his/her salary reduction agreement as often as he wishes. The only
requirement is that any change may relate only to compensation to be earned in
the future (i.e. future pay periods), not to any pay already earned at the
effective date of the change.
The current tax law rule requiring an employee to start receiving distributions
from his 403(b)(7) account on the April 1 following the calendar year in which
the employee reaches age 702 has been changed. Under the new rule, distributions
must start by the April 1 following the year in which the employee reaches age
702 or retires, whichever is later. This change is effective as of January 1,
1997.
The method for calculating the maximum 403(b)(7) contribution by an employee has
changed. First, the limit on voluntary salary reductions by an individual
(including both salary reduction contributions to a 403(b)(7) account or to a
401(k) plan) has been increased from $9,500 in 1997 to $10,000 in 1998. Second,
the definition of Acompensation@ for purposes of calculating certain other
limits on an individual=s contribution have been changed. Starting in 1998,
compensation before salary reductions will be used to determine these other
contribution limits. These changes in general will result in eligible employees
being able to make larger 403(b)(7) contributions in 1998.
The tax law rule imposing a 15% penalty tax on very large withdrawals from
tax-favored retirement arrangements, including 403(b)(7) custodial accounts,
IRAs and qualified employer-sponsored plans has been repealed. A related 15%
penalty tax on large accumulations remaining in such tax-favored arrangements at
an individual=s death has also been repealed.
Enclosed is an amendment and restatement of your 403(b)(7) Account Agreement.
This amendment revises your Agreement to reflect the new tax law changes and to
make other technical or clarifying changes. YOU DO NOT NEED TO SIGN ANYTHING OR
RETURN ANYTHING TO US.
It is our pleasure to serve your retirement planning needs by continually
revising the documentation for your 403(b)(7) account as tax laws and other
legal rules change.
<PAGE>
INVESTOR SERVICE CENTER SECTION 403(B)(7) CUSTODIAL ACCOUNT AGREEMENT
AMENDED AND RESTATED AS OF JANUARY 1, 1998
ARTICLE I
DEFINITIONS
1.1 Account: The custodial account established and maintained under
this Agreement on behalf of the Employee pursuant to Section 403(b)(7) of the
Code.
1.2 Account Holder: The Employee, or, after the death of the Employee,
the Beneficiary of the Employee, or executor or administrator of the estate of
the Employee entitled to direct investment of assets held in the Account.
1.3 Agreement: The Investor Service Center Section 403(b)(7) Custodial
Account Agreement as set forth herein (and as it may be amended from time to
time).
1.4 Application: The Application for the Investor Service Center
Section 403(b)(7) Custodial Account executed by the Employee and the Custodian
providing for the establishment of the Account in accordance with the terms and
conditions of this Agreement.
1.5 Beneficiary: The person or persons designated in accordance with
the provisions of Article 5.6 to receive any undistributed amounts credited to
the Account upon the death of the Employee. No person(s) will be treated as a
Beneficiary hereunder until the Custodian has been provided with such
verification of the Employee's death as the Custodian deems necessary, and the
Custodian will incur no liability (including but not limited to liability for
investment losses or loss of appreciation) for not treating the Beneficiary or,
if applicable, the Executor or Administrator of the Employee's estate, as the
Account Holder until the Employee's death has been so verified, and the
Custodian has been provided with such verification as the Custodian deems
necessary of the identity of the person claiming to be Beneficiary or of the
valid appointment of the person claiming to be Executor or Administrator.
1.6 Code: The Internal Revenue Code of 1986, as amended, and including
any regulations or rulings issued thereunder.
1.7 Company: [Name of Mutual Fund Management Company].
Contributions to the Account shall be invested in one or more Funds which have
an investment management, distribution and/or service contract with the Company.
1.8 Custodian: Investors Fiduciary Trust Company or any successor
thereto appointed in accordance with the provisions of Article 8, provided that
such successor is either a bank or another person who satisfies the requirements
of Section 401(f)(2) of the Code.
1.9 Direct Contribution: The amount, other than a Salary Reduction
Contribution, contributed by the employer to the Account.
1.10 Disability: A determination that the Employee is unable to engage
in any substantial gainful activity by reason of a medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration.
2
<PAGE>
1.11 Employee: The individual who has executed the Application and who
is employed by the Employer on a full or part-time basis or who is a former or
retired employee of the Employer.
1.12 Employer: The employer that is:
(a) described in Section 501(c)(3) of the Code and exempt
from tax under Section 501(a) of the Code; or
(b) a State, a political subdivision of a State, or an
agency or instrumentality thereof, but only with
respect to employees who perform or have performed
services for an educational organization described in
Section 170(b)(1)(A)(ii) of the Code;
and, except with respect to an Account to which no contributions other than
rollovers or transfers are made, the Employer that has executed the Application.
1.13 ERISA: The Employee Retirement Income Security Act of 1974, as
amended, including any regulations issued thereunder.
1.14 Financial Hardship: A determination that the Employee has an
immediate and heavy financial need requiring a distribution from the Account.
Any determination of the existence of a qualifying financial hardship on the
part of the Employee and the amount required to be distributed to meet the need
created by the hardship shall be made in accordance with the rules and
regulations under Section 403(b)(7) of the Code.
1.15 Fund(s): One or more of the regulated investment companies offered
by [Name of funds], a [state] corporation, as available investments under this
Agreement.
1.16 Salary Reduction Agreement: The Salary Reduction Agreement
described in Article 3.2.
1.17 Salary Reduction Contribution: The amount contributed by the
Employer to the Account in accordance with a Salary Reduction Agreement.
ARTICLE II
ESTABLISHMENT OF ACCOUNT
2.1 Purpose. This Agreement is intended to provide for the
establishment and administration of an Account to receive contributions by the
Employer on behalf of the Employee in accordance with Section 403(b)(7) of the
Code or to receive rollover contributions or transfers from another 403(b)
annuity contract or custodial account.
2.2 Establishment of Account. The Custodian shall establish and
maintain the Account for the benefit of the Employee according to the terms and
conditions of this Agreement. The name, address and social security number of
the Employee and Beneficiary are set forth on the Application, and it shall be
the obligation of the Account Holder to notify the Custodian of any changes
thereto. The Application and, if applicable, the Salary Reduction Agreement, are
incorporated herein by reference. The Account will become effective upon
acceptance by or on behalf of the Custodian, as evidenced by written
confirmation to the Employee.
ARTICLE III
CONTRIBUTIONS
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3.1 Contributions. The Employer shall make Salary Reduction
Contributions to the Account on behalf of the Employee in accordance with the
Salary Reduction Agreement between the Employer and the Employee as described in
Article 3.2, subject to the limitations of Articles 3.4, 3.5, and 3.6. In
addition, the Employer may make Direct Contributions to the Account on behalf of
any Employee in accordance with any retirement plan, fund or program covering
the Employee, subject to the limitations of Article 3.4, the nondiscrimination
requirements of Code section 403(b)(12), and applicable requirements of ERISA.
3.2 Salary Reduction Agreement. The Salary Reduction Agreement shall be
a legally binding agreement between the Employer and the Employee whereby the
Employee agrees to take a reduction in salary or to forego an increase in salary
with respect to amounts earned after the agreement's effective date, and whereby
the Employer agrees to contribute the amount of salary reduced or foregone by
the Employee to the Account. The Salary Reduction Agreement may be terminated at
any time by the Employee with respect to amounts not yet earned by the Employee.
3.3 Limitations in General. The Employee shall compute and determine
the maximum amount that may be contributed on behalf of the Employee in
accordance with the Employee's exclusion allowance, as defined in Section
403(b)(2) of the Code, and in accordance with the applicable limitations under
Section 415(c) of the Code and, if applicable, in accordance with Section 402(g)
of the Code. Neither the Custodian nor the Company shall have any liability or
responsibility with respect to such computations or determinations, or for any
tax imposed on any excess contributions that exceed the limitations or exclusion
allowance, which matters are solely the responsibility of the Employee.
3.4 Contribution Limitations.
(a) No amount shall be contributed on behalf of the
Employee for any limitation year in excess of the
applicable limitations of Section 415(c) of the Code.
In the absence of a special election by the Employee
under Section 415(c)(4) of the Code, the amount
contributed shall not exceed the lesser of:
(i) $30,000 (or, if greater, one-fourth the
defined benefit plan dollar limitation in
effect under Section 415(b)(1) of the Code
for the limitation year); or
(ii) 25 percent of the Employee's compensation
(within the meaning of Section 415(c)(3) of
the Code) for the limitation year.
(b) The term "limitation year" shall mean the calendar
year, unless the Employee elects to change the
limitation year to another twelve-month period by
attaching a statement to his or her federal income
tax return in accordance with the regulations under
Section 415 of the Code. If the Employee is
in control (within the meaning of Code Section 414(b)
or (c), as modified by Code Section 415(h)) of the
Employer, the limitation year shall be the same as
the limitation year of
the Employer under Section 415 of the Code.
(c) If the Employer or any affiliated employer as
described in Section 415(h) of the Code makes
contributions on behalf of the Employee to any other
custodial account or annuity contract described in
Section 403(b) of the Code, then the contributions to
such annuity contract shall be combined with
the contributions to the Account for purposes of the
limitations of subsection (a). If the Employee is
covered by a qualified plan sponsored by an entity
controlled by the
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Employee, then contributions to such a plan shall
also be included for the purposes of the limitations
of subsection (a).
3.5 Exclusion from Gross Income. For federal tax purposes, the Employee
may exclude from gross income for any taxable year the Employer contributions
that are made to the Account to the extent such contributions do not exceed the
Employee's exclusion allowance under Section 403(b)(2) of the Code for the
taxable year (and all other applicable limitations, including those set forth in
Sections 3.4 and 3.7).
3.6 Excess Contributions. Any excess contributions (as defined in
Section 4973(c) of the Code) that are made to the Account shall be subject to
the six percent excise tax of Section 4973(a) of the Code. Neither the Custodian
nor the Company shall have any duty or responsibility for determining whether
any contributions to the Account are excludable from the Employee's gross
income, or for assuring that any contributions to the Account do not constitute
excess contributions for purposes of Code Section 4973. The disposition of
excess contributions will be made in accordance with instructions from the
Employer, if the Employee has not separated from service, or otherwise, from the
Employee. The Employer or Employee providing such instructions is responsible
for determining that they are consistent with applicable law.
3.7 Limitation on Salary Reduction Contributions.
(a) Employer contributions that are made to the Account pursuant
to a Salary Reduction Agreement shall not exceed the amount
of $10,000, or such greater amounts as may be permitted with
respect to the Employee for the taxable year under Section
402(g)(5) of the Code, reduced by the aggregate amounts
contributed in any calendar year at the election of the
Employee to any qualified cash and deferred arrangement
described in Section 401(k) of the Code, any simplified
employee pension described in Section 408(k)(6) of the Code,
any Simple IRA described in Section 408(p) of the Code, and
any eligible deferred compensation plan described in Section
457 of the Code.
(b) Notwithstanding any provision of this Agreement to the
contrary, if the Employee determines that an amount
contributed during a taxable year to the Account exceeds the
limitation set forth in subsection (a), and no later than
March 1 of the following taxable year notifies the Custodian
in writing of the excess amount the Employee has determined,
then the Custodian shall distribute such excess amount, plus
any income or minus any losses allocable thereto, to the
Employee no later than the following April 15. The Employee
shall have the sole responsibility for timely determining
any excess deferrals to the Account and notifying the
Custodian in accordance with these procedures.
(c) Neither the Custodian nor the Company shall have any
duty or responsibility for determining whether any
contributions to the Account constitute excess
deferrals as described in Section 402(g)(2)(A) of the
Code, or for assuring that any excess deferrals are
timely distributed in accordance with the procedures
of Section 402(g)(2)(A) of the Code.
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3.8 Rollover Contributions and Transfers.
(a) The Employee shall be permitted to make a rollover
contribution to the Account of an amount received by
the Employee that is attributable to participation in
another annuity contract or custodial account
described in Section 403(b) of the Code, provided
such rollover contribution complies with all
requirements of Section 403(b)(8) or Section
408(d)(3)(A)(iii) of the Code, whichever is
applicable.
(b) The Custodian may accept a direct transfer of assets to the
Account on behalf of the Employee from another annuity
contract or custodial account described in Section 403(b) of
the Code to the extent permitted by the Code and the
regulations and rulings thereunder. The Employee shall not
request or initiate a transfer (or a rollover) from a contract
or account containing distribution restrictions that are more
restrictive than those provided in Article V. The Employee
shall not request or initiate a transfer from a contract or
account covered by ERISA, unless the transferee Account is
part of an employee benefit plan which provides distribution
restrictions which meet the requirements of Section 205 of
ERISA and the regulations thereunder with respect to any
amount transferred.
(c) Neither the Custodian nor the Company shall have any
duty or responsibility for determining whether any
rollover contribution or transfer of assets by or on
behalf of the Employee pursuant to this Article 3.8
is a proper rollover contribution or transfer of
assets under the Code, or for the tax treatment to
the Employee of any transfer or rollover.
(d) To the extent permitted under applicable law, the Account
Holder reserves the right to transfer or rollover any or all
of the assets of the Account to such other form of annuity
contract or custodial account described in Section 403(b) of
the Code or to such Individual Retirement Account (IRA) or
other plan established pursuant to Section 408 of the Code as
the Employee may determine, upon written instructions to the
Custodian, in a form acceptable to the Custodian; provided,
however that the Custodian shall have no responsibility for
the tax treatment to the Account Holder of any such transfer
or rollover.
(e) The Custodian shall not be liable for losses arising from the
acts, omissions, or delays or other inaction of any party
transferring assets to the Account or receiving assets
transferred from the Account pursuant to this Article, or for
determining or inquiring into whether any account or annuity
transferring assets to or receiving assets from the Account
complies with all applicable requirements of the Code and IRS
rulings or for the tax or other consequences of noncompliance.
3.9 Manner of Making Contributions. All contributions to the Account
shall be paid directly to the Custodian. Contributions may be made by check or
bank wire. Contributions shall be preceded or accompanied by written
instructions directing the investment of the amount contributed on behalf of the
Employee in accordance with Article 4.1.
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ARTICLE IV
INVESTMENTS
4.1 Investment of Account. All contributions to the Account and all
assets in the Account shall be invested in the Fund(s) in accordance with
instructions given to the Custodian by the Account Holder in a manner acceptable
to the Custodian. Such instructions shall remain in effect until changed by the
Account Holder in a manner acceptable to the Custodian. By giving any such
instructions, the Account Holder will be deemed to have acknowledged receipt of
the then current prospectus of any Fund in which the Account Holder instructs
the Custodian to invest such contributions or assets. If the Custodian receives
any contribution to the Account that is not accompanied by acceptable
instructions directing its investment, the Custodian may hold or return all or a
part of the contribution uninvested (or invested in a money market fund if
available) without liability for loss of income or appreciation pending receipt
of acceptable instructions.
4.2 Investment Advice. The Account Holder agrees that neither the
Custodian nor the Company undertake to provide any advice with respect to the
investment of the Account, and that the responsibility of the Custodian to
invest in shares of a particular Fund pursuant to the directions of the Account
Holder does not constitute an endorsement by the Custodian of that Fund. The
Account Holder will have sole power and responsibility for the investment of the
Account in shares of one or more Funds selected by the Account Holder. Neither
the Custodian nor the Company shall be liable for any loss that results from the
exercise of control over the Account by the Account Holder.
4.3 Account Earnings. All dividends, capital gains distributions and
other earnings received by the Custodian on any shares of a Fund held in the
Account shall be automatically reinvested in additional shares of such Fund.
4.4 Investment Exchanges. The Account Holder may direct the Custodian
to redeem any or all shares of any Fund that are held in the Account and to
reinvest the proceeds in any other Fund available under this Agreement. Any such
directions shall be given in a manner acceptable to the Custodian. If any such
directions are incomplete or ambiguous, the Custodian will not carry out such
directions until the incompleteness or ambiguity is resolved, and the Custodian
will have no liability for loss of income or appreciation pending the resolution
of such incompleteness or ambiguity. By giving any such directions, the Account
Holder will be deemed to have acknowledged receipt of the then current
prospectus of any Fund in which the Account Holder instructs the Custodian to
reinvest such proceeds. Any such exchange transaction shall conform with the
provisions of the current prospectus for the applicable Fund.
4.5 Record Ownership; Voting of Shares. All Fund shares acquired by the
Custodian pursuant to this Agreement shall be registered in the name of the
Custodian or its nominee. The Custodian shall mail or transmit to the Account
Holder's address of record all notices, prospectuses, financial statements,
proxies and proxy soliciting materials relating to the shares held in the
Account. The Custodian shall not vote any such shares except in accordance with
written instructions received from the Account Holder, provided however, that
the Custodian may, in the absence of instructions, vote "present" for the sole
purpose of allowing such shares to be counted for establishment of a quorum at a
shareholder's meeting.
ARTICLE V
DISTRIBUTION OF ASSETS OF ACCOUNT
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5.1 Request for Distribution. The Custodian shall distribute the assets
of the Account to the Employee upon receipt by the Custodian of a written
request for distribution submitted by the Employee, in a form acceptable to the
Custodian, subject to the limitations of Article 5.2.
5.2 Limitations on Distributions. Except as may otherwise be provided
in Article 3.6 or Article 3.7(b), the assets of the Account shall not be
distributed to the Employee before the Employee attains age 59-1/2 unless the
Employee has:
(a) separated from the service of the Employer,
(b) incurred a Disability, or
(c) encountered Financial Hardship.
Any distribution that is made to the Employee for reason of Financial Hardship
shall not exceed the amount of Employer contributions made to the Account
pursuant to a salary reduction agreement with the Employee, excluding earnings
thereon.
5.3 Method of Distribution. Subject to the limitations of this Article
5, the Employee may elect to have distribution of the assets of the Account made
in one or a combination of the following ways:
(a) lump-sum payment; or
(b) monthly, quarterly or annual installment payments
over a period certain not to exceed the life
expectancy of the Employee or the joint and last
survivor life expectancy of the Employee and his or
her Beneficiary in a manner that satisfies the
minimum distribution requirements of Article 5.4.
If no election of the method of distribution is made by the Employee within 30
days of receipt by the Custodian of the written request for distribution
referred to in Article 5.1, the Custodian shall make such distribution to the
Employee in a lump-sum payment of cash.
5.4 Minimum Distribution Requirements Prior to Death of Employee.
(a) Commencement of Distributions. Notwithstanding any provision
-----------------------------
of this Agreement to the contrary, distribution of the
Account shall commence no later than the "Required Beginning
Date". For any Employee who attained age 70-1/2 after
December 31, 1996 or before January 1, 1988, the Required
Beginning Date is the April 1 following the calendar year in
which the Employee attains age 70-1/2 or terminates
employment, whichever is the later. For any Employee who
attained age 70-1/2 in 1988 and had not retired by January 1,
1989, the Required Beginning Date is April 1, 1990. For any
other Employee who attained age 70 and 1/2 after December 31,
1987 and before January 1, 1997, the Required Beginning Date
is the April 1 following the calendar year in which the
Employee attains age 70-1/2 regardless of whether the Employee
has then retired. Notwithstanding the preceding paragraph,
effective January 1, 1997, the Required Beginning Date for an
Employee (other than an Employee who is a five percent owner,
as defined in Section 416 of the Code, of the Employer with
respect to the year in which the Employee attains age 70-1/2)
is the April 1 following the calendar year in which the
Employee attains age 70-1/2 or retires from the Employer,
whichever is later. [If an Employee is still employed by the
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<PAGE>
Employer after January 1, 1997, and he is receiving
required distributions in accordance with the
preceding paragraph but would not be required to
receive distributions under the preceding sentence,
the Employee may file an election with the Custodian
to cease minimum required distributions under the
preceding paragraph; and such Employee may resume
distributions by filing a written request with the
Custodian under Section 5.1 above at the time
required by the preceding sentence. In the case of an
Account which contains Direct Contributions, the
election in the preceding sentence will apply only if
the Employer consents thereto in a written consent
filed with the Custodian.]
(b) Minimum Amounts to be Distributed. The minimum amount
distributed to the Employee for each taxable year,
beginning no later than the Required Beginning Date
under subsection (a) above, must equal or exceed the
minimum distribution required under Sections
401(a)(9) and 403(b)(10) of the Code and must meet
the incidental death benefit requirement of the
regulations under Section 401(a)(9).
5.5 Distribution Upon Death of Employee. In the event the Employee dies
prior to the complete distribution of the assets of the Account, all assets
remaining in the Account shall be distributed to the Employee's Beneficiary in a
lump-sum payment or in monthly, quarterly or annual installment payments over a
specified period as selected in writing by the Beneficiary in accordance with
the following rules:
(a) Where Distribution Had Already Commenced. If
distribution to the Employee had already commenced
and the Employee died after the Employee's Required
Beginning Date, the assets of the Account shall be
distributed to the Beneficiary at least as rapidly as
under the method of distribution in effect prior to
the Employee's death.
(b) Five-Year Rule. If the Employee died before the
Employee's Required Beginning Date, the assets of the
Account shall be distributed to the Beneficiary by
December 31 of the calendar year which contains the
fifth anniversary of the death of the Employee.
(c) Exception for Distributions Over Life Expectancy.
------------------------------------------------
Notwithstanding subsection (b) above, the assets of the
Account may be distributed to the Beneficiary in
installment payments over a period certain not exceeding
the Beneficiary's life expectancy, provided such
distribution commences by
December 31 of the calendar year immediately following the
year of the Employee's death or, if the Beneficiary is the
surviving spouse of the Employee, by December 31 of the
later of (1) the calendar year immediately following the
calendar year in which the Employee died or (2) the
calendar year in which the Employee would have attained
age 70- 1/2.
In determining the minimum amounts required to be distributed under Section 5.4
or this Section 5.5, life expectancies of the Employee and/or the Employee's
spouse may be recalculated annually in accordance with applicable regulations,
but only if the Employee and/or the Employee's spouse specifically so provide in
writing; life expectancies of any person other than the Employee or the
Employee's spouse will not be recalculated. Notwithstanding any provision of
this Agreement to the contrary, to the extent permitted under regulation, ruling
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<PAGE>
procedures or notice of the Internal Revenue Service, the minimum distribution
calculated in accordance with Code sections 403(b)(10) and 401(a)(9) may be
taken from any 403(b) annuity or account of the Employee. The Custodian will
have no responsibility for determining the required time or amount of any
distribution required under such Code sections, but will make distributions only
in accordance with the proper directions by the Account Holder; the Custodian
will have no liability for not making a distribution in the absence of such
directions and may assume that the Account Holder is satisfying any applicable
minimum distribution requirement from another 403(b) annuity or custodial
account. If the Beneficiary dies while receiving payments from the Account, all
remaining assets in the Account shall be distributed as soon as practicable to
the estate of the Beneficiary.
5.6 Designation of Beneficiary. The Employee may from time to time
designate any person, persons or entity as the Beneficiary who shall receive any
undistributed assets held in the Account at the time of the Employee's death.
Any Beneficiary designation by the Employee shall be made on a form prescribed
by the Custodian (or in another written designation acceptable to the
Custodian), and shall be effective only when filed with the Custodian during the
lifetime of the Employee. If the Employee fails to designate a Beneficiary in
the manner provided above, or if the Beneficiary designated by the Employee
predeceases the Employee, the assets of the Account shall be distributed upon
the death of the Employee in the following order of priority: first to the
employee's surviving spouse, if any, and second, to the estate of the Employee.
Notwithstanding the foregoing, if this Agreement constitutes part of an
"employee benefit plan" under ERISA, then the Beneficiary of a married Employee
must be the spouse of the Employee, unless the spouse of the Employee consents
in writing to designation of a different Beneficiary and such consent
acknowledges the effect of the designation, specifies the nonspouse Beneficiary
designated, and is witnessed by a notary public. Furthermore, such a designation
of a nonspouse Beneficiary may be changed to a different nonspouse Beneficiary
only if the spouse of the Employee provides a new consent that meets all
requirements of the preceding sentence.
5.7 Distributions Pursuant to Qualified Domestic Relations Orders or
Other Court Orders. In the case of an Account that is part of an "employee
pension benefit plan" (as defined in ERISA), nothing in this Agreement shall
prohibit distribution to any person in accordance with the terms of a "qualified
domestic relations order" as defined in Section 206(d) of ERISA. The Custodian
will make payments in accordance with an apparently valid order or judgment of a
court binding on the Custodian. The Account Holder will be responsible to direct
the Custodian whether or not to contest, defend against or appeal any such order
or judgment (subject to the last sentence of Section 6.5).
5.8 Payments to Incompetent Persons. If an amount is payable to a
person believed by the Custodian to be a minor or otherwise legally incompetent,
the Custodian may make such payment to the parent, a legal guardian, committee
or other legal representative (however or wherever appointed), or any person
having control or custody of such person, and any such payment will fully
discharge the Custodian to the extent of the payment.
5.9 Direct Rollovers. This Article 5.9 applies to distributions made on
or after January 1, 1993. Notwithstanding any provision of this Agreement to the
contrary that would otherwise limit a distributee's election under this section,
a distributee may elect, at the time and in the manner prescribed by the
Custodian and fund transfer agent, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover. For the purpose of this section, the following
definitions apply:
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(a) Eligible rollover distribution: An eligible rollover is any
distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover
distribution does not include: 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; any distribution to the extent such distribution is
required to comply with the minimum distribution and
incidental death benefit requirements of section 401(a)(9) and
403(b)(10) of the Code; and the portion of any distribution
that is not includible in gross income. An eligible rollover
distribution also does not include any other amounts that may
be excluded under regulations, procedures, notices, or rulings
interpreting the term eligible rollover distribution under
sections 401(a)(31), 402, or 403(b) of the Code.
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in section 408(a) of
the Code, an individual retirement annuity described in
section 408(b) of the Code, or another 403(b) annuity or
403(b)(7) custodial account, that accepts the distributee's
eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account
or individual retirement annuity.
(c) 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.
(d) Direct rollover: A direct rollover is a payment by
the plan to the eligible retirement plan specified by
the distributee.
(e) The Custodian and fund transfer agent may prescribe reasonable
procedures for the election of direct rollovers under this
section, including, but not limited to, requirements that the
distributee provide the Custodian with adequate information,
including, but not limited to: the name of the eligible
retirement plan to which the rollover is to be made; a
representation that the recipient plan is an individual
retirement plan or a 403(b) annuity or 403(b)(7) custodial
account, as appropriate; acknowledgment from the recipient
plan that it will accept the direct rollover; and any other
information necessary to make the direct rollover.
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ARTICLE VI
RESPONSIBILITIES AND DUTIES OF CUSTODIAN
6.1 Asset Retention. The Custodian shall hold all contributions to the
Account which are received by it subject to the terms and conditions of this
Agreement and for the purposes set forth herein. The Custodian shall be
responsible only for such assets as shall actually be received by it.
6.2 Records and Reports. The Custodian shall file such reports with the
Internal Revenue Service as may be required to be filed by the Custodian (not
including such reports as may be required to be filed by the Employer or, if
applicable, the plan administrator) under Treasury Regulations. The Custodian,
the Employer, Employee and Beneficiary shall furnish to one another such
information relevant to the Account as may be required in connection with such
reports. The Custodian will also furnish the Employee (or Beneficiary if the
Employee is deceased) with annual or more frequent reports showing all
transactions in the Account during the period covered by the report and the
number of shares of each Fund held in the Account at the end of the period
covered by such report. Unless the Employee (or Beneficiary, where applicable)
sends the Custodian written objection to any such report within 60 days after
its receipt, the Employee (or Beneficiary, where applicable) shall be deemed to
have approved such report, and in such case the Custodian shall be forever
released and discharged from all liability and accountability to anyone with
respect to all matters and things included therein. The Custodian may seek a
judicial settlement of its accounts. In any such proceeding, the only necessary
party thereto in addition to the Custodian shall be the Employee.
6.3 Limitations on Responsibilities and Duties.
(a) The Custodian shall not be responsible in any way for the
timing, amount or collection of contributions provided for
under this Agreement, the selection of the investments for the
Account, the timing, amount or purpose or propriety of any
distribution made pursuant to Article 5 hereof, or the tax
consequences of any such transaction to the Employee or
Beneficiary, or any other action taken at the direction of the
Employee (or Beneficiary or Employer, where applicable). The
Custodian shall not be obliged to take any action whatsoever
with respect to the Account except upon receipt of directions
in a form acceptable to the Custodian from the Employee (or
Beneficiary or Employer, where applicable). The Custodian
shall be under no obligation to determine the accuracy or
propriety of any such directions and shall be fully protected
in acting in accordance therewith. The Custodian will be
fully protected in acting in reliance upon any document, order
or other direction believed by it to be genuine and properly
given. The Custodian will have no responsibility if the
Custodian does not act in the absence of proper instructions,
or if the Custodian believes any document, order or other
direction is not genuine or properly given, or on the basis of
any incomplete or ambiguous document, order or other direction
until such incompleteness or ambiguity is resolved to the
Custodian's satisfaction.
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(b) The Custodian is an agent appointed by the Company to
perform solely the duties assigned to it under the
Agreement, it being acknowledged that certain of such
duties may be performed by the Custodian in any event
pursuant to one or more other contractual
arrangements or relationships. The Custodian shall
not be deemed to be a fiduciary under ERISA in
carrying out its duties.
(c) The Employer shall be solely responsible for assuring
compliance at all times with the nondiscrimination
requirements of Code section 403(b)(12) (whether or not the
Account holds any Direct Contributions) and the Custodian
shall not be responsible in any way for such compliance. If
the Account holds any Direct Contributions, the Employer shall
be solely responsible for compliance with all applicable
requirements of the Code (including the non-discrimination
requirements of Code Section 403(b)(12) applicable to such
Direct Contributions) and ERISA.
(d) The Custodian will have no liability to the Account Holder
for transferring any amount to a state authority in accordance with any law
relating to escheat or abandoned or unclaimed property.
(e) It is hereby agreed that, subject to the provisions
of applicable law, no person other than the Account
Holder may institute or maintain any action or
proceeding against the Custodian.
6.4 Indemnification of Custodian. The Account Holder and the successors
of the Account Holder, including any executor or administrator of the Account
Holder, shall, to the fullest extent permitted by law, at all times fully
indemnify and save harmless the Custodian, its successors and assigns from any
and all claims, actions, or liabilities arising from investments or
distributions made or actions taken at the direction of the Account Holder, and
from any and all other liability whatsoever (including without limitation all
reasonable expenses incurred in defending against or settlement of such claims,
actions or liabilities) which may arise in connection with this Agreement or the
Account, except liability arising from the gross negligence or willful
misconduct of the Custodian.
6.5 Liability of Custodian. The Custodian's liability under this
Agreement and matters which it contemplates shall be limited to matters arising
from the Custodian's gross negligence or willful misconduct. The Custodian shall
be entitled to rely conclusively upon, and shall be fully protected in any
action or nonaction taken in reliance upon, any written notices or other
communications or instruments believed by the Custodian to be genuine and to
have been properly executed. The Custodian shall not under any circumstances be
responsible for the timing, purpose, or propriety of any contribution or of any
distribution made hereunder, nor shall the Custodian incur any liability or
responsibility for any tax imposed on account of any such contribution or
distribution. The Custodian shall not be obligated or expected to commence or
defend any legal action or proceeding in connection with this Agreement unless
agreed upon by the Custodian and Account Holder, and unless fully indemnified
for so doing to the satisfaction of the Custodian.
ARTICLE VII
FEES AND EXPENSES OF THE CUSTODIAN
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7.1 Compensation of Custodian. In consideration for its services
hereunder, the Custodian shall be entitled to receive the applicable fees
specified in the Application. The Custodian may substitute a revised fee
schedule from time to time. The Custodian shall be entitled to such reasonable
additional fees as it may from time to time determine for services required of
it and not clearly identified on the fee schedule. The Employee acknowledges
that the Custodian's ability to earn income on amounts held in non-interest
bearing accounts has been taken into consideration in establishing the
Custodian's fees. The Employee agrees that the Custodian shall be entitled to
retain any such income as a part of its agreed compensation hereunder, and such
income shall not be or become a part of the Fund.
7.2 Charges Upon the Account. Any income taxes or other taxes of any
kind whatsoever that may be levied or assessed upon or in respect of the Account
(including any transfer taxes incurred in connection with the investment and
reinvestment of Account assets), expenses, fees and administrative costs
incurred by the Custodian in the performance of its duties (including fees for
legal services rendered to the Custodian), and the Custodian's compensation as
determined under Article 7.1 shall constitute a charge upon the assets of the
Account. At the Custodian's option, such fees, taxes or expenses shall be paid
from the Account or by the Account Holder. The Custodian may redeem Fund shares
and use the proceeds of redemption to pay such fees, taxes or expenses, and the
Custodian will have no liability for loss of income or appreciation as a result
of the Custodian's selection of Fund shares to be redeemed under this sentence.
ARTICLE VIII
RESIGNATION OR REMOVAL OF CUSTODIAN
8.1 Resignation or Removal. The Custodian may resign at any time by
written notice to the Company which shall be effective 30 days after delivery
thereof. The Company shall appoint a successor Custodian who shall accept such
appointment in a writing provided to the Custodian and Account Holder within
such 30-day period. The Custodian may be removed by the Company at any time upon
30 days written notice to the Custodian, provided that the Company designates a
successor Custodian that accepts such appointment by a writing provided to the
Account Holder and the Custodian within such 30-day period. Upon such
resignation or removal, the Custodian shall transfer and deliver all assets of
the Account and copies of all records relative thereto to the successor
Custodian appointed by the Company, provided such successor Custodian has in
writing accepted this Agreement as it is or may be then amended. Notwithstanding
the foregoing, the Custodian is authorized to reserve such sum of money as it
may deem advisable for payment of all of its fees, compensation, costs and
expenses, or for payment of any other liability constituting a charge on or
against the assets of the Account or on or against the Custodian, and where
necessary may liquidate shares in the Account for such payments in accordance
with the last sentence of Section 7.2. Any balance of such reserve remaining
after the payment of all such items shall be paid over to the successor
Custodian.
8.2 Liability for Successor's Acts. Upon its resignation or removal,
the Custodian shall not be liable for the acts or omissions of any successor
Custodian. Upon the transfer of assets of the Account to a successor Custodian,
the resigning or removed Custodian shall be relieved of all further liability
with respect to this Agreement, the Account and the assets thereof.
ARTICLE IX
14
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AMENDMENT AND TERMINATION
9.1 Amendment of Agreement.
(a) The Account Holder, Employer, and Custodian hereby
delegate to the Company the power to amend this
Agreement, including any retroactive amendment
necessary for the purpose of conforming the Agreement
to the requirements of the Code. The Company shall
deliver written notice of any such amendment to the
Account Holder, Custodian and any Employer who is
party to this Agreement.
(b) No amendment to this Agreement shall cause or permit:
any part of the assets of the Account to be used for, or
diverted to, purposes other than for the exclusive benefit of the
Employee or Beneficiary, except with regard to payment of the expenses
of the Custodian and the Company as authorized by the
provisions of this Agreement and except to the extent required by law; the
Employee to be deprived of any accrued benefits under this Agreement unless such
amendment is required for the purpose of conforming the Agreement to
the requirements of any law, government regulation or ruling;
or the imposition of any additional duties or obligations on
the Custodian without its written consent.
9.2 Termination of Agreement. This Agreement shall terminate when all
assets in the Account have been distributed or otherwise transferred out of the
Account. Upon completion of such distribution, the Custodian shall be released
from all further liability with respect to all amounts so paid to the extent
permitted by applicable law. However, the provisions of this Agreement
protecting the Custodian or limiting the liability of the Custodian, including
specifically but without implied limitation Section 6.4, will survive the
termination of this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Retirement Plan Provisions Shall Control. In the event
contributions are being made to the Account pursuant to any retirement plan or
program sponsored by the Employer, to the extent any provisions of this
Agreement are inconsistent with such retirement plan or program, the provisions
of the Employer's retirement plan or program shall control, provided:
(a) such provisions are not contrary to the rules and
regulations
under Section 403(b)(7) of the Code; and
(b) such provisions do not impose any additional
responsibilities or duties on the Custodian without
its prior written consent. The Employer shall be
responsible for delivering the most recent copy of
any such retirement plan or program to the Custodian.
10.2 ERISA Requirements. If this Agreement is determined to constitute
part of an "employee benefit plan" established or maintained by the Employer
subject to Title I of ERISA, then the Employer shall be solely responsible for
assuring such employee benefit plan complies at all times with the requirements
of Title I of ERISA. In such a case, the Employer (or a person designated by the
Employer) will be the "plan administrator" of such employee benefit plan for
15
<PAGE>
purposes of ERISA. Neither the Custodian nor the Company will be the "plan
administrator" of such employee benefit plan for purposes of ERISA.
10.3 Exclusive Benefit. The assets of the Account shall not be used
for, or diverted to, purposes other than for the exclusive benefit of the
Employee or his or her Beneficiary. The assets of the Account shall not be
subject to the claims of the creditors of the Employer.
10.4 Nonforfeitability and Nontransferability. The interest of the
Employee in the balance of the Account shall at all times be nonforfeitable and
nontransferable. All rights under this Agreement are enforceable solely by the
Employee or his or her Beneficiary, or any duly authorized representative of the
Employee or Beneficiary.
10.5 Nonalienation. The assets of the Account shall not be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, attachment, garnishment, execution, or levy of any kind,
either voluntary or involuntary, except with regard to payment of expenses of
the Custodian as authorized by the provisions of the Agreement and except to the
extent required by law.
10.6 Notices. Any notice, accounting, or other communication which the
Custodian may give to the Employer or the Account Holder shall be deemed given
when mailed to the Employee at the latest address which has been furnished to
the Custodian. Any notice or other communication which the Employer or Account
Holder may give to the Custodian shall not become effective until actual receipt
of said notice by the Custodian.
10.7 Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of Missouri, to the extent not preempted by Federal
law. No provision of this Agreement shall be construed to conflict with any
provision of an Internal Revenue Service regulation, ruling, release, or other
order which affects, or could affect, the terms of this Agreement or its
compliance with the requirements of Section 403(b)(7) of the Code.
The Account Holder (and, if applicable, the Employer) agree that any
legal action brought against the Custodian by any other party must be brought in
a state or federal court located in the judicial district in which the principal
offices of the Custodian are located.
16
DISTRIBUTION AGREEMENT
AGREEMENT made as of September 17, 1993, between BULL & BEAR SPECIAL
EQUITIES FUND, INC. ("Corporation") , a corporation organized and existing under
the laws of the State of Maryland, and Bull & Bear Service Center , Inc.
("Distributor") , a corporation organized and existing under the laws of the
State of Delaware.
WHEREAS the Corporation is registered under the Investment Company Act
of 1940, as amended (1940 Act") , as an open-end management investment company
and
WHEREAS the Corporation desires to retain the Distributor as principal
distributor in connection with the offering and sale of the shares of common
stock ("Shares") and
WHEREAS the Distributor is willing to act as principal distributor for
each such Series on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Corporation hereby appoints the Distributor as its exclusive
agent to be the principal distributor to sell and arrange for the sale of the
Shares on the terms and for the period set forth in this Agreement. The
Distributor hereby accepts such appointment and agrees to act hereunder.
2. Services and Duties of the Distributor.
(a) The Distributor agrees to sell the Shares on a best efforts basis from time
to time during the term of this Agreement as agent for the Corporation and upon
the terms described in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
registration statement of the Corporation, and any supplements thereto, under
the Securities Act of 1933, as amended (1933 Act") and the 1940 Act.
<PAGE>
(b) Upon the date of this Agreement, the Distributor will hold itself available
to receive purchase orders, satisfactory to the Distributor for Shares and will
accept such orders on behalf of the Corporation as of the time of receipt of
such orders and promptly transmit such orders as are accepted to the
Corporation's transfer agent. Purchase orders shall be deemed effective at the
time and in the manner set forth in the Registration Statement.
(c) The Distributor in its discretion may enter into agreements to sell Shares
to such registered and qualified retail dealers, as it may select. In making
agreements with such dealers, the Distributor shall act only as principal and
not as agent for the Corporation.
(d) The offering price of the Shares of each Series shall be the net asset value
per Share as next determined by the Corporation following receipt of an order at
the Distributor's principal office. The Corporation shall promptly furnish the
Distributor with a statement of each computation of net asset value.
(e) The Distributor shall not be obligated to sell any certain number of Shares.
(f) The Distributor shall provide ongoing shareholder services, which include
responding to shareholder -inquiries, providing shareholders with information on
their investments in the Corporation and any other services now or hereafter
deemed to be appropriate subjects for the payments of "service fees" under
Section 26(d) of the National Association of Securities Dealers, Inc. ("NASD")
Rules of Fair Practice (collectively, "service activities").
(g) The Distributor shall have the right to use any lists of shareholders of the
Corporation or any other lists of investors that it obtains in connection with
its provision of services under this Agreement; provided, however, that the
Distributor shall not sell or knowingly provide such lists of shareholders to
any unaffiliated person unless reasonable payment is made to the Corporation.
3. Authorization to Enter into Dealer--Agreements and to Delegate Duties as
Distributor. The distributor may enter into a dealer agreement with respect to
sales of the Shares or the provision of service activities with any registered
and qualified dealer. In a separate contract or as part of any such dealer
agreement, the Distributor may also delegate to another registered and qualified
dealer ("sub-distributor") any or all of its duties specified in this Agreement,
provided that such separate contract or dealer agreement imposes on the sub-
2
<PAGE>
distributor bound thereby all applicable duties and conditions to which the
Distributor is subject under this Agreement, and further provided that such
separate contract meets all requirements of the 1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by the Distributor hereunder
are not to be deemed exclusive and the Distributor shall be free to furnish
similar services to others so long as its services under this Agreement are not
impaired thereby. Nothing in this Agreement shall limit or restrict the right of
any director, officer or employee of the Distributor, who may also be a
director, officer or employee of the Corporation, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar or a dissimilar
nature.
5. Compensation for Distribution and Service Activities.
(a) As compensation for its activities under this Agreement with respect to the
distribution of Shares, the Distributor shall receive from the Corporation a fee
at the rate and under the terms and conditions of the Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Plan") adopted by the Corporation ,
as such Plan is amended from time to time, and subject to any further
limitations on such fee as the Board may impose.
(b) As compensation for its service activities under this Agreement the
Distributor shall receive from the Corporation a fee at the rate and under the
terms and conditions of the Plan adopted by the Corporation, as such Plan is
amended from time to time, and subject to any further limitations on such fee as
the Board may impose.
(c) The Distributor may re allow any or all of the fees it is paid to such
dealers as the Distributor may from time to time determine.
6. Duties of the Corporation.
(a) The Corporation reserves the right at any time to withdraw offering Shares
of any or all Series by written notice to the Distributor at its principal
office.
(b) The Corporation shall determine in its sole discretion whether certificates
shall be issued with respect to the Shares. If the Corporation has determined
that certificates shall be issued, the Corporation will not cause certificates
representing Shares to be issued unless so requested by shareholders. If such
request is transmitted by the Distributor, the Corporation will
3
<PAGE>
cause certificates evidencing Shares to be issued in such names and
denominations as the Distributor shall from time to time direct.
(c) The Corporation shall keep the Distributor fully informed of its affairs and
shall make available to the Distributor copies of all information, financial
statements, and other papers that the Distributor may reasonably request for use
in connection with the distribution of Shares, including, without limitation,
certified copies of any financial statements prepared for the Corporation by its
independent public accountant and such reasonable number of copies of the most
current prospectus, statement of additional information, and annual and interim
reports of any Series as the Distributor may request, and the Corporation shall
fully cooperate in the efforts of the Distributor to sell and arrange for the
sale of the Shares and in the performance of the Distributor's duties under this
Agreement.
(d) The Corporation shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register
Shares under the 1933 Act to the end that there will be available for sale such
number of Shares as the Distributor may be expected to sell. The Corporation
agrees to file, from time to time, such amendments, reports, and other documents
as may be necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, nor any omission of a material fact
that would make the statements therein misleading.
(e) The Corporation shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Shares for sale under the securities
laws of such states or other jurisdictions as the Distributor and the
Corporation may approve, and, if necessary or appropriate in connection
therewith, to qualify and maintain the qualification of the Corporation as a
broker or dealer in such jurisdictions; provided that the Corporation shall not
be required to amend its Articles of Incorporation or By-Laws to comply with the
laws of any jurisdiction, to maintain an office in any jurisdiction, to change
the terms of the offering of the Shares in any jurisdiction from the terms set
forth in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Shares. The
Distributor shall furnish such information and other material relating to its
affairs and activities as maybe required by the Corporation in connection with
such qualifications.
7. Expenses of the Corporation. The Corporation shall bear all costs and
expenses of registering the Shares with the Securities and Exchange Commission
and state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements
4
<PAGE>
of its counsel and independent public accountant; (ii) the preparation, filing,
and printing of registration statements and/or prospectuses or statements of
additional information required under the federal securities laws; (iii) the
preparation and mailing of annual and interim reports, prospectuses, statements
of additional information, and proxy materials to shareholders; and (iv) the
qualifications of Shares for sale and of the Corporation as a broker or dealer
under the securities laws of such jurisdictions as shall be selected by the
Corporation and the Distributor pursuant to Paragraph 6 (e) hereof, and the
costs and expenses payable to each such jurisdiction for continuing
qualification therein.
8. Expenses of the Distributor. Distributor shall bear all costs and expenses of
(i) preparing, printing and distributing any materials not prepared by the
Corporation and other materials used by the Distributor in connection with the
sale of Shares under this Agreement, including the additional cost of printing
copies of prospectuses, statements of additional information, and annual and
interim shareholder reports other than copies thereof required for distribution
to existing shareholders or for filing with any Federal or state securities
authorities; (ii) any expenses of advertising incurred by the Distributor in
connection with such offering; (iii) the expenses of registration or
qualification of the Distributor as a broker or dealer under federal or state
laws and the expenses of continuing such registration or qualification; and (iv)
all compensation paid to the Distributor's employees and others for selling
Shares, and all expenses of the Distributor, its employees, and others who
engage in or support the sale of Shares as may be incurred in connection with
their sales efforts.
9. Indemnification.
(a) The Corporation agrees to indemnify, defend, and hold the Distributor, its
officers and directors, and any person who controls the Distributor within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands, or liabilities and any counsel
fees incurred in connection therewith) that the Distributor, its officers,
directors, or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities, or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Corporation for
use in the Registration Statement; provided, however, that this indemnity
agreement shall not inure to the
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<PAGE>
benefit of any person who is also an officer or director of the Corporation or
who controls the Corporation within the meaning of Section 15 of the 1933 Act,
unless a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent ' that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect the
Distributor against any liability to the Corporation or to the shareholders of
any Series to which the Distributor would otherwise be subject 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 under this
Agreement. The Corporation shall not be liable to the Distributor under this
Agreement with respect to any claim made against the Distributor or any person
indemnified unless the Distributor or other such person shall have notified the
Corporation in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
claim shall have been served upon the Distributor or such other person (or after
the Distributor or the person shall have received notice of service on any
designated agent). However, failure to notify the Corporation of any claim shall
not relieve the Corporation from any liability that it may have to the
Distributor or any person against whom such action is brought otherwise than on
account of this Agreement. The Corporation shall be entitled to participate at
its own expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any claims subject to this Agreement. If the Corporation
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Corporation and satisfactory to indemnified defendants
in the suit whose approval shall not be unreasonably withheld. In the event that
the Corporation elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Corporation does not elect to assume the
defense of a suit, it will reimburse the indemnified defendants for the
reasonable fees and expenses of any counsel retained by the indemnified
defendants. The Corporation agrees to promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of any of its Shares.
(b) The Distributor shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Corporation in connection with the matters
to which this Agreement relates (including any loss arising out of the receipt
by the Distributor of inadequate consideration in connection with an order to
purchase Shares whether in the form of fraudulent check, draft, or wire; a check
returned for insufficient funds; or any other inadequate consideration
(hereinafter "Check Loss") ) , except a loss resulting from the willful
misfeasance, bad faith, or gross negligence on its part in the performance of
its duties or from
6
<PAGE>
reckless disregard by it of its obligations and duties under this Agreement;
provided, -however, that the Corporation shall not be liable for Check Loss
resulting from willful misfeasance, bad faith, or gross negligence on the part
of the Distributor.
(c) The Distributor agrees to indemnify, defend, and hold the Corporation, its
officers and directors, and any person who controls the Corporation within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities, and expenses (including the cost of
investigating or defending against such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) that the Corporation, its
directors or officers, or any such controlling person may incur under the 1933
Act or under common law or otherwise arising out of or based upon any alleged
untrue statement of a material fact contained in information furnished in
writing by the Distributor to the Corporation for use in the Registration
Statement, arising out of or based upon any alleged omission to state a material
fact in connection with such information required to be stated in the
Registration Statement necessary to make such information not misleading, or
arising out of any agreement between the Distributor and any retail dealer, or
arising out of any supplemental sales literature or advertising used by the
Distributor in connection with its duties under this Agreement. The Distributor
shall be entitled to participate, at its own expense, in the defense or, if it
so elects, to assume the defense of any suit brought to enforce the claim, but
if the Distributor elects to assume the defense, the defense shall be conducted
by counsel chosen by the Distributor and satisfactory to the indemnified
defendants whose approval shall not be unreasonably withheld. In the event that
the Distributor elects to assume the defense of any suit and retain counsel, the
defendants in the suit shall bear the fees and expenses of any additional
counsel retained by them. If the Distributor does not elect to assume the
defense of any suit, it will reimburse the indemnified defendants in the suit
for the reasonable fees and expenses of any counsel retained by them.
10. Services Provided to the Corporation by Employees of the Distributor. Any
person, even though also an officer, director, employee, or agent of the
Distributor who may be or become an officer, director, employee, or agent of the
Corporation, shall be deemed, when rendering services to the Corporation or
acting in any business of the Corporation, to be rendering such services to or
acting for solely the Corporation and not as an officer, director, employee, or
agent or one under the control or direction of the Distributor even though paid
by the Distributor.
11. Duration and Termination.
(a) This Agreement shall become effective upon the date hereabove written,
provided that, with respect to any Series, this
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<PAGE>
Agreement shall not take effect unless such action has first been approved by
vote of a majority of the Board and by vote of a majority of those directors of
the Corporation who are not interested persons of the Corporation, and have no
direct or indirect financial interest in the operation of the Plan relating to
the Series or in any agreements related thereto (all such directors collectively
being referred to herein as the "Independent Directors"), cast in person at a
meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Agreement shall continue
in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall automatically continue for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of the Independent Directors, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or by vote of a majority of the outstanding voting securities
of the Corporation.
(c) Notwithstanding the foregoing, this Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Directors, or by vote of a majority of the outstanding voting
securities of the Corporation on sixty days, written notice to the Distributor
or by the Distributor at any time, without the payment of any penalty, on sixty
days' written notice to the Corporation. This Agreement will automatically
terminate in the event of its assignment.
12. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge,
or termination is sought. 13. Governing Law. This Agreement shall be construed
in accordance with the laws of the State of New York and the 1940 Act. To the
extent that the applicable laws of the State of New York conflict with the
applicable provisions of the 1940 Act, the latter shall control.
14. Notice. Any notice required or permitted to be given by either party to the
other shall be deemed sufficient upon receipt in writing at the other party's
principal offices.
<PAGE>
15. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule, or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors. As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested person," and
"assignment" shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first above
written.
ATTEST: BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:
ATTEST: BULL & BEAR SERVICE CENTER, INC.
BY:
BULL & BEAR SPECIAL EQUITIES FUND, INC.
AMENDED PLAN AND AGREEMENT OF DISTRIBUTION
AMENDED PLAN AND AGREEMENT made this 17th day of September, 1993, by
and between BULL & BEAR SPECIAL EQUITIES FUND, INC., a corporation organized
under the laws of the State of Maryland (the "Fund"), and BULL & BEAR SERVICE
CENTER, INC., a corporation organized under the laws of the State of Delaware
(the "Distributor").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, the Fund has entered into a Distribution Agreement with the
Distributor pursuant to which the Distributor has agreed to serve as the
principle distributor for the Fund; and
NOW, THEREFORE, the Fund hereby adopts this amended plan of
distribution (the 'Amended Plan and Agreement") in accordance with Rule 12b-1
under the Act:
1. As Distributor for the Fund, the Distributor agrees to assist the Fund in
selling its shares and to perform distribution and service activities as defined
herein. In rendering services pursuant to this Amended Plan and Agreement and
the Distribution Agreement, 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 broker 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.
2. A. The Fund is authorized to pay to the Distributor, as compensation for the
Distributor's distribution activities as defined in paragraph 14 hereof, a fee
at the rate of 0.75% on an annualized basis of the average daily net assets of
the Fund. Such distribution fee shall be calculated and accrued daily and paid
monthly or at such other intervals as the Board shall determine.
B. The Fund is further authorized to pay to the Distributor, as
compensation for the Distributor's service activities as defined in paragraph 14
hereof, a fee at the rate of 0.25% on an annualized basis of the average daily
net assets of the Fund. Such service fee shall be calculated and accrued daily
and paid monthly or at such other intervals as the Board shall determine.
C. The Fund may pay a distribution or service fee to the Distributor at
a lesser rate than the fees specified in paragraphs 2A and 2B, respectively, of
this Amended Plan and Agreement, in either case as mutually agreed to by the
Fund and the Distributor.
3. This Amended Plan and Agreement shall not take effect until it has been
approved by the vote of a majority of both (i) those directors of the Fund who
are not "interested persons" of the Fund (as defined in the Act) and have no
direct or indirect financial interest in the operation of this Amended Plan and
Agreement or any agreement
1
<PAGE>
related to it (the "Rule 12b-1 Plan Directors"), and (ii) all of the directors
then in office, cast in person at a meeting (or meetings) called for the purpose
of voting on this Amended Plan and Agreement and such related agreements.
4. This Amended Plan and Agreement shall continue in affect for one year from
its execution or adoption and thereafter for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Amended Plan and Agreement in paragraph 3.
5. The Distributor shall provide to the Board and the Board shall review, at
least quarterly, a written report of the amounts expended under this Amended
Plan and Agreement and the purposes for which such expenditures were made. A
reasonable allocation of overhead and other expenses of the Distributor related
to its distribution activities and service activities, including telephone and
other communication expenses, may be included in the information regarding
amounts expended for such activities.
6. This Amended Plan and Agreement may not be amended to increase materially the
amount of fees provided for in paragraphs 2A and 2B hereof unless such amendment
is approved by a vote of a majority of the outstanding voting securities of the
Fund, and no material amendment to this Amended Plan and Agreement shall be made
unless approved by the Board and the Plan Directors in the manner provided for
approval of this Amended Plan and Agreement in paragraph 3.
7. The amount of the distribution and service fees payable by the Fund to the
Distributor under paragraphs 2A and 2B hereof is not related directly to
expenses incurred by the Distributor on behalf of the Fund in serving as
Distributor, and paragraph 2 hereof does not obligate the Fund to reimburse the
Distributor for such expenses. The distribution and service fees set forth in
paragraphs 2A and 2B hereof will be paid by the Fund to the Distributor unless
and until this Amended Plan and Agreement is terminated or not renewed. If this
Amended Plan and Agreement is terminated or not renewed, any expenses incurred
by the Distributor an behalf of the Fund in excess of payments of the fees
specified in paragraphs 2A and 2B hereof which the Distributor has received or
accrued through the termination date are the sole responsibility and liability
of the Distributor, and are not obligations of the Fund.
8. Any other agreements related to this Amended Plan and Agreement shall not
take effect until approved in the manner provided for approval of this Amended
Plan and Agreement in paragraph 3.
9. The Distributor shall use its best efforts in rendering services to the Fund
hereunder, but in the absence of willful misfeasance, bad faith or gross
negligence in the performance of its duties or reckless disregard of its
obligations and duties hereunder, the Distributor shall not be liable to the
Fund or to any shareholder of the Fund f or any act or failure to act by the
Distributor or any affiliated person of the Distributor or f or any loss
sustained by the Fund or its shareholders.
10. Nothing contained in this Amended Plan and Agreement shall prevent the
Distributor or any affiliated person of the Distributor from performing
services similar to those to be performed hereunder for any other person, firm,
corporation or for its or their own accounts or for the accounts of others.
11. This Amended Plan and Agreement may be terminated at any time by vote of a
majority of the Plan Directors, or by vote of a majority of the outstanding
voting securities of the Fund. This Amended Plan and Agreement shall
automatically terminate in the event of its assignment.
12. While this Amended Plan and Agreement is 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.
2
<PAGE>
13. The Fund shall preserve copies of this Amended Plan and Agreement and any
other agreements related to this Amended Plan and Agreement and all reports made
pursuant to paragraph 5 hereof, for a period of not less than six years from the
date of this Amended Plan and Agreement, or the date of any such agreement or of
any such report, as the case may be, the first two years in an easily accessible
place.
14. For purposes of this Amended Plan and Agreement, "distribution activities"
shall mean any activities in connection with the Distributor's performance of
its services under this Amended Plan and Agreement and the Distribution
Agreement that are not deemed "service activities." "Service activities" shall
mean activities covered by the definition of "service fee" contained in Section
26(b) of the National Association of Securities Dealers, Inc.'s Rules of Fair
Practice, as amended.
15. As used in this Amended Plan and Agreement, the terms: "majority of the
outstanding voting securities," "interested person," and "assignment"
shall have the same meaning as those terms have in the Act.
16. This Amended Plan and Agreement shall be construed in accordance with the
laws of the State of New York and the Act. To the extent the applicable law of
the State of New York, or any at the provisions herein, conflict with the
applicable provisions of the Act, the latter shall control.
IN WITNESS WHEREOF, this Amended Plan and Agreement is executed on the
day and year set forth above in the City and State of New York.
BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:
BULL & BEAR SERVICE CENTER, INC.
By:
AGREEMENT BETWEEN
BULL & BEAR SERVICE CENTER, INC.
AND
HANOVER DIRECT ADVERTISING COMPANY, INC.
AGREEMENT made this 29th day of April, 1993 by and between BULL & BEAR
SERVICE CENTER, INC., a corporation organized under the laws of the State of
Delaware (the "Distributor") and HANOVER DIRECT ADVERTISING COMPANY, INC., a
corporation organized under the laws of the State of Delaware ("HDAC").
WHEREAS, the Distributor and HDAC are affiliates of Bull & Bear
Advisers, Inc. (the "Investment Manager"), the investment manager to Bull &
Bear Special Equities Fund, Inc. (the "Fund"); and
WHEREAS, the Distributor has been retained by the Fund to provide
services and personnel, to render services to the Fund, and to incur expenses on
behalf of the Fund in accordance with a plan and agreement of distribution
pursuant to Rule 12b-1 (the "Plan") adopted by the Fund under the Investment
Company Act of 1940 (the "1940 Act"); and
WHEREAS, HDAC is an advertising agency and desires to provide the
Distributor with marketing services; and
WHEREAS, the Distributor desires to enter into an agreement with HDAC
pursuant to the Plan;
NOW THEREFORE, in accordance with Rule 12b-1 of the 1940 Act, the
Distributor and HDAC hereby enter into this agreement (the "Agreement") on the
following terms and conditions: 1. HDAC will provide services to the Distributor
on behalf of the Fund and the other Bull & Bear Funds.
2. All expenses incurred hereunder shall be deemed expenses incurred under the
Plan.
3. HDAC shall bill the Distributor at standard industry rates, which includes
commissions. HDAC will absorb any of its costs exceeding such commissions.
4. This Agreement shall not take effect until it has been approved by the vote
of a majority of both (i) those directors of the Fund who are not "interested
persons" of the Fund (as defined in the 1940 Act) and have no direct or indirect
financial interest in the operation of this Agreement or the Plan or any other
agreement related to it (the "12b-1 Directors"), and (ii) all of the directors
then in office, cast in person at a meeting (or meetings) called for the purpose
of voting on this-Agreement and such related Agreements.
<PAGE>
5. This Agreement shall continue in effect for one year from its execution or
adoption and thereafter for so long as such continuance is specifically approved
at least annually in the manner provided for approval of the Plan. 6. HDAC shall
provide to the Board of Directors of the Fund and the directors shall review, at
least quarterly, a written report of all expenditures made pursuant to this
Agreement, and the purposes for which such expenditures were made. 7. HDAC shall
use its best efforts in rendering services to the Distributor and the Fund
hereunder, but in the absence of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or reckless disregard of its
obligations and duties hereunder, HDAC shall not be liable to the Distributor or
the Fund or to any shareholder of the Fund for any act or failure to act by HDAC
or any affiliated person of HDAC or for any loss sustained by the Fund or its
shareholders. 8. Nothing contained in this Agreement shall prevent HDAC or any
affiliated person of HDAC from performing services similar to those to be
performed hereunder for any other person, firm, corporation or for its or their
own accounts or for the accounts of others.
9. This Agreement may be terminated at any time by vote of a
<PAGE>
majority of the Rule 12b-1 Directors, or by vote of a majority of the
outstanding voting securities of the Fund. This Agreement shall automatically
terminate in the event of its assignment, as defined in the 1940 Act.
10. This Agreement may not be modified in any manner which would materially
increase the amount of money to be spent pursuant to the Plan and no material
amendment to this Agreement shall be made unless approved in the manner provided
for approval and annual renewal above.
11. The Fund shall preserve copies of this Agreement and all reports made
pursuant to paragraph 6 hereof, for a period of not less than six years from the
date of this Agreement, the first two years in an easily accessible place.
12. This Agreement shall be construed in accordance with the laws of the State
of New York and the applicable provisions of the 1940 Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
IN WITNESS WHEREOF, the Distributor and HDAC have executed this
Agreement on the day and year set forth above in the City and State of New York.
BULL & BEAR SERVICE CENTER, INC.
By:
HANOVER DIRECT ADVERTISING COMPANY, INC.
By:
5
COMPUTATION OF PERFORMANCE QUOTATIONS
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and other distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as investment advisory and
management fees, charged to all shareholder accounts.
CUMULATIVE TOTAL RETURN
Cumulative total return is calculated by finding the cumulative
compounded rate of return over the period indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
CTR=( ERV-P )100
P
CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a hypothetical
$1,000 payment made at the beginning of such period
P = initial payment of $1,000
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and other distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as
investment advisory and management fees, charged to all shareholder accounts.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Annual
Report and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000788422
<NAME> Bull & Bear Special Equities Fund, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<EXCHANGE-RATE> 1.00
<INVESTMENTS-AT-COST> 42,775,935
<INVESTMENTS-AT-VALUE> 47,346,928
<RECEIVABLES> 9,484,184
<ASSETS-OTHER> 5,624
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 56,836,736
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,063,335
<TOTAL-LIABILITIES> 12,063,335
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,138,286
<SHARES-COMMON-STOCK> 1,915,255
<SHARES-COMMON-PRIOR> 2,171,070
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 64,122
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,570,993
<NET-ASSETS> 44,773,401
<DIVIDEND-INCOME> 453,428
<INTEREST-INCOME> 103,182
<OTHER-INCOME> 0
<EXPENSES-NET> 1,325,444
<NET-INVESTMENT-INCOME> (768,834)
<REALIZED-GAINS-CURRENT> 1,989,972
<APPREC-INCREASE-CURRENT> 1,258,458
<NET-CHANGE-FROM-OPS> 2,479,596
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,388,183
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 190,298
<NUMBER-OF-SHARES-REDEEMED> 503,800
<SHARES-REINVESTED> 57,687
<NET-CHANGE-IN-ASSETS> (5,066,518)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (40,477)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 403,809
<INTEREST-EXPENSE> 142,106
<GROSS-EXPENSE> 655,846
<AVERAGE-NET-ASSETS> 47,171,875
<PER-SHARE-NAV-BEGIN> 22.96
<PER-SHARE-NII> (0.38)
<PER-SHARE-GAIN-APPREC> 1.55
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (.75)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 23.38
<EXPENSE-RATIO> 2.53
<AVG-DEBT-OUTSTANDING> 3,462,218
<AVG-DEBT-PER-SHARE> 1.74
</TABLE>
